New exempt market disclosure obligations - impact on investment funds

July 15, 2016

The new harmonized Form 45-106F1 Report of Exempt Distribution (the New Report) that came into effect on June 30, 2016 imposes new disclosure obligations, including specific requirements applicable only to investment funds. As previously discussed, on April 7, 2016, the Canadian Securities Administrators (the CSA) announced amendments to National Instrument 45-106 Prospectus Exemptions (NI 45-106) which introduce the New Report. As was the case for the prior form of report, the New Report applies to all types of public and private issuers in all Canadian jurisdictions and, as a new requirement, is to be filed electronically.

New disclosure requirements

Investment funds covered by the reporting obligation include both public and private non-redeemable funds and mutual funds, including non-Canadian funds that distribute securities to Canadian investors. Some of the enhanced disclosure requirements for investment funds in the New Report include:

  • Net proceeds by each jurisdiction where the distribution takes place
  • Type of investment fund
  • Net asset value as of the most recent NAV calculation
  • Legal entity identifiers (LEIs), if applicable
  • Firm National Registration Database or “NRD” number, if applicable

Currently, investment funds are required to disclose sales of investment fund securities in a report of exempt distribution.  The New Report will require disclosure of the net proceeds of the offering by jurisdiction where the distribution takes place, being the gross proceeds from the distribution for which the report is being filed, less the gross redemptions relating to such distribution. While commenters raised concerns with regard to the collection of redemption data, the CSA has stated that information about a fund on a net proceeds basis provides the CSA with a more accurate picture of the exempt market for these types of issuers, given the redemption features offered by most investment funds. As a result of this new reporting requirement, investments funds will need to track redemption data to ensure accurate and timely filing of the New Report when reporting at year-end. Alternatively, investment funds may wish to report exempt distributions as they occur, effectively reducing the period during which there may be redemptions. 

Under the New Report, investment funds will also be required to identify the type of investment fund that most accurately identifies the issuer from the following categories: money market, equity, fixed income, balanced, alternative strategies or other. Similarly, investment funds are required to indicate whether the fund invests primarily in other investment funds or is an “Undertaking for the Collective Investment of Transferable Securities fund” (UCITs Fund).  Net asset value (NAV) is required to be disclosed as at the date of the most recent NAV calculation.

With respect to currency conversion, the New Report requires that foreign currency be converted using the Bank of Canada’s noon rate on the distribution date. Investment funds in continuous distribution who distribute securities in a foreign currency are required to convert the currency to Canadian dollars using the average daily noon exchange rate of the Bank of Canada for the distribution period covered by the report.

Effective date and transition period

Investment funds relying on certain prospectus exemptions will still have the option to file reports of exempt distribution annually (an option that has been and will continue to be available only to investment funds), however annual reports will now be required to be filed within 30 days of the end of the calendar year as opposed to the financial year-end of the investment fund. A transition period has been provided to allow investment funds who file annually to file either the existing form of report or the New Report for distributions that occur before January 1, 2017. For distributions that occur on or after January 1, 2017, all investment funds filing annually must file the New Report.  Investment funds that have a financial year ending on a date other than December 31, have the option of using either the existing report or the New Report for the stub period to December 31, 2016.

For further information, please see CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution (April 7, 2016); CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions (April 7, 2016); and Multilateral CSA Staff Notice 13-323 Frequently Asked Questions About Making Exempt Market Offering and Disclosure Filings on SEDAR (April 21, 2016).

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