OTC issuer disclosure rules effective July 31, 2012

May 10, 2012

The Canadian Securities Administrators, except for the OSC, today released Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets, intended to improve disclosure by issuers whose securities are quoted in U.S. OTC markets and with a significant connection to a Canadian jurisdiction. The instrument is also intended to discourage the manufacture and sale in Canada of U.S. OTC quoted shell companies that can be used for abusive purposes.

As we discussed in our post describing a draft version of the rule published in June 2011, a significant connection to a Canadian jurisdiction will be found to exist where (i) the OTC issuer's business is directed or administered in or from Canada; (ii) promotional activities are conducted from Canada; or (iii) the issuer distributes securities in Canada prior to obtaining a ticker symbol for the purpose of having its securities quoted on an OTC market in the U.S. and those securities become the issuer's OTC-quoted securities. Under the new rules, issuers subject to the instrument will generally have to comply with the continuous disclosure regime to which venture issuers are subject and, additionally, file annual information forms (which venture issuers may do voluntarily, but are not required to). 

The instrument follows British Columbia's adoption of a local rule regulating issuers quoted in U.S. OTC markets and that have a significant connection to B.C. Having found that the adoption of the B.C. rule resulted in OTC issuers migrating to other Canadian jurisdictions, the CSA released a proposed draft of the multilateral instrument in June 2011. The final version released today reflects the comments received to the proposed draft. Assuming ministerial approvals are obtained, the OTC rule will come into force on July 31, 2012.

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