Regulators provide limited relief to select applicants from certain disclosure requirements applicable to private placements and propose related rule amendments

April 25, 2013

On April 23, 2013, the Ontario Securities Commission issued an exemptive relief order exempting certain U.S. broker-dealers from having to provide certain stipulated “wrapper” disclosure in connection with specified private placements. Typically, when securities are offered to Canadian purchasers on a prospectus exempt basis and an offering document constituting an “offering memorandum” is provided, disclosure that is required to be included in the offering memorandum under Canadian securities laws is provided in a Canadian wrapper.

Under the Order, the OSC (on behalf of other Canadian regulators) has exempted the applicant dealers from the requirement to include certain prescribed disclosure relating to statutory rights of action and underwriting conflicts. Notably, the relief is only available if the purchaser is a “permitted client” (as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations), the securities are offered primarily in a foreign jurisdiction and (i) the issuer is incorporated, formed or created under the laws of a foreign jurisdiction, has its head office or principal executive office outside of Canada and is not a reporting issuer in Canada, or (ii) the securities are issued or guaranteed by a foreign government.

Additional conditions include the requirement to deliver a prescribed form of notice to each prospective purchaser and obtain from the purchaser a written acknowledgement of and consent to the dealer’s reliance on the exemption, compliance in certain circumstances with disclosure requirements applicable to U.S. registered offerings, reporting on a monthly basis of the applicant’s reliance on the Order and filing of a report of trade in electronic format only. The Director of the OSC has also separately given the applicants permission to make certain (otherwise prohibited) listing representations and acknowledged that the requirement to notify purchasers of the collection of personal information only applies to individuals.

The relief will take effect sixty days after April 23, 2013 and will expire on the earlier of three years after the effective date or the date on which amendments are made to relevant securities legislation to provide substantially similar relief.

In the same context, earlier today the OSC published proposed amendments to OSC Rule 45-501 Ontario Prospectus Registration Exemptions and National Instrument 45-106 Prospectus and Registration Exemptions that would codify, to a large extent, the relief granted under the Order.

The proposed amendments would provide exemptions from the requirement to disclose the statutory rights of action available under the Securities Act (Ontario), the prohibition against making certain representations regarding listing or quotation of securities, and the requirement to provide notice to and obtain authorization from non-individual purchasers regarding the collection of personal information. Reliance on these exemptions would be subject to conditions similar to those set out in the Order. Relief from disclosure requirements relating to underwriting conflicts is not included in the proposals but will be separately considered.

While other Canadian regulators also confer statutory rights of action for misrepresentations in offering memoranda, disclosure of such rights is only mandated, in addition to Ontario, in Saskatchewan, Nova Scotia and New Brunswick. It remains to be seen whether the securities regulators in these jurisdictions will follow the OSC’s lead.

The OSC is accepting comments on the proposed amendments until July 24, 2013.

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