ASC proposes prospectus exemption for distributions to retail investors relying on investment advice

23 septembre 2015

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The Alberta Securities Commission (ASC) has proposed a new prospectus exemption that would allow issuers listed on a Canadian exchange to distribute securities to investors who have obtained advice about the suitability of the investment from an investment dealer.

The proposed exemption is similar to the prospectus exemption proposed by securities regulators in British Columbia, New Brunswick and Saskatchewan in April 2015.  Certain conditions have to be met for a distribution to be made under the proposed exemption: 

  1. The issuer must be a reporting issuer in Canada, have a class of securities listed on a Canadian stock exchange and be current in its continuous disclosure obligations. 
  2. The offering can only consist of a listed security or a unit comprised of a listed security and a warrant to acquire another listed security, or another security convertible into a listed security at the security holder’s sole discretion. 
  3. The news release announcing the offering must disclose reasonable details of the distribution, including the use of proceeds, and a statement that there is no material fact or material change that has not been generally disclosed.
  4. If an issuer voluntarily provides an offering document investors will have certain rights of action in the event of a misrepresentation in the offering document. 

The investor must obtain advice regarding the suitability of the investment from an investment dealer.

According to the ASC, retail investors that are neither accredited investors nor existing security holders have limited access to private placements.  The prospectus exemptions that would generally be available to such investors require an offering document.  The ASC argues that few issuers use these prospectus exemptions because of the time and cost involved in preparing an offering document.  As a result, issuers are left with a limited ability to reach retail investors and retail investors are excluded from the price discounts and deal sweeteners available to private placement investors.  In the ASC’s view, the proposed exemption addresses these concerns.

The proposed rule would also repeal ASC Rule 45-513 Exemption for Distribution to Existing Security Holders and consolidate the existing security holder prospectus exemption and the proposed exemption within proposed ASC Rule 45-516.  For further information, please see the ASC Notice and Request for Comment on Proposed ASC Rule 45-516 Prospectus Exemptions for Retail Investors and Existing Security Holders.

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