The securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Yukon, Northwest Territories, Nunavut, and Prince Edward Island have adopted a prospectus exemption that, subject to certain conditions, will allow issuers listed on the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSX-V), and the Canadian Securities Exchange (CSE) to raise money by distributing securities to their existing security holders.
On November 21, 2013, those jurisdictions published the proposed exemption in Multilateral CSA Notice 45-312 – Proposed Prospectus Exemption for Distributions to Existing Security Holders. The CSA received 241 comment letters from a wide range of market participants, including issuers, registrants, investors, law firms, and advocacy groups.
“The comments we received reflected overwhelming support for the proposed exemption, with many agreeing that it will reduce costs for investors and provide issuers with access to an additional source of financing,” said Bill Rice chair of the CSA and chair and CEO of the Alberta Securities Commission. “Certain changes to the exemption were made in response to suggestions that were submitted, including expanding it to include issuers listed on the TSX and CSE.”
Prior to the adoption of this exemption, retail security holders who wanted to make an additional investment in an issuer they had already invested in usually had to buy the securities on the secondary market at the market price and pay brokerage fees. This meant that issuers did not have access to their existing shareholders as an additional source of capital.
In order to acquire securities under the exemption, an existing security holder must confirm in writing that they are a security holder of the issuer. This limits use of the exemption to investors that have already made an investment decision in the issuer. Other key conditions designed for investor protection include:
- unless an investor has obtained advice regarding the suitability of the investment from a registered investment dealer, the aggregate amount invested by the investor in any one issuer in the last 12 months under the exemption must not be more than $15,000, and
- the investor will have rights of action in the event of a misrepresentation in the issuer’s continuous disclosure record.
A copy of the CSA notice and exemption is available on participating CSA member websites.
The Ontario Securities Commission announced on December 4, 2013 that it would publish for comment four new capital raising prospectus exemptions in the first quarter of 2014, including a proposed prospectus exemption for distributions to existing security holders. It intends to publish the proposed prospectus exemptions on or around March 20, 2014.
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