Proposed Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions (“Proposed MI 45-107”)
On November 28, 2013 all of the members of the Canadian Securities Administrators (“CSA”), other than the securities commissions in Ontario and British Columbia (“participating jurisdictions”), published proposed Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions (“Proposed MI 45-107”).
Proposed MI 45-107 is not being proposed in Ontario and British Columbia as in those jurisdictions existing or proposed instruments address or are expected to address the issues discussed below.¹
Proposed MI 45-107 proposes exemptions from certain requirements of the securities legislation of the participating jurisdictions that apply in the context of prospectus exempt financings, conducted by issuers and by investment dealers or international dealers acting as underwriters, offered to institutional and other sophisticated investors in Canada.
The purpose of proposed MI 45-107 is two-fold:
First, in the context of the international financings, it provides an exemption from the statutory prohibition against making a representation about the intention to list securities on an exchange or market.
Second, it provides an exemption from the requirement that applies in some of the participating jurisdictions, that an offering document used in connection with a prospectus exempt distribution include a prescribed statement with respect to certain statutory rights of action.
Proposed MI 45-107 will codify certain discretionary exemptive relief that the CSA has been granting in the context of U.S. and international offerings of securities to Canadian institutional and other sophisticated investors and consequently alleviate the need for these discretionary exemption applications.
Listing representation prohibition
Currently the participating jurisdictions have certain prohibitions on listing representations that prohibit a person or company, with the intention of effecting a trade in a security, from making a representation that the security will be listed on an exchange or quoted on a quotation and trade reporting system, or that application has been or will be made to list the security, unless consent or authorization, as applicable, is first obtained (the listing representation prohibition).
Certain exceptions to this prohibition currently exist in most participating jurisdictions. These include:
- where an application has already been made to list or quote the securities and other securities of the same issuer are already listed on an exchange or quoted on a quotation and trade reporting system, or
- where the exchange or quotation and trade reporting system has granted approval to the listing or quoting of the securities, conditional or otherwise, or has consented to, or indicated that it does not object to, the representation.
- Proposed MI 45-107 would provide an exemption from the listing representation prohibition provided that the offering is an offering of “designated foreign securities” made only to “permitted clients”.
Designated foreign securities are defined in proposed MI 45-107 as securities offered primarily in a foreign jurisdiction that are either:
- issued by an issuer that is incorporated, formed or created under the laws of a foreign jurisdiction; is not a reporting issuer in a jurisdiction of Canada, has its head office outside of Canada, andhas a majority of its executive officers and directors resident outside of Canada;
- securities that are issued or guaranteed by the government of a foreign jurisdiction.The term “permitted client” has the same meaning as in NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.²
Offering document disclosure
Securities legislation in certain of the participating jurisdictions requires that where an “offering memorandum” (as defined in the securities legislation of those jurisdictions) is provided to a prospective purchaser in connection with a distribution to which statutory rights of action apply, these statutory rights must be described in the offering memorandum (the statutory rights of action disclosure requirement).
Where an offering memorandum contains a misrepresentation, a purchaser who purchased a security offered by the offering memorandum during the period of distribution has a right of action for damages or rescission against the issuer or selling security holder.
Proposed MI 45-107 would provide an exemption from the statutory rights of action disclosure requirement in the following circumstances:
- The offering is an offering of “designated foreign securities”
- It is made only to “permitted clients”, and
- Certain alternative disclosure of these rights of action is provided.
The exemption from the statutory rights of action disclosure requirement is conditional on the disclosure being provided in alternative ways.
The disclosure can be provided in a one-time notice that has been delivered to the permitted client by an investment dealer or international dealer acting as underwriter that is signed by the permitted client.
This notice will explain that, with respect to the current and future distributions of designated foreign securities by the foreign issuer, the purchaser will have certain statutory rights in the event of a misrepresentation. In the case of a one-time notice, a description of such rights will not be provided at the time of each offering of designated foreign securities by the foreign issuer to the purchaser.
Proposed MI 45-107 does not affect the statutory rights of action available to purchasers of securities in the applicable jurisdictions.
The effect of the Proposed MI 45-107 is to eliminate the need for a “wrapper” setting out the Canada specific disclosure in the foreign offering document.
The comment period closed on February 26, 2014.
The CSA is also proposing amendments to NI 33-105 Underwriting Conflicts (“NI 33-105”) to provide relief, in the context of these same U.S. and international offerings to institutional and other sophisticated investors, from the requirement in NI 33-105 to provide disclosure relating to connected and related issuers in a prospectus-exempt disclosure document. The proposed exemption from NI 33-105 will only apply where offerings by foreign issuers provide comparable alternative disclosure to purchasers.