As part of its drive to for increased transparency and to encourage compliance in the exempt market, the Ontario Securities Commission has published the AFS Non-Delivery List (the AFS List), a list of non-reporting issuers that have relied on the Offering Memorandum exemption (the OM Exemption) in Ontario but have not delivered annual financial statements to the OSC. Delivery of financial statements to the OSC is a condition of the OM exemption.
The publication of the AFS List on the OSC website is one part of the regulator’s heightened emphasis on the exempt market, a segment of the capital markets where securities can be sold without the protections associated with a prospectus. Exempt market dealers (EMDs) rely upon the OM Exemption, as detailed in section 2.9 of National Instrument 45-106 Prospectus Exemptions.
The regulator’s goal is to increase transparency for retail investors participating in the exempt market and who may be exposed to heightened investment risks, such as the risk of loss, limited liquidity, and lack of information.
At the same time, the OSC will continue monitoring EMDs and their use of the OM Exemption to ensure they align with the regulator’s expectations. Additionally, the OSC’s Registration, Inspections and Examinations division (RIE) will examine EMDs involved in the distribution of certain non-reporting issuers that failed to deliver their annual financial statements to the OSC. RIE’s examinations will consider the know-your-product practices of registrants when distributing securities of these issuers. As part of its ongoing work to oversee EMDs, RIE recently identified significant compliance deficiencies that led to the suspension of an EMD and its chief compliance officer.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.