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Amendments to National Instrument 45-106: Prospectus and Registration Exemptions – Exemption for Distributing Securities to Existing Security Holders [Completed]

Issued in March 2014.

Transitional provisions:

Not applicable.

Last updated:

March 2014

Overview

On March 13, 2014, the securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Yukon, Northwest Territories, Nunavut, and Prince Edward Island 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. The prospectus exemption is being made by means of a local exemption in each participating province, rather than as an amendment to National Instrument 45-106, Prospectus and Registration Exemptions.

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: (a) 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 (b) the in­vestor will have rights of ac­tion in the event of a mis­rep­re­sen­ta­tion in the is­suer’s con­tin­u­ous dis­clo­sure record.

Of note, on March 20, 2014, the Ontario Securities Commission (OSC) also published for comment a proposal for an existing security holder prospectus exemption that would allow public companies listed on the TSX, TSX-V or CSE to raise capital from their existing security holders based on their public disclosure record.  The OSC adopted this exemption on November 27, 2014. For further details, refer to this OSC Project.

Recent activities

March 2014

On March 13, 2014, the securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Yukon, Northwest Territories, Nunavut, and Prince Edward Island 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.

November 2013

On November 21, 2013, the securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Yukon, Northwest Territories, Nunavut, and Prince Edward Island published for comment a proposed prospectus exemption that would, subject to certain conditions, allow issuers listed on the TSX Venture Exchange (TSX-V) to raise money by distributing securities to their existing security holders.


 

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