Investment Dealer Prospectus Exemption a Potential Boon to Retail Investors

Posted by David Kandestin, Associate.

Securities regulators in Alberta, British Columbia, Manitoba, New Brunswick and Saskatchewan announced their adoption of a prospectus exemption that will allow issuers listed on a Canadian stock exchange to raise money by distributing securities without a prescribed offering document.

For retail investors, the BCSC noted that data gathered by the Canadian Securities Administrators indicates that Canadian issuers rarely used the previously available prospectus exemptions because of the time and cost involved in preparing the required offering document. As a result, retail investors had scarcer opportunities to participate in the more favourable terms generally offered through private placements, such as a discount to the current market price allowed under exchange policies.

The new exemption is intended to facilitate capital raising for listed issuers and foster participation of retail investors in private placements, while maintaining appropriate investor protection.

Under the exemption, an investor must obtain advice regarding the suitability of the investment from an investment dealer, who must meet its know-your-client and know-your-product obligations when determining the suitability of the investment.

Other key conditions include:

  • the issuer must be a reporting issuer in at least one jurisdiction of Canada and have securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange, or Aequitas Neo Exchange Inc.;
  • the issuer’s continuous disclosure is up-to-date and complies with applicable securities legislation;
  • the issuer must issue a news release containing information about the proposed distribution and use of proceeds, and a statement that there is no material fact or material change about the issuer that has not been generally disclosed; and
  • in British Columbia, Saskatchewan, Manitoba and New Brunswick, the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer’s continuous disclosure record. Alberta provides purchasers with a statutory right of action under Part 17.01 of the Securities Act (Alberta).

First trades of securities distributed under this exemption will be subject to a four month hold from the date of issuance.

The CSA notice describing the investment dealer prospectus exemption can be found here.

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