Proposed Listing Representation Relief in Offering Documents for Foreign Issuers Doing Private Placements into Canada

By Alixe Cormick and Brian Koscak

“… and we are going to list our securities on the NYSE …”  

In our prior article (the Prior Article), we discussed how securities laws in Canada prohibit making written or oral representations that: (a) a security will be listed on an exchange or quoted on a quotation and trade reporting system; or (b) an application has been or will be made to list the security, unless an issuer meets certain conditions or obtains permission or authorization from all applicable securities regulators (a listing representation).

Our Prior Article focused primarily on Canadian resident issuers. This article discusses listing representations in an offering document made by a foreign issuer (e.g., U.S. issuers) offering securities into Canada as part of an international financing and recent so called ‘wrapper’ relief proposals published by various Canadian securities regulators.

Background

Foreign issuers regularly use a prospectus or private placement memorandum (PPM) they have prepared under the securities laws of their home jurisdiction to sell securities to Canadian investors in reliance upon certain prospectus exemptions. These foreign issuers attach a document called a wrapper, containing prescribed Canadian disclosure and other optional disclosure to the face of the PPM. The wrapper, with the PPM, constitutes an offering memorandum or offering document under certain securities laws in Canada.

It is common for a PPM to contain a listing representation. Many foreign securities laws do not prohibit making a listing representation provided it is factually correct. Similarly, many foreign exchanges and markets are not required to provide any written consent, conditional approval or non-objection regarding a proposed listing representation. However, this is not the case in Canada.

In Canada, all foreign issuers wishing to sell securities to Canadian investors must make an exemptive relief application to the applicable Canadian securities regulator in the jurisdictions where the offering is being made if they intend to include a listing representation involving “designated foreign securities” (defined below) in their Canadian offering document. Securities regulators in Canada will grant permission or authorization to include a listing representation involving designated foreign securities in a foreign issuer’s Canadian offering document provided it is factually correct and is made in compliance with the laws and rules of the exchange or quotation and trade reporting system referred to in the listing representation. However, given the short time-frames for U.S. and international offerings, making such an application adds to the time and cost associated with extending an offering into Canada and its need may cause a foreign issuer to avoid Canada altogether. This limits investment opportunities for Canadian investors and unduly burdens the issuer and Canadian securities regulators with what is arguably ‘standard’ exemptive relief.

Proposed listing representation relief for foreign issuers – All Canadian jurisdictions except ON and BC

On November 28, 2013, all members of the Canadian Securities Administrators (the CSA), other than Ontario and British Columbia, published for comment Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions (MI 45-107). MI 45-107 seeks to codify certain discretionary exemptive relief that the CSA has previously granted foreign issuers in connection with U.S. and international private placement offerings to Canadian institutional and sophisticated investors.

The relief proposed under MI 45-107 extends to other matters involving private placement offerings by foreign issuers to Canadian investors. For purposes of this article, MI 45-107 seeks to eliminate the need for foreign issuers to make an exemptive relief application to include a listing representation in their Canadian offering document.

To rely on the proposed listing representation relief under MI 45-107, a foreign issuer must be undertaking a private placement of “designated foreign securities” to “permitted clients”.

Designated foreign securities are securities offered primarily in a jurisdiction outside of Canada 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; and
  • has a majority of its executive officers and directors resident outside of Canada; or
  • securities issued or guaranteed by the government of a foreign jurisdiction.

Permitted clients include certain types of government entities, individuals who have financial assets exceeding $5 million and a person or company (other than an individual or investment fund) that has net assets of at least $25 million (See the definition of “permitted client” in National Instrument 31- 103 Registration Requirements, Exemptions (NI 31-103)).

The exemption from the listing representation prohibition is subject to the representation not containing a misrepresentation and in compliance with the rules of the exchange.

Ontario and British Columbia

Ontario and British Columbia do not plan to adopt MI 45-107. The Ontario Securities Commission published OSC Rule 45-501 Ontario Prospectus and Registration Exemptions on April 25, 2013 for public comment, which addressed the same issues as MI 45-107.  It also included a listing representation exception involving designated foreign securities.  The Ontario comment period ended on July 24, 2013.

No change in law is required in British Columbia.  As discussed in our Prior Article, British Columbia Securities Commission Notice 47-701 Blanket Permission Under Section 50(1)(c) of the Securities Act permits factually correct  listing representation disclosure.

In the meantime … status quo

In the meantime, foreign issuers must maintain the status quo until the CSA members, other than British Columbia, make the appropriate changes to their respective securities laws.

Lastly, the public comment period for MI 45-107 ends on February 26, 2014 and readers are encouraged to provide their comments to CSA members.