On April 16, 2015, the securities regulatory authorities in British Columbia, New Brunswick and Saskatchewan published for comment a proposed prospectus exemption that would, subject to certain conditions, allow issuers listed on a Canadian exchange to raise money by distributing securities to investors who have obtained advice about the suitability of the investment from an investment dealer.

One of the main requirements of securities legislation is that an issuer distributing a security must file and obtain a receipt for a prospectus. However, securities legislation provides exemptions from the prospectus requirement in circumstances where a prospectus is not necessary (because of the investor’s knowledge, sophistication or relationship with principals of the issuer). The most commonly used prospectus exemption is the accredited investor exemption.

If an issuer wants to raise capital from investors that do not qualify for an existing exemption from the prospectus requirement, the principal prospectus exemptions available require an offering document. However, data from the regulatory authorities proposing the foregoing exemption indicates that Canadian issuers (because of the time and cost to prepare the required offering document) do not generally use these exemptions to raise capital from retail investors. Therefore, retail investors have limited opportunity to invest directly in issuers and participate in more favorable terms generally offered through private placements.

For more details of the proposed exemption allowing retail investors to invest if they obtain investment dealer advice, and the proposed exemption’s key conditions, please click here.

The regulatory authorities specifically want comments/feedback in respect of the following questions:

1. If you are an issuer listed on one of the proposed exchanges, will you use the proposed exemption?
2. One of the conditions of the proposed exemption is that the investor must receive suitability advice from a registered investment dealer. Should the regulatory authorities consider expanding this provision so that investors could also receive suitability advice from a registered exempt market dealer?
3. The regulatory authorities are currently proposing that the exemption be subject to the same resale restrictions as most other capital raising exemptions (i.e., a four month restricted period). Do you agree that a four month hold period is appropriate for this exemption? If not, please explain.
4. Do you agree that the removal of the prospectus requirement for offerings under the proposed exemption maintains sufficient investor protection? If not, please explain.

Send your responses to:

Leslie Rose
Senior Legal Counsel, Corporate Finance
British Columbia Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia V7Y 1L2
Fax: 604-899-6581 Email: lrose@bcsc.bc.ca