BCSC Eases Rules for Securities Issued to Non-Residents

Bernard Pinsky, Q.C.
Articles

On October 31, 2017, the British Columbia Securities Commission (“BCSC”) revoked and replaced BC Instrument 72-503 Distribution of Securities outside British Columbia (BCI 72-503). BCI 72-503 provides exemptions from the prospectus requirement to allow distributions by issuers located in BC to purchasers outside of BC.
Under securities legislation in BC, when an issuer distributes securities from BC, it must comply with the prospectus requirement of the BC Securities Act or rely on an exemption from that requirement. BC Interpretation Note 72-702 Distribution of Securities to Persons Outside British Columbia provides guidance on whether a distribution is made from BC.
As capital markets become more international, cross-border transactions are becoming more frequent. Requiring a prospectus in BC adds time and cost to cross-border transactions that may not be justified when there are no purchasers in BC and the issuer is complying with other securities laws. Under the new BCI 72-503, BC now provides additional exemptions to prospectus requirements. There are three exemptions: a private placement exemption, a public offering exemption, and a testing of the waters exemption.
The key conditions of the private placement exemption are:
• the distribution must be made to a person not resident in BC;
• the issuer must comply with the securities law requirements in the jurisdiction where the purchaser is resident; and
• the first trade is subject to resale restrictions.
The key conditions of the public offering exemption are:
• the distribution must be made either to a purchaser that is not resident in Canada, or on or through the facilities of an exchange or market outside Canada (provided the issuer or selling security holder have no reason to believe that the purchaser is resident in Canada);
• in connection with the distribution, the issuer must have an effective registration statement under U.S. federal securities laws, or a document similar to a final prospectus that has been receipted or otherwise approved in accordance with the securities laws of a foreign jurisdiction; and
• the issuer must provide the BCSC with notice of the transaction either by filing the foreign prospectus on SEDAR if the issuer is a reporting issuer or by otherwise filing an exempt distribution report.
The testing of the waters exemption will allow BC-based issuers to use the U.S. testing the waters provisions in order to ascertain interest in a U.S. public offering. The exemption is subject to the following key conditions:
• the oral and written communications are made with a person that is not resident in Canada;
• the communications are permitted under the U.S. testing of the waters provisions in section 5(d) of the U.S. Securities Act of 1933; and
• the issuer complies with the securities law requirements in the jurisdiction where the purchaser is resident.
The new Companion Policy 72-503CP Distribution of Securities outside British Columbia provides guidance on using BCI 72-503.