Canadian National Regulators Propose to Adopt OTC Issuer Rule


The Canadian Securities Administrators (CSA) on June 10, 2011 published for comment proposed Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets. The proposed over-the-counter (OTC) rule builds on BC Instrument 51-509 Issuers Quoted in the U.S. Over-the-Counter Markets and requires substantial disclosure from US OTC and pink sheet issuers with strong connections to Canada.

The proposed OTC Rule:

  • requires disclosure by issuers with a significant connection to a Canadian jurisdiction whose securities are quoted in North America only in the U.S. over-the-counter markets;
  • discourages the manufacture and sale in a Canadian jurisdiction of U.S. over-the-counter quoted shell companies.

The proposed OTC Rule is similar to BC Instrument 51-509, which imposes disclosure requirement on OTC issuers with a significant connection to Canadian markets, and deems those issuers to be reporting issuers in BC. In effect, OTC reporting issuers have all the disclosure obligations of Canadian reporting issuers and their insiders would be required to report their holdings and trades as if they were insiders of a Canadian reporting issuer. The proposed OTC Rule is intended to provide Canadian regulators with additional compliance and enforcement tools to monitor the OTC issuer market.

The CSA is seeking comment from investors and industry on the proposed OTC rule. To comment, please refer to the CSA Notice and Request for Comment document on the proposed OTC rule, which is available on the websites of most CSA members. It is unknown when the proposed OTC Rule will come into effect.

If you have questions about the proposed OTC Rule, contact any member of Clark Wilson LLP’s Corporate Finance & Securities Group.