Clarity for Offshore Distributions by Ontario Issuers: OSC Adopts Rule 72-503 Distributions Outside Canada
January 4, 2018
On December 21, 2017, the Ontario Securities Commission (OSC) adopted OSC Rule 72-503 Distributions Outside Canada (Rule 72-503) and Companion Policy 72-503CP (72-503CP, and together with Rule 72-503, the Final Rule). The Final Rule aims to provide Ontario issuers and their underwriters with more certainty regarding the application of Ontario prospectus and dealer registration requirements to distributions of securities to investors outside Canada.
For more information on the Final Rule please see our July 2016 and July 2017 Blakes Bulletins: Proposed OSC Rule 72-503 Aims to Provide Clarity on Distributions from Ontario to Outside Canada and Making a Bright Line at the Border: CSA and OSC Seek to Clarify How Canadian Securities Laws Apply to Trades Outside Canada.
The Final Rule was delivered to the Ontario Minister of Finance for approval on December 19, 2017. If the Minister approves the Final Rule or does not take any further action by March 5, 2018, the Final Rule will come into force on March 31, 2018, and the prior Ontario framework regulating offshore distributions by Ontario issuers, “Interpretation Note 1 Distributions of Securities Outside Ontario,” will be withdrawn.
The Final Rule is substantially the same as the version proposed for comment in June 2017, with the exception of certain drafting clarifications and a welcome change to the requirement to report an offshore distribution: An issuer relying on the Concurrent Distribution under Final Prospectus in Ontario exemption is no longer required to file a trade report under the Final Rule.
In addition, the Notice of Adoption of the Final Rule reiterates, in the summary of comments and responses section, OSC guidance from the 2017 rule proposal that statutory rights under Ontario securities law may be available to foreign purchasers of securities that are qualified for distribution by an Ontario prospectus, if the prospectus does not “clearly state whether or not it also qualifies the distribution of securities to an investor outside Canada.” This means, for example, that purchasers of securities distributed under Rule 144A in the U.S. concurrently with a public offering in Canada could, in the OSC’s view, be entitled to statutory rights under Ontario law (including, potentially, the two-day withdrawal right under the Securities Act (Ontario)) unless the prospectus states that it does not qualify the distribution of the securities outside Canada.
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