Securities Regulators in Canada Propose Exemption for Distributions to Existing Shareholders

Yesterday, securities regulatory authorities in all of Canada’s provinces and territories except Ontario and Newfoundland published a proposed prospectus exemption that would allow issuers on the TSX Venture Exchange (TSXV) “to raise money by distributing securities to their existing shareholders.”

That’s in contrast to the current situation, under which TSXV issuers who want to distribute securities to existing shareholders must “use a prospectus or a prospectus exemption that requires a disclosure document, such as an offering memorandum or a rights offering circular.”

In layman’s terms, that means shareholders who are not accredited investors would be able to participate in private placements.

The move was prompted by the fact that TSXV issuers don’t often use prospectus offerings or exemptions that require disclosures. That means that not only do “retail security holders who want to make an additional investment in a TSX-V issuer” have to “buy securities on the secondary market at the market price and pay brokerage fees,” but also that TSXV issuers “do not have access to a potential source of capital.”

The proposed exemption includes a number of conditions aimed at protecting investors. For instance, to acquire securities under the proposed exemption, existing security holders would need to confirm in writing that they held securities “as of the record date for the offering.” Further, “the aggregate amount invested by the investor in the last 12 months under the exemption” cannot exceed $15,000 unless a registered investment dealer has given the investor advice about the suitability of the investment.

Comments on the proposed exemption are open until January 20, 2014.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.