June 1, 2012
Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter Markets will come into effect on July 31, 2012. Once effective, issuers whose securities trade in over-the-counter markets in the United States may become subject to enhanced disclosure requirements and resale restrictions under Canadian securities laws.
With the effective date of the Instrument approaching, issuers who are currently listed or plan to list on an over-the-counter market in the future should consider the implications of the Instrument.
INTRODUCTION AND BACKGROUND
On May 10, 2012, the Canadian Securities Administrators (“CSA”) announced the adoption of Multilateral Instrument 51-105, Issuers Quoted in the U.S. Over-the-Counter Markets (the “Instrument”) by all Canadian securities regulators, with the exception of the Ontario Securities Commission. The Instrument will come into effect on July 31, 2012.
The CSA has stated that it is appropriate for issuers who have a significant connection with a Canadian jurisdiction to make disclosure to the same standard as Canadian reporting issuers. The Instrument, which is based on BC Instrument 51-509, Issuers Quoted in the U.S. Over-the-Counter Markets, is being introduced to meet this objective.
APPLICATION OF THE INSTRUMENT
The Instrument applies to issuers (“OTC issuer”) who have issued a class of securities that has been assigned a ticker symbol for use on an over-the-counter (“OTC”) market, including a grey market, in the United States (except for issuers concurrently listed on designated stock exchanges, including the Toronto Stock Exchange, TSX Venture Exchange, the New York Stock Exchange, the NYSE Amex and the NASDAQ Stock Market) and has a significant connection to a local Canadian jurisdiction that has adopted the Instrument. A “significant connection” will be established if one or more of the following applies:
An OTC issuer and its insiders will be subject to enhanced disclosure requirements and, in some cases, restrictions on trading in the issuer’s securities.
If an issuer becomes an OTC issuer pursuant to the Instrument, it is required to comply with the Instrument for at least one year. Following that year, the issuer may file a notice in order to cease the application of the Instrument, unless the issuer continues to direct or administer its business or carry on promotional activities in a Canadian jurisdiction where the Instrument is in force.
DISCLOSURE AND FILING REQUIREMENTS
An OTC issuer is required to adhere to the disclosure requirements for reporting issuers and their insiders set out in Canadian securities legislation.
DISCLOSURE REQUIREMENTS
Pursuant to the Instrument, OTC issuers must:
Generally speaking, other than the requirement to file an AIF, OTC issuers will be treated as “venture issuers” (as defined in NI 51-102) for the purposes of disclosure requirements.
OTC issuers that file disclosure with the U.S. Securities and Exchange Commission (“SEC”) are able to comply with the Instrument by filing financial statements, material change reports, MD&A and AIFs using documents they file with the SEC.
ADDITIONAL FILING REQUIREMENTS
The Instrument also provides for the filing of:
While OTC issuers are required to comply with enhanced disclosure requirements, mining issuers are relieved from a particularly onerous requirement under Canadian securities law: despite National Instrument 43-101, Standards of Disclosure for Mineral Projects, they are not required to file a technical report upon becoming subject to the Instrument. OTC issuers in the oil and gas sector, however, must comply with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities for financial years beginning on or after January 1, 2012.
RESALE RESTRICTIONS
In order to deter the transfer, for abusive purposes, to buyers of shell companies of the “public float” of such shell companies which has been created from shares sold in private placements to Canadian residents, the Instrument imposes restrictions on the sale of seed stock. In general, the Instrument:
For securities that are acquired after the date of receiving a ticker symbol and in reliance on an exemption from prospectus requirements, there are resale restrictions similar to those imposed on the securities of Canadian reporting issuers. In addition, the Instrument includes specified legend requirements, additional holding periods for control persons and a limit on the number of securities that may be traded within a 12-month period.
Despite the restrictions on trades subject to the Instrument, there are specified exceptions to these restrictions, including for trades of securities made in connection with take-over or issuer bids, mergers or reorganizations, or the dissolution of the issuer.
TRANSITION TO THE INSTRUMENT
The Instrument includes limited transition provisions, which apply in all relevant jurisdictions except British Columbia, for financial disclosure by non-SEC filers and for oil and gas disclosure. For remaining OTC issuers (and in British Columbia), there is no transition period and these issuers will be subject to all requirements of the Instrument beginning on July 31, 2012. The first annual and quarterly filings under the Instrument for these OTC issuers will require reporting for periods prior to July 31, 2012.
FEES AND COSTS OF IMPLEMENTATION
FEES
OTC issuers and their insiders will be required to pay the same filing fees as other reporting issuers in Canada, which includes SEDAR filing fees and late filing penalties.
COSTS OF IMPLEMENTATION
It is not expected that compliance with the disclosure requirements in the Instrument will be costly for OTC issuers, so long as they are currently SEC filers. However, the CSA has acknowledged that OTC issuers who are not SEC filers may incur significant costs to comply with the Instrument, particularly if these issuers do not currently have audited financial statements.
Oct 28, 2022
Finally closing on October 27, 2022, the tumultuous Elon Musk/Twitter M&A deal drama has been unfolding for months, with both sides making…
Apr 20, 2022
If you’ve reached the stage in your financing lifecycle where you’re ready to take your company public, you might think you’ve only got…
Jun 24, 2021
Many employers use equity compensation plans like employee stock option plans to attract, motivate, and retain talent. One reason stock options…
Mar 26, 2021
Merger and acquisition deals are still happening across all sectors, perhaps at an even higher rate than pre-COVID-19 pandemic, even if the…
Nov 24, 2020
An economic downturn can result in an M&A uptick: there can be more attractive targets on the market, and sellers can be more motivated to…
Sep 29, 2020
We updated this publication on December 22, 2022. It’s a forgone conclusion that diversity in thought and in leadership makes good business…
Jun 12, 2020
The financial technology (Fintech) industry uses technology to support and enhance financial and banking services.
Mar 17, 2020
Business corporations laws and stock exchange policies mandate that issuers hold annual general meetings (AGM) and set requirements for when and…
Jan 30, 2020
NOTE: The new tax rules for employee stock option plans take effect on July 1, 2021. Learn more at Limited Options: New Employee Stock Option…
Jan 22, 2020
All issuers must comply with both periodic and ongoing securities law corporate governance (and other) disclosure requirements. This can,…
May 21, 2019
We updated this publication on February 17, 2023. As of June 13, 2019, private companies incorporated under the Canada Business Corporations…
Nov 16, 2018
Companies engaged in the cannabis supply chain are highly regulated by federal and provincial cannabis-specific laws as well as a myriad of…
Jun 12, 2018
This publication has been updated as at July 8, 2022. Changes to the Canada Business Corporations Act (CBCA) over the past several years have…
Apr 2, 2018
Equity compensation plans are a valuable and versatile tool for many corporations, from early-stage startups to established blue-chips.…
Dec 22, 2017
Blockchain technology has already been a transformative force in a number of sectors. Its most prominent use to date has been as the…
Nov 17, 2017
It’s official: as of October 31, 2017, “facilitation payments” contravene Canada’s Corruption of Foreign Public Officials Act (CFPOA).…
Nov 2, 2017
On October 19, 2017, the Toronto Stock Exchange (TSX) announced it had adopted amendments to its Company Manual. Originally proposed in Spring…
Aug 16, 2017
In the not-so-distant past, Canadian enforcement of its anti-corruption and anti-bribery legal regime has been relatively laid-back. But the…
Jul 17, 2017
A corporation does not always sail in calm or safe waters. Cash shortages, unattainable or unmet goals, Board disagreements over the best course…
May 11, 2017
The Extractive Sector Transparency Measures Act is one of several anti-bribery and anti-corruption laws aimed at fighting corruption in the…
Apr 20, 2017
On April 13, 2017, Canada’s federal government introduced legislation that, if passed into law, will legalize recreational cannabis in Canada.…
Mar 30, 2017
Social media platforms, like Instagram, Twitter, LinkedIn, YouTube, Facebook and GooglePlus, arguably have more followers and are more closely…
Feb 24, 2017
This publication has been updated as at January 12, 2023. Many organization (66%) store the personal information of customers. employees,…
Aug 15, 2016
The standards expected of market participants are steadily increasing in response to demand to address white collar crime – including…
Jun 6, 2016
On June 30, 2016, amendments to National Instrument 45-106 Prospectus Exemptions and related changes to Companion Policy 45-106 Prospectus…
May 31, 2016
You’re on a tight timeline to issue a press release. You finish your draft and ‘cut & paste’ your standard “forward-looking…
May 10, 2016
This publication has been updated as at April 18, 2022. Access to sufficient capital is always a business issue, from the startup stage right…
May 2, 2016
Amendments changing the early warning reporting system take effect on May 9, 2016, provided all necessary approvals are obtained (except in…
May 2, 2016
Amendments changing the early warning reporting system take effect on May 9, 2016, provided all necessary approvals are obtained (except in…
Apr 21, 2016
On April 15, 2016, Bill No. 149, The Mineral Resources Act (2016) (2016 Act), passed its second reading in the NS House of Assembly. Although…
Jan 18, 2016
Things have gotten a bit easier for venture issuers, such as those listed on the TSX Venture Exchange, with recent changes to their obligations.…
Oct 19, 2015
Access to sufficient capital to fund operations, research and development, and other costs is a key challenge for start-ups and for some small…
Dec 10, 2014
“Corporate Social Responsibility” (CSR) as a concept has been floating around in business-speak for years – but stakeholders in the mining…
Sep 16, 2014
This publication has been updated as at August 25, 2022. Many believe that only public companies or large, established companies with many…
Jun 11, 2014
Note: For an update on Crowdfunding, read: New Kid on the Block – Crowdfunding Joins Traditional Equity-Based Funding Options for Start-ups…
Nov 1, 2013
Recent decisions of securities regulators and amendments to Canadian securities laws demonstrate regulators' lowered tolerance for insiders who…
May 21, 2013
In its April 2013 decision in Re Stan, the Alberta Securities Commission provides issuers with a practical approach to the assessment of both a…
Feb 8, 2013
While much of the developed world struggles with debt and chronically low growth, Canada, one of the best-performing members of the G-7,…
Aug 27, 2012
Introduction and Purpose Staff of the Canadian Securities Administrators (CSA Staff or we) are publishing this Staff Notice (the Notice) to…
Dec 22, 2011
On May 26, 2010, the Canadian federal government released the proposed Canadian Securities Act (the Act) which would, among other things, create…
Nov 1, 2011
Entrepreneurs need to be ready for due diligence, so it’s essential to involve legal advisors and accountants early in the process. Click…
Oct 6, 2011
In 2009 Canadian securities regulators changed the rules relating to securities “registration” – these rules determine who is required to…
Subscribe to McInnes Cooper to stay current with our leading insights on legal updates, trends, news, events, and services.