“A distribution by an issuer in Ontario may or may not be a
distribution in Ontario that gives rise to the requirement to
file a report. Whether a distribution occurs in Ontario will
depend on whether, in light of relevant connecting factors
including the likelihood that the securities will come to rest
in Ontario, there is a sufficient connection between the
distribution and the province. …”
The court decision in Crow et al. v. Ontario Securities
Commission set out a substantial connection test of whether
an issuer is subject to the securities laws of that jurisdiction. In
contrast, OSC Interpretation Note 1 Distributions of Securities
Outside Ontario (March 25, 1983) (OSC Interpretation Note 1)
suggests a regime where an issuer/selling securityholder could
implement certain restrictions and take various precautions,
such as adding a legend to share certificates that states the
securities are not qualified for sale in Ontario and may not be
offered or sold directly or indirectly in Ontario, so the securities
do not come to rest in Ontario, such that the local securities laws
of the jurisdiction where that issuer/selling securityholder has a
substantial connection would not apply; only the securities laws
where the purchaser is resident.
It is respectfully submitted that the two concepts are conflated
in the Proposed Guidance Excerpt. Accordingly, we respectfully
request that the OSC explicitly state whether an issuer can rely on
OSC Interpretation Note 1 despite the Crowe decision, which will
help clarify the present confusion in the Ontario marketplace and
as set out in the Proposed Guidance Excerpt.
3. The Proposed Report would require information about the
issuer’s size by number of employees, size of total assets or,
for investment funds, net asset value. Are there other metrics
that would be more appropriate to assess the issuer’s size?
Do the pre-selected ranges compromise sensitive financial
or operational information about non-reporting issuers that
participate in the exempt market?
If the CSA seeks to obtain this information to assess which
exemptions are being relied upon by small, medium-sized and large
issuers, as per Statistics Canada metrics used in the Proposed Report,
then such information is helpful. However, some issuers want their
number of employees to remain confidential, accordingly, consideration
should be give to setting out such confidential information in Schedule
I which is the private part of the Proposed Report.
Also, guidance should be included on whether the number
of employees only includes full and not part-time employees
or all employees of any type. Moreover, some firms, issuers in
particular, often have a large number of independent contractors/
agents and it is unclear whether they would be reported or not.
Explicit guidance on these points would be appreciated.
4. The Proposed Report would require issuers, other than
investment funds, to use the NAICS codes to identify their
primary industry. As noted above, using a standard industry
classification is intended to provide securities regulators with
more consistent information on the industries accessing the
exempt market and to facilitate more direct comparison to other
statistical information using the same classification, such as
reports from Statistics Canada. Would the application of NAICS
present challenges for issuers? Are there alternative standard
industry classification systems that may be more appropriate?
If so, please specify
We have no objection with the use of NAICS codes to identify
an issuer’s primary industry.
5. The Proposed Report would not require: (i) foreign public
issuers and their wholly owned subsidiaries, or (ii) issuers that
distribute eligible foreign securities only to permitted clients, to
disclose information about their directors, executive officers,
control persons and promoters. Do these carve-outs provide
appropriate relief to issuers that are either subject to certain
foreign reporting regimes or have their mind and management
outside of Canada? If not, please explain.
If such information is readily and publicly available elsewhere,
then these foreign public issuers and issuers distributing eligible
foreign securities should be required to either: 1) set out, or
provide a link to, where such information is readily available or
2) if the local regime in the foreign jurisdiction does not require
such disclosure, to provide a statement to that effect. We agree
that imposing such additional disclosure that is not required in a
foreign jurisdiction may result in such foreign issuers not offering
their securities into Canada and that could potentially deny
investors certain investment opportunities.
6. The Proposed Report would require public disclosure of the
number of the issuer’s voting securities owned or controlled by
directors, executive officers, control persons and promoters of
certain non-reporting issuers, and the amount paid for them.
This information is intended to provide valuable information
for investors and increase transparency in the exempt market.
Would disclosure of the percentage of voting securities owned
or controlled by directors, executive officers, control persons
and promoters of the issuer also be useful information for
potential or existing investors?
Please see our response above in Question #2(b)(II) – Control
person and promoter disclosure.
7. The Proposed Report would require the disclosure of the
residential address of directors, executive officers, control
persons and promoters of certain non-reporting issuers in a
separate schedule that would not be publicly available. Do you
have any concerns regarding the requirement to disclose this
information to securities regulators?
We believe requiring the residential address of directors,
executive officers, control persons and promoters of certain
non-reporting issuers is unnecessary and the requirements should
be more limited. CSA members and others can obtain information
about officers and directors, and in certain jurisdictions, shareholder
information, if required, by reviewing corporate records that are