investor’s desire to redeem or sell their
securities for a full or partial redemption.
Investors must be aware that issuers typically
have a Redemption Notice Period during
which redemptions must be made prior to
any redemption date. For example, it could
be 60 days before the end of a quarter for an
issuer that has quarterly redemptions. If an
investor provides a Redemption Notice after
that date, for example, 50 days prior to the
end of a quarter, the issuer does not have to
accept such Redemption Notice and only
give e;ect to such notice in the following
Investors are generally cautioned to provide
as much notice as possible before the end of
any Redemption Notice Period and to
ensure they have evidence of having
provided the notice to an issuer (e.g., by
e-mail if permitted by an issuer which
provides evidence of delivery and provided it
is the form of notice required by the issuer).
Investors are also cautioned that a Redemption Notice Period could be as short as a one
or two-week period, or a longer period.
Investors must make sure they strictly adhere
to any Redemption Notice Period and ensure
to provide the form of notice as required by
an issuer. An issuer may reject a Redemption
Notice if it is not in the prescribed form, as
required, and/or not within the required
Redemption Notice Period.
4. Redemption Date
;e Redemption Date is the actual date
securities are redeemed on the books and
records of an issuer. If investors are receiving
income from an investment that makes
distributions, investors should make sure
they understand whether distributions stop
at the point that a Redemption Notice is
provided, on the Redemption Date, or
5. Redemption Price
;e Redemption Price is the amount that
an investor will receive upon the redemption of their securities, which may be a
combination of cash (up to a maximum
limit) and/or Redemption Notes. Such
matters are discussed below.
6. Redemption Cash Limits
Redemptions involving private market
securities sold under a Deferred Plan are
generally subject to a cash redemption limit.
;is means that an investor may not
necessarily receive 100% of the value of their
investment in cash, but rather an issuer may
impose a limit on the amount of cash they
will provide a redeeming investor, with the
balance payable by the issuance of a Redemp-
Issuers include cash limits for various reasons,
including those where their underlying
investment does not have su;cient cash
liquidity in order to meet all or any redemption
demands by investors. For example, an issuer
may invest in real estate, which is not typically
liquid, and may place cash limits on redemptions at any time, and from time to time.
;e maximum cash limit of a Redemption
Price may be expressed as a percentage of, or
the fair market value of, all securities issued
As an example, an issuer may impose a
quarterly redemption limit of $100,000 per
quarter. Alternatively, an issuer could impose a
redemption limit based on a percentage of the
fair market value of an issuer’s securities as at a
Redemption Date, for example, a 10% limit.
However, there is nothing to preclude an issuer
from paying any amount in excess of any cash
redemption limit, and some do, but an issuer’s
legal obligation (irrespective of business considerations or for investor relations purposes) is the
cash limit set out in an issuer’s constating
document (e.g., declaration of trust or limited
partnership agreement, as applicable).
If investor redemption requests exceed any
redemption limit, an issuer will generally redeem
for cash on a pro-rata basis up to the maximum
redemption limit and, unless any applicable
regulatory approvals are required, pay the balance
by a distribution of Redemption Notes.
7. Redemption Notes
If the aggregate redemption requests exceed
any redemption cash limit, the issuer will
satisfy the balance by issuing a Redemption
Note in addition to the cash payment, up to
the amount of the Redemption Price.
Typically, these Redemption Notes are:
• Subordinated and postponed to all senior
indebtedness, and which may be subject
to speci;c subordination and postpone
• Set at a fixed interest rate;
• Subject to earlier prepayment, set for a
fixed number of years; and
• Payable, both interest and principal as a
single payment at the end of the term or
earlier at the discretion of the issuer. (;is
means there are usually no periodic
payments and an issuer can repay the note
at any time, and from time to time).
For example, a Redemption Note can have
an interest rate that is equal to ;ve percent
(5%) simple interest per annum, calculated
from the day the Redemption Note is issued
and such other commercially reasonable
terms as the issuer may prescribe, subject to,
for example, a maximum term of three ( 3)
years from the date of issue, as determined in
the sole discretion of the issuer, provided that
the applicable interest shall be paid on the
anniversary date of the issue of the Redemption Note outstanding.
Redemption Notes are not liquid and will
generally not be a quali;ed investment for
Deferred Plans, and may even be a prohibited
investment for Deferred Plans.
Redemption Notes Quali;ed Investments
for Deferred Plans.
Investors must understand there could be
adverse tax consequences to an investor who
acquired securities under a Deferred Plan
and/or its annuitant bene;ciary as a result of
an investor seeking a redemption of securities. Accordingly, investors that propose (or
have invested) in securities through Deferred
Plans should consult with their own tax
advisors before doing so (or having done so),
to understand the potential tax consequences
of exercising their Redemption Rights
attached to such securities. In certain
circumstances, an investor may consider
withdrawing their Redemption Notice if
there are adverse tax consequences.
8. Redemption Fees
Investors should be aware that most issuers
will charge a redemption fee, or similar fee,
in connection with any redemption and is
generally expressed as a percentage of the
redemption price or a ;at dollar amount.
Issuers may also charge an early redemption
fee to investors that could be step-rated,
where the fee would be higher in the early
investment years and lower the longer an
investor holds the investment (to the point
where there is no charge if an investment is
held for a speci;ed length of time).
For example, the chart below illustrates an
early redemption charge payable by investors
that is based on a percentage of the subscription price of a security, and that gradually
decreases over four years.
We hope you enjoyed this article and have a
better understanding on how redemptions
and the sale of private market securities work.
Brian Koscak, Pinnacle Wealth Brokers Inc.,
President, Chief Compliance Officer and