Regulators in British Columbia, Alberta, Saskatchewan and New Brunswick announced on Wednesday that they’re adopting a new prospectus exemption that will allow listed issuers to raise capital without an offering document — provided that investors get advice about the suitability of the investment from an investment dealer.
The new exemption is intended to help facilitate the raising of capital for listed issuers and to make it easier for retail investors to participate in private placements. The regulators note that most of the existing exemptions require issuers to prepare some form of offering document, which is costly and time consuming.
“This means that retail investors do not have an opportunity to participate in the more favourable terms generally offered through private placements, such as a discount to the current market price allowed under exchange policies,” the regulators say. “This also means that if retail investors that are not existing security holders want to invest in an issuer, they must generally buy its securities in the secondary market.”
The new exemption will provide an opportunity for firms to raise capital without an offering document. The requirement that investors get suitability advice “is a key condition for investor protection,” the regulators say, given that investment dealers must meet “know-your-client” and “know-your-product” obligations when determining suitability.
The exemption also carries other conditions, including: that the issuer has its securities listed on an exchange; that the company’s continuous disclosure is up to date and in compliance; and that the firm issues a news release detailing the proposed distribution and the planned use of proceeds. Investors will also have a right to civil action in the event of a misrepresentation in the issuer’s continuous disclosure record.