Canada’s stock exchanges are home to thousands of publicly listed companies focused on a wide range of industries, but across the board one of their key business requirements is access to capital.
To make it easier for Canadian issuers to raise capital, the country’s main regulatory body has created the Listed Issuer Financing Exemption. An additional goal of the exemption is to increase the options available for retail investors.
Read on to learn more about the exemption and what it means for both companies and investors.
What is the Listed Issuer Financing Exemption?
The Listed Issuer Financing Exemption is an amendment that the Canadian Securities Administrators (CSA) organization is introducing to National Instrument 45-106 — Prospectus Exemptions.
The CSA is an umbrella group that aims to achieve cooperation between Canada’s provincial and territorial securities regulators, and as its name suggests, National Instrument 45-106 is a regulatory document that covers the country’s rules about when companies can be exempt from using a prospectus to qualify the distribution of securities.
To put the exemption together, the CSA considered feedback from stakeholders, including comments received as part of a 2017 consultation paper. The group also looked at capital-raising requirements in other countries.
Announced on September 8, 2022, the exemption will give reporting issuers listed on Canadian stock exchanges a more efficient way to raise capital. At the same time, it will broaden the options available to retail investors.
As the CSA explains in a press release:
The Listed Issuer Financing Exemption will reduce costs for issuers raising smaller amounts of capital through the public markets. It will also allow smaller issuers greater access to retail investors and provide retail investors with a broader choice of investments.
How will the Listed Issuer Financing Exemption affect companies?
The Listed Issuer Financing Exemption will allow companies that are up to date with their continuous disclosure filings to submit a condensed short offering document instead of a short form prospectus.
In a document introducing the exemption, the CSA explains that when an issuer distributes a security, it has to file and obtain a receipt for a prospectus; this prospectus must contain “full, true and plain disclosure of all material facts relating to the securities being offered.” Under certain circumstances, companies can file a short form prospectus, but the CSA has determined that even creating a short form prospectus can make it difficult for issuers to raise capital, especially when it comes to smaller companies.
In addition to being up to date with their continuous disclosure filings, firms that want to take advantage of the Listed Issuer Financing Exemption will need to meet a variety of requirements. Among other criteria, the CSA states that companies must:
- have been a reporting issuer in a Canadian jurisdiction for at least 12 months.
- not be an investment fund.
- not use the funds raised for any transaction that requires the approval of security holders — for example, a significant acquisition or a restructuring transaction.
On a yearly basis, eligible companies will be able to raise up to the greater of C$5 million or 10 percent of their market cap to a maximum of C$10 million. Securities issued under the exemption will be freely tradeable once the financing closes; this differs from exemptions such as the Accredited Investor Exemption, where there is a four month hold on trading shares.
There is no minimum amount of capital that companies to raise, but after completing this type of transaction issuers are expected to have enough money to fulfill their liquidity and business needs for a 12 month period.
When does the Listed Issuer Financing Exemption go into effect?
The Listed Issuer Financing Exemption will go into effect on November 21, 2022, assuming all approvals are received by that time.
Do you have questions about the Listed Issuer Financing Exemption? Send an email to email@example.com and we will do our best to get you the answers you need.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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