CSA introduces Listed Issuer Financing Exemption

On November 21, 2022, the Canadian Securities Administrators (CSA) will introduce the Listed Issuer Financing Exemption, a new prospectus exemption for Issuers on a Canadian stock exchange. The exemption will enable Listed Issuers to raise money from a larger pool of potential investors and will give them flexibility in how much money they can raise. This is expected to result in increased competition for investor dollars and lower costs of capital for Listed Issuers.

The new exemption will permit listed issuers to distribute securities, without a prospectus, to persons who are not “accredited investors”. In addition, the current "coordinated relief application process" will be eliminated and replaced by a more streamlined "notice and authorization process." 

As such term is defined in National Instrument 45-106 Prospectus Exemptions or “permitted clients” as such term is defined in National Instrument 31-103 Registration Requirements and Exemptions, provided that certain conditions are met.

A More Streamlined Process

Under this exemption, Issuers will be able to issue common shares, preferred shares, debt securities, subscription receipts, rights, and warrants without having to prepare and file a preliminary prospectus and a final prospectus, provided that certain conditions are met. 

Specifically, the Listed Issuer Financing Exemption will be available where: 

• A securities regulatory authority in Canada recognizes the Issuer
• Has at least 12 months' worth (or more) as an Issuer
• The Issuer has filed all periodic and timely disclosure documents required by law
• The Issuer's business operations are active, and the principal asset is not cash (i.e., this excludes capital pool companies and SPACs) 
• The Issuer must prepare a short offering document that will be considered a "core" document under the secondary market civil liability regime

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Louis Morisset, Chair of the CSA states, "...the reforms of the regulatory regime for listed issuers is another important step in our efforts to reduce regulatory burden while preserving reasonable investor protections."

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“So much is still developing, the category is still so new, I think it’s critical for professionals in the  space to follow thought leaders to get a full view on what is to come, and prepare their clients accordingly,” ~ Rebecca Kacaba, CEO and Co-Founder of DealMaker and a securities lawyer 

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Takeaway

Overall, it looks like things are getting slightly easier for companies seeking private placements. Canadian companies may be more likely to use equity crowdfunding to raise capital because of the new “listed issuer” prospectus exemption. As always, issuers should seek advice from counsel and/or a broker-dealer when considering their capital raise options.