The Ontario Securities Rule 72-503 – Distributions Outside Canada (the “Rule”) came into force on March 31, 2018, replacing the old Interpretation Note 1 – Distributions of Securities Outside Ontario (the “Interpretation Note”) and providing a comprehensive framework for distributing securities to investors overseas. The need for a revised rule is rooted in the challenges in regards to interpreting the notion of “reasonable precautions” required to be exercised by issuers and intermediaries. Initially published for comment in 2016 and revised in 2017, the Rule outlines clear-cut exemptions from Ontario’s prospectus and dealer registration requirements. It aims to “bring greater certainty” to cross-border securities activities, by providing investors with adequate disclosure for an informed investment commitment while ensuring that securities distributed to offshore jurisdictions are unlikely to be reintroduced into the Canadian market by the foreign purchaser who acquired them with a view to resale rather than genuine investment.

Prospectus Exemptions pursuant to the Rule

Foreign Qualified Offering: The prospectus requirement does not apply if, at the time of issuing or reselling the securities (a) the issuer has registered the securities for distribution by filing a registration statement under the applicable U.S. securities laws, which is effective as of the distribution date, and/or (b) the issuer has submitted a document comparable to a final prospectus under the securities laws of the designated foreign jurisdiction to register or qualify the securities for distribution, and an acknowledgement of approval has been received.

Concurrent Ontario Prospectus Offering: The prospectus requirement does not apply if: (a) the issuer or selling security holder has met the securities law obligations of the foreign jurisdiction, and (b) before the securities are issued or resold, the issuer has filed with the Ontario Securities Commission a final prospectus to qualify the concurrent distribution of the same class, series or type of securities.

Reporting Issuer Conducting a Foreign Offering: The prospectus requirement does not apply if the issuer: (a) has materially followed the securities regulations of the foreign jurisdiction, and (b) has maintained reporting issuer status in Canada for the four months immediately prior to the distribution.

Securities issued pursuant to the first three exemptions noted above are freely tradeable. However, corporations listed on stock exchanges should bear in mind that an Exchange hold period may be required in accordance with the applicable policies (see for instance the May 2025 amendments to the Canadian Stock Exchanges’ Listing Policies).

Foreign Offering by Non-Reporting Issuer: The prospectus requirement does not apply to a foreign offering if the non-reporting issuer has complied with the securities laws of that foreign jurisdiction. Distributions by non-reporting issuers are subject to a restricted period on resale as further described in Appendix D to the National Instrument 45-102 – Resale of Securities.

For transactions relying on the third and forth Prospectus exceptions, a Report of Distribution outside Canada must be filed within 10 days of the distribution in case of non-investment funds or, in case of investment funds, within 30 days following the end of the calendar year in which the distribution took place.

Exemptions from the Registration Requirement

In addition to the four Prospectus exceptions, the Rule stipulates an exemption from Ontario’s dealer and underwriter registration requirements for individuals or companies engaged in securities distributions to investors outside Canada. This applies when the distribution is made under an Ontario prospectus or an applicable exemption, such as those outlined above. To qualify, the dealer must: have its head office in the U.S., a specified foreign jurisdiction, or in Canada; be registered (or exempt from registration) in U.S. or that specified foreign jurisdiction; and not be registered as a dealer in Canada.

Furthermore, there is a separate exemption available to issuers distributing securities to investors outside Canada, whether under a prospectus filed in any Canadian jurisdiction, or excluded from a prospectus requirement. This applies if the trade is conducted through, or with, a party relying on a dealer registration exemption or in compliance with the registration rules of the investor’s jurisdiction, and the issuers themselves are not registered as a dealer in Canada.

Lack of Uniformity across Canada

The Rule is a province-specific instrument applicable to the jurisdiction of Ontario. It is to be mentioned that the regulation of offshore offerings is not harmonized across Canada. As a result, issuers and other distribution participants are called to consider each situation individually and to conduct a jurisdiction-by-jurisdiction analysis to determine whether a particular offshore offering triggers prospectus requirements or qualifies for an exemption in other Canadian provinces and territories.

Companion Policy

The Companion Policy to the Rule describes the types of measures the Ontario Securities Commission expects to be undertaken by issuers, selling security holders, underwriters, and other distribution participants in order to ensure that the offered securities have settled outside Canada and are not likely to be reintroduced into the Canadian market by an initial foreign purchaser who acquired them with the intent to resell rather than to invest. Issuers are strongly encouraged to review the companion policy before relying on the Rule for a distribution of their securities.

For more information, please reach out to Momentum Law LLP at +1 (416) 594-0791 or email us at info@momentumlaw.ca.