BCN 2001/37 - BC Instrument 72-502 Trades in Securities of U.S. Registered Issuers [BCN - Rescinded]
Effective today, the Commission is issuing BC Instrument 72-502 entitled “Trades in Securities of U.S. Registered Issuers”.
The instrument provides an exemption to permit a British Columbia resident to sell, through an exchange or market outside Canada, securities of a non-reporting issuer that were acquired under a prospectus exemption.
A person who acquires securities in a trade made under a prospectus exemption may sell the securities only in accordance with resale rules. These are set out in sections 140 through 143 of the Securities Rules, which we expect to replace in the next few months by Multilateral Instrument 45-102 Resale of Securities. If the issuer of the securities is not a reporting issuer, the person can sell them only under a prospectus or a prospectus exemption.
We previously provided a prospectus exemption to permit a person in British Columbia to sell, through a foreign market, securities of a non-reporting issuer that has a de minimus connection to B.C. and Canada. That exemption is currently contained in BOR 72-501, which will also be replaced by Multilateral Instrument 45-102.
However, there are companies publicly traded through the United States over-the-counter markets that have some connection to B.C. but are not reporting issuers here. B.C. residents who have acquired, through private placements or stock options, shares of these companies have no practical exemption under which they can sell the shares on the U.S. market. By contrast, a B.C. resident who purchases shares of one of these companies on the secondary market can freely sell them.
The new BC Instrument allows any B.C. resident to sell shares of a non-reporting issuer through a foreign exchange or market if the conditions in the instrument are met. The most notable conditions are:
1. The company must have securities registered under the U.S. Securities Exchange Act of 1934.
2. The seller cannot sell more than 5% of the company’s outstanding securities in a year.
3. The trade must be made through an exchange or market outside Canada.
The instrument covers shares traded or quoted on a U.S. market, including the NASD over-the-counter bulletin board, as long as the company has a class of securities registered with the SEC under the U.S. Securities Exchange Act of 1934. Most issuers whose securities are quoted in the “pink sheets” do not have their securities registered with the SEC.
We are issuing B.C. Instrument 72-502 to provide relief to B.C. investors at this time. We anticipate that we will adopt proposed Multilateral Instrument 72-101 Distributions Outside of the Local Jurisdiction in a few months. That instrument will provide broader relief for B.C. investors to sell, outside Canada, securities of non-reporting issuers that they have acquired under prospectus exemptions.
Investors should exercise caution before purchasing securities traded in over-the-counter markets. Many of the issuers are small, thinly traded, and targets for stock manipulation scams.
Investors should also ensure that their trading in these securities complies with U.S. securities laws. U.S. laws contain restrictions on trading by insiders and by shareholders who purchase securities in private placements, including hold periods and, for insiders, volume limitations. Legislation in many states requires issuers to file an offering document with their state regulators for review, even if the offering is exempt from registration under federal law.
For further information contact:
Senior Legal Counsel, Policy and Legislation
British Columbia Securities Commission
(800) 373-6393 (in B.C.)
May 18, 2001
Douglas M. Hyndman
This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.