NIN 97/09 - Trading Securities and Providing Advice Respecting Securities on the Internet [NIN - Rescinded]

The evolution of electronic communications technology and the expanding scope and capabilities of the Internet have created new ways for securities market participants to disseminate information and solicit interest about investment in securities. This capability creates opportunities for investors to become better informed but also creates new risks of fraudulent, abusive and unfair practices in the selling of securities. The Commission wishes to foster the legitimate use of the Internet by market participants, while maintaining adequate safeguards for the investing public.

Some securities market participants have begun using the Internet to offer and sell securities. In response to this new method of trading securities, the North American Securities Administrators Association, Inc. ("NASAA") has adopted a Resolution entitled "Resolution Regarding Securities Offered on the Internet". This Notice is similar in approach to the NASAA Resolution and sets out the Commission's position with respect to the use of the Internet by securities market participants to trade securities, and to provide advice respecting securities.

The issues addressed in this Notice are currently being considered by the Canadian Securities Administrators ("CSA"), with a view to developing a unified national approach. If the CSA adopts national guidelines or rules concerning these issues, this Notice will likely be replaced by those guidelines or rules.

Trades and Distributions of Securities

The Securities Act requires any person that trades a security in British Columbia either to be registered to trade in the province or to rely on an exemption from the registration requirements. The Securities Act also requires any person that distributes a security in British Columbia either to file a prospectus with the Commission or to rely on an exemption from the prospectus requirement. Therefore, if a person wishes to sell a security to a resident of British Columbia, the person must, subject to any available exemptions from the registration requirement, be registered to trade in British Columbia. If the sale also constitutes a "distribution", a prospectus must also be filed with and a receipt for it obtained from the Commission, subject to any available exemptions from the prospectus requirement.

Section 1 of the Securities Act defines "trade" to include "any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of" a trade. Therefore, the registration requirements of the Securities Act apply to any communication in furtherance of a trade in British Columbia. If the trade also constitutes a distribution, a prospectus must also be filed with the Commission.

A trade or distribution can occur in more than one jurisdiction. If it does, the rules of each jurisdiction in which the trade or distribution occurs must be complied with. For example, if an issuer resident in British Columbia distributes securities to a purchaser that resides in California, the issuer must comply with the laws of British Columbia, California and the United States. If neither party to a trade is located in British Columbia and no acts in furtherance of a trade occur in British Columbia, British Columbia laws do not apply to the trade.

Advice about Securities

The Securities Act also requires any person that advises others with respect to the purchase or sale of securities either to be registered as an adviser in the province, or to rely on an exemption from the registration requirements of the Securities Act.

Internet Communications

The problem presented by the Internet is that a communication made on the Internet may reach both intended recipients and anyone else in the world with Internet access. It is the Commission's view that, notwithstanding the interjurisdictional nature of communications on the Internet, the registration and prospectus requirements of the Securities Act apply only in respect of communications made by, or directed at, residents of British Columbia or persons located in British Columbia.

Communications made by Persons Resident or Located in British Columbia

Irrespective of the jurisdiction(s) to which a communication on the Internet is directed, where such communication is made by a resident of British Columbia or person located in British Columbia, the registration and prospectus requirements of the Securities Act will apply. For example, where a British Columbia resident offers securities to residents of another province through the Internet, the British Columbia resident must be registered to trade under the Securities Act and, if the offer also constitutes a distribution, a prospectus respecting such securities must be filed with the Commission, subject to any available exemptions from the registration and prospectus requirements.

Communications Directed at Persons Resident or Located in British Columbia

A person that posts on the Internet a communication relating to trading or distributing securities, or providing advice about securities, and intends that the communication not be directed at a resident of British Columbia or person located in British Columbia, should include a statement at the beginning of the communication, in a manner reasonably calculated to draw attention to it, either

(a) that the communication is not directed at, and any securities being offered are not available to, residents of British Columbia or persons located in British Columbia, or

(b) that the communication is directed only at, and any securities being offered are available only to, persons resident and located in stated jurisdictions, which clearly exclude British Columbia.

If an appropriate statement of this type is displayed, provided the Internet communication is not otherwise specifically directed at, or made by, a resident of British Columbia or person located in British Columbia, staff of the Commission would not take the position that the communication is subject to the registration and prospectus requirements of the Securities Act.

Public Offerings on the Internet

Issuers and other securities market participants are reminded that it is presently not possible to conduct a public offering in British Columbia, including an initial public offering, on the Internet (i.e., by posting a prospectus on the Internet for the purpose of selling the securities offered under the prospectus), without the involvement of a registrant. The Securities Act requires that, where the issuer of the securities is not itself registered, the securities offered under a prospectus be sold through a person registered in British Columbia under the Securities Act to trade securities. In addition, junior issuers and their counsel are reminded of Interim Local Policy Statement 3-17, which provides guidelines concerning the involvement of registered underwriters in public offerings of junior issuers.

Further Information

General inquiries regarding this Notice should be directed to the Registration Division. Inquiries concerning the specific registration or prospectus requirements in British Columbia or applicable exemptions from such requirements should be directed to the Registration Division, Corporate Finance Division or Exemptions and Orders Division, respectively.

DATED at Vancouver, British Columbia, on March 3, 1997

Douglas M. Hyndman
Chair