On October 25, 2022, the Ontario Securities Commission created a new exemption from the prospectus requirement in respect of a distribution of securities in Ontario by an Ontario issuer to financially literate "self-certified investors." This decision follows similar regulatory action in Alberta and Saskatchewan. This exemption will have benefits for businesses raising capital in Ontario by adding new sources of capital, as well as for financially literate investors by allowing them to invest in new opportunities that may otherwise have been restricted.

Summary of the interim order

Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order) provides that a non-investment fund issuer with a head office in Ontario may rely on a new prospectus exemption in respect of the distribution of securities. This distribution must be to a "self-certified investor," with each investor subject to an investment limit of $30,000 per calendar year in reliance on the exemption. The order enumerates over a dozen possible criteria for a financially literate individual to qualify as a self-certified investor, including holding various finance and business related designations or degrees or having passed finance or investment related courses.

The individual will need to complete a confirmation of the qualifying criteria as well as a risk acknowledgement stating they understand the various risks. Issuers relying on this prospectus exemption are required to file a report of the trade, together with a confirmation of the qualifying criteria, within 10 days of the distribution. Trades made in reliance on this exemption will be subject to the same resale rules as a trade made in reliance on the "accredited investor" exemption (i.e. for reporting issuers, a 4-month hold period; and for non-reporting issuers, a hold period that lasts until the issuer becomes a reporting issuer, and up to 4 months past that date).

The interim order came into effect on October 25, 2022 and remains in effect until April 25, 2024 (unless extended or amended).

Reasons for the interim order

In its report dated January 22, 2021, the Ontario Capital Markets Modernization Taskforce recommended expanding the accredited investor definition to include those with a high degree of understanding of investments and markets who have completed relevant proficiency requirements. The OSC stated that it intends to explore this option, and, in the interim, created this time-limited prospectus exemption.

The interim order is intended to provide access to new sources of capital for issuers in Ontario and increased investment opportunities for investors in Ontario who can adequately understand the risk of investment but who may not meet the current financial requirements of the accredited investor criteria.

Should you have any questions or require assistance regarding the proposed exemption, please feel free to reach out to a member of our Capital Markets team.