The Ontario Securities Commission (OSC) has temporarily codified relief from certain restrictions imposed on insiders of an issuer under OSC Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions (OSC Rule 48-501 in connection with at-the-market distributions.

OSC Rule 48-501 restricts certain persons from purchasing securities that are subject to, among other things, a prospectus distribution, a securities-exchange take-over bid or issuer bid, or an amalgamation, arrangement, capital reorganization, or other similar transaction. These restrictions have historically raised concerns in connection with at-the-market distributions (ATM Distributions) where certain insiders become subject to an indefinite restricted period under OSC Rule 48-501. In particular, this indefinite restricted period has been challenging for directors and officers who may need to purchase restricted securities in order to satisfy issuer imposed minimum security-holding requirements.

In light of this burden placed on directors and officers and the increased popularity of ATM Distributions following amendments to the ATM Distribution rules that came into effect in August 2020, the OSC has published Ontario Instrument 48-503 Temporary Exemption from Certain Provisions of Ontario Securities Commission Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions (the Order) which provides temporarily exemptive relief from OSC Rule 48-501 in respect of the purchase of a restricted security during an issuer-restricted period by a director or officer who is an issuer-restricted person provided that certain conditions are satisfied:

  • The director or officer is not a control person or the selling security holder of the restricted security;
  • The director or officer is not acting jointly or in concert with the issuer or selling securityholder of the restricted security or an affiliated entity or control person of either the issuer or the selling security holder of the restricted security;
  • The restricted security is offered pursuant to an ATM distribution; and
  • The restricted security is highly-liquid as defined in OSC Rule 48-501, meaning that it is a listed or quoted security that has traded in total, on one or more marketplaces as reported on a consolidated market display during a 60-day period ending not earlier than 10 days prior to the commencement of the restricted period, (i) an average of at least 100 times per trading day, and (ii) with an average trading value of at least $1,000,000 per trading day; or is subject to Regulation M under the 1934 Act and is considered to be an "actively-traded security" thereunder.

The Order came into force on November 25, 2020 and will remain in effect until May 25, 2022. Earlier this year, the OSC published proposed amendments to OSC Rule 48-501 that, among other things, would alleviate the rule's negative effects on ATM Distributions and the comment period for the proposal ended on November 4, 2020. While not explicit, the Order should effectively provide relief to directors and officers in the period leading up to the adoption of any final amendments to OSC Rule 48-501.

For further information, please see Notice of General Order Ontario Instrument 48-503 Temporary Exemption from Certain Provisions of Ontario Securities Commission Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions (December 3, 2020).  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.