Ontario's Rules For Distributing Securities Abroad: How They May Impact Security Token Offerings

As reported in our previous notice, the Ontario Securities Commission ("OSC") recently introduced Rule 72-503 Distributions Outside Canada ("Rule 72-503"), which came into force on March 31, 2018, and set out rules applicable to the issuances of securities outside of Canada.

While Rule 72-503 contemplates distributions of traditional securities, an important corollary to consider is how these changes will impact token issuers in Ontario who intend or desire to issue tokenized securities outside of Canada.

Background

Prior to Rule 72-503, issuers in Ontario who distributed securities outside of Canada relied on the principals of Interpretation Note 1 Distributions of Securities of Ontario (the "Note") which set out certain guidance with respect to how Ontario securities laws may apply to such distributions. However, the Note left some areas of ambiguity. Rule 72-503 was adopted to provide issuers with more clarity as to when Ontario prospectus requirements