A partial quote from the BCSC website - http://www.bcsc.bc.ca/policy.aspx?id=6544

PART 3 - RESALE OF PRIVATE PLACEMENT SECURITIES

Resale of Seed Stock

10 (1) The exemptions in securities legislation from the registration requirement or the prospectus requirement does not apply to a trade of a security of an OTC reporting issuer on or after the ticker-symbol date, if the security was acquired on or after September 15, 2008 and before the ticker-symbol date, except for the exemption in section 2.16 of National Instrument 45-106 Prospectus and Registration Exemptions.

(2) A person must not trade a security of an OTC reporting issuer that the person acquired on or after September 15, 2008 and before the ticker-symbol date unless:

(a) the certificate representing the security carries the legend, or the ownership statement issued under a direct registration system or other electronic book entry system relating to the security bears the legend restriction notation, set out in subsection 11(2),

(b) the person trades the security through an investment dealer from an account at that investment dealer in the name of that person, and

(c) the investment dealer executes the trade through the OTC Bulletin Board or Pink Sheets.

If you would like to review all of the possible rule changes please go to:

http://www.bcsc.bc.ca/policy.aspx?id=6544

Bookmark to:
         

Effect of the Revised Rule on the OTCBB Markets

When the revised 51-509 rule change takes place on September 15, 2008 a domino effect will begin. SEC attorneys will start rejecting any shell that has ties to Canada. Shell owners who control those shells will either have to take a major haircut on the price of the shell or wait the minimum of one year until the legend can be removed from the stock certificates. The effect on the OTCBB marketplace will be three fold:

1. Canadian shell prices will be sharply reduced until all shells with Canadian shareholders are sold.

2. Canadian promoters will no longer be able to produce manufactured shells (100% deliver shells) so inventory will start to diminish

3. With the reduction of inventory pricing of US based OTCBB shells will slowly start rising in the third quarter of 2008 and contine through 2009.

Bookmark to:
         

A major problem will arise for OTCBB shells that have Canadian shareholders after September 15, 2008. Namely, US based SEC attorneys who decide whether an OTCBB shell is suitable for their clients in the first place.

It is this writers opinion that counsel for the Buyer will not be able to clearly distinguish the new rules and will paint all shells with Canadian shareholders with the same brush. The result being they (US based SEC attorneys) will err on the side of safety and simply reject any shell with Canadian shareholders regardless of where they reside. This will decimate the pricing of Canadian shells by the end of 2008 and we will start seeing a substantial reduction of OTCBB shells coming out of all provinces of Canada starting in 2009.

Bookmark to:
         

It will take at least to the end of 2008 to sort out the nuances of the changes to the revised 51-509 rule. Apparently each of the 13 provinces of Canada has their own set of unique securities laws to govern their individual province. Their securities laws are very different from the US Securities and Exchange Commission (the “SEC”) which has jurisdiction over all public companies and its shareholders listed on the OTCBB. SEC rules and requirements are also over and above individual state requirements for companies listed in the US. Whereas, in Canada, there is no one governmental oversight covering securities law for all of the provinces. It is structured more like the original thirteen colonies before we became the United States of America.

Bookmark to:
         

In my previous Blog (Part 6) I stated that the revised 51-509 Rule for US OTC Issuers only applies to shareholders who reside in British Columbia (“BC”). It does not apply to Canadians that reside in the other 12 provinces of Canada. However, how is one to determine if the shareholder resides in or out of the BC geographical area? Also, since the company is responsible for making sure a legend is placed on securities for shareholders residing in BC what happens if a shareholder who lives in one of the other 12 provinces, not affected by this new rule, purchases shares from a company listed on the OTCBB and then moves his or her residence into BC? Or, if a resident of BC purchases shares from an OTCBB and moves out of the BC area? How does the revised rule affect the securities? There are still many questions and not enough answers at this point in time.

Bookmark to:
         

I have spoken to several US based securities attorneys and a couple of Canadian barristers (attorneys) and I have some updated information and corrections to share with my readers.

It appears that the British Columbia Securities Commission (BCSC) only has jurisdiction over Canadian shareholders that reside in British Columbia or BC as it is commonly referred to. The BCSC does not have jurisdiction over other parts of Canada. Canada, as you may or may not know, has 13 provinces, Nunavut, Quebec, Northwest Territories, Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Yukon, Newfoundland and Labrador, New Brunswick, Nova Scotia and prince Edward Island. British Columbia represents 9.5% of the land mass and about 15% of the population of Canada.

Bookmark to:
         

As far as we can tell any shells coming out of Canada after September 15, 2008 that contains 100% Canadian shareholders will be 100% restricted. This brings up some pretty interesting questions.

1. Can a company that has 100% Canadian shareholders get approved for trading by FINRA after the revised rule goes effective?

2. If a company has a shell previously approved for trading prior to the rule change are those Canadian shareholders subject to the new “legend” rule on their already freely tradable securities.

3. If your company gains trading approval from FINRA after September 15, 2008 would not the entire float of a company that is composed of Canadian shareholders require (i) all of those shares to have a legend placed upon the stock certificate and (ii) the shares to be placed with a licensed NASD Broker Dealer to become freely tradable electronically and (iii) shareholders not to sell their shares in a private transaction for over a year?

Bookmark to:
         

So what does this revised BCSC rule 51-509 change mean to Buyers and Sellers of OTCBB shells? The short answer to that question is - PLENTY!

Buyers will now have to make sure that they do not purchase a shell that has Canadian shareholders. The BCSC has, in effect, deemed that all securities issued to Canadian shareholders in US OTC issuers will have a restricted legend even if those securities were registered in an SEC registration statement to become freely tradable. The rule also includes companies that are incorporated in the US.

Canadian shells will disappear from the landscape. With the passing of this new rule all shells originating out of Canada or that have Canadian shareholders will be suspect. Once the news is disseminated to law community the SEC attorneys will err on the side of safety and reject any shells that have a taint of a Canadian connection.

Bookmark to:
         

What changes is the British Columbia Securities Commission (BCSC) making to the proposed 51-509 Rule?

• the Canadian Trading and Quotation System Inc. (CNQ) was added to the list of exchanges that exclude issuers from the proposed instrument

• changes were made to the significant connections requirement that will result in an OTC issuer being designated as a reporting issuer

• an OTC issuer that becomes a reporting issuer must remain a reporting issuer for at least one year after it no longer has a substantial connection to B.C.

• most foreign issuer and multi-jurisdictional disclosure system (MJDS) exemptions will apply, with the exception of the exemption regarding material change reporting

• there will be a legend requirement for securities that OTC reporting issuers distribute under exemptions

Bookmark to:
         

The British Columbia Securities Commission (BCSC) second 30-day comment period for the proposed revised 51-509 rule ended on June 13, 2008. The revised rule changes go effective September 15, 2008 with additional filing requirements going effective September 30, 2008.

So why is the BCSC concerned about the U.S. OTC securities market?

Because “there is a disproportionate number of BC players in the U.S. OTC markets who engage in abusive activities. Their activities damage the reputation of the province’s capital markets and cast a cloud over the interests of legitimate issuers, investment dealers, and other market participants.”

Bookmark to: