Sales of Restricted Securities

1. Sales of restricted securities

This Guidance Note sets out expectations regarding sales of securities that are subject to restrictions on sale. In Canada, restrictions on sale may be imposed by:

• applicable securities legislation; or
• a requirement of a marketplace as a condition of listing or quoting the security.

Transfer restrictions may also be imposed due to securities legislation in the United States such as under the Securities Act of 1933. A Participant may be asked by a client to facilitate the sale into Canada of a security that was privately placed in the United States and is listed, quoted or traded on a marketplace in Canada. Such a security is subject in the United States to the jurisdiction of the United States Securities and Exchange Commission (“SEC”). A Participant may transfer such a security into Canada where the Participant complies with all relevant United States and Canadian securities laws.

In Regulation S, certain securities offered and sold outside the United States need not be registered with the SEC. A Participant may rely on Regulation S when facilitating the sale of a security on a marketplace in Canada from the United States. In conducting such a sale, the Participant must ensure compliance with Regulation S and all other relevant United States securities laws.

2. Entry of orders for the sale of a U.S. Restricted Security

One of the general conditions of Rule 904 under Regulation S is that an offer, sale or resale of the securities must be made in an “offshore transaction”. An “offshore transaction” can be, among other things:

• a transaction where no offer is made to a person in the United States and the transaction is executed through the facilities of a "designated offshore securities market" where neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; or
• a transaction where no offer is made to a person in the United States and where the buyer must be outside the United States or the seller and any person acting on its behalf must reasonably believe the buyer is outside the United States.

2.1 Sales through a “designated offshore securities market”

A Participant may satisfy the requirements for an “offshore transaction” by facilitating the sale into Canada of a security through the facilities of a “designated offshore securities market” if:

• neither the Participant nor the selling client knows that the transaction has been prearranged with a buyer in the United States; or
• the Participant follows the procedure set out below for sales not made through a “designated offshore securities market”.

2.2 Sales not made through a “designated offshore securities market”

If the sale is completed through the facilities of a marketplace in Canada that does not qualify as a “designated offshore securities market”, the Participant must ensure that the order is entered on the marketplace as:

• part of an intentional cross at a price between the best ask price and the best bid price when the Participant knows that the purchaser is outside the United States and complies with any other restrictions on ownership; or
• a Special Terms Order that is subject to the condition that the purchaser be outside the United States and complies with any other restrictions on ownership.

Orders entered as an intentional cross at a price between the best ask price and the best bid price may be executed on a marketplace without concern about potential interference by a party who may not be qualified to acquire the securities.

It is the responsibility of the Participant to ensure compliance with all relevant aspects of Regulation S including, but not limited to, the offshore transaction requirement. In particular, a Participant must ensure that the sale into Canada is bona fide and not, for example, for the purpose of “washing off” a legend with resale restrictions imposed on “restricted securities” under Rule 144A to facilitate the immediate re-sale of the securities into the United States. If a Participant is unsure of any of its obligations under United States securities laws, including sales pursuant to rules under Regulation S other than Rule 904, it is recommended that the Participant consult with United States legal counsel.

3. Order marking for sales of Canadian restricted securities

Where a security is subject to a restriction on sales in Canada (whether imposed by securities legislation or marketplace requirements), the holder is considered not to own that security for the purposes of UMIR. If the holder enters an order to sell that security on a marketplace1 in Canada before the expiration of the sale restrictions, the order must be marked as a “short sale”.2

Participants and Access Persons are also reminded that pursuant to UMIR Rule 3.3, where an order (including for a Canadian restricted security) is entered on a marketplace that would on execution result in a short sale, a Participant or Access Person must have a reasonable expectation to settle any resulting trade on the date contemplated on the execution of the trade.

4. Order marking for sales of U.S. Restricted Securities

As above, where a security is a U.S. Restricted Security, the holder is considered not to own that security for the purposes of UMIR. An order to sell a U.S. Restricted Security entered on a marketplace is considered to be a “short sale” for the purposes UMIR unless the seller is able to deliver the security without restriction on the settlement date of the trade.

5. Applicable Rules

UMIR Rules this Guidance Note relates to:

• UMIR 1.1
• UMIR 3.3
• UMIR 6.2

6. Previous Guidance Note(s)

This Guidance Note combines and replaces:

• Market Integrity Notice 2004-020 – Sales of Restricted Securities (August 13, 2004)
• Market Integrity Notice 2005-028 – Sale of Securities Subject to Transfer Restrictions Only in the United States (July 29, 2005)
• Market Integrity Notice 2006-006 – Sale of Securities Subject to Certain United States Securities Laws (February 17, 2006)

• 1Effective March 1, 2023, Participants may trade a listed security off-marketplace during a statutory resale restriction, where the trading is permitted pursuant to a prospectus exemption. See Notice 22-0185 Amendments Respecting the Codification of Certain UMIR Exemptions (December 1, 2022).
• 2See GN-URPart6-25-0002 - Guidance on “Short Sale” and “Short-Marking Exempt” Order Designations for additional guidance on the marking of short sale orders.