The Ontario Securities Commission has finalized its rule for direct purchase plans, allowing Ontario investors to skip their brokers to buy securities directly from issuers.

The rule will establish a regime that will permit reporting issuers to establish direct purchase plans in Ontario. The rule would establish safeguards around the use of such plans that the commission believes will provide appropriate protection for investors in respect both of the administration of the plans and the promotion of securities offered under direct purchase plans.

This rule requires that a plan be “operated by or on behalf of a reporting issuer”, which is not the case with bank sponsored plans. The definition also permits trades to be made under a plan either from the treasury of the issuer or on the secondary market.

The rule was published for comment on Nov. 17, 2000. During the comment period, which expired on February 16, the commission received 28 submissions. The commission considered the comments and does not believe any amendments are required.

The OSC says that all the commenters were positive on the rule. “One of the commenters indicated that the rule could prove to be beneficial for the thousands of people who are striving to build their retirement nest eggs as the ease of use and low dollar increments needed would allow many investors to participate. Another commenter felt that the rule would provide greater control to investors over their assets. Benefits such as enabling small investors to accumulate diversified holdings and utilize dollar cost averaging by regular purchases and/or dividend re-investment were also cited by a commenter.”

Some of the commenters noted that the rule would allow investors to purchase shares in companies that they could not otherwise buy due to the fact they could not afford the fees or board lots required by brokers.

Finally, one commenter stated that direct purchase plans allow investors to acquire small quantities or fractional shares at a lower cost, which in turn enables issuers to broaden their shareholder base, increase consumer loyalty and have access to capital at a lower cost.

The commission says it will work with the CSA to encourage a national initiative, but will proceed in Ontario anyway.

The rule was delivered to the Ontario Minister of Finance on July 27 for approval. Unless it is rejected or sent back to the OSC, it will come into force on October 10.