A new uniform escrow regime comes into effect today in Alberta and other jurisdictions of the Canadian Securities Administrators.

Under the new regime, when an issuer conducts an initial public offering by prospectus its directors, management and significant shareholders (the principals) will place their shares of the issuer in escrow, restricting their ability to sell the shares for a specified period.

By ensuring that the principals continue to hold shares in the issuer for a reasonable period after the IPO, escrow gives them an incentive to continue devoting time and attention to the issuer’s business and to the plans described in its IPO prospectus.

The new rules are being implemented on an interim basis. The CSA are also seeking public comment on the new escrow regime. After the public comment period, they will consider whether further changes are appropriate before final implementation. On final implementation, the new escrow regime will replace all existing policies of CSA jurisdictions governing escrow for IPOs, other than for capital pool companies.

In May 1998 the CSA published for comment a proposal for a uniform regime of escrow for IPOs, to replace various local escrow policies. They gave issuers the option of applying that proposed escrow regime, instead of a local escrow policy, for a new IPO. On Mar. 17, 2000 it published a revised proposal. Some CSA jurisdictions will also offer issuers a choice between their local escrow policies and the new regime during this interim period.

The new escrow regime is very similar to the Mar. 17, 2000 proposal. Most of the changes made are meant to make it easier to understand and apply. It has also: expanded the class of “exempt issuers” to include issuers with a post-IPO market capitalization of at least $100 million; and expanded the class of permissible escrow agents to include persons or companies approved by a Canadian exchange to act as a transfer agent.