By James Langton

(December 19 – 11:50 ET) – The Ontario Securities Commission has proposed a rule that will allow reporting issuers to establish direct purchase plans in Ontario.

The new regime will allow issuers to distribute securities directly to investors without selling through a broker. The proposed rule would establish safeguards around the use of such plans.

The OSC believes the safeguards 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.

The commission “is of the view that there are no compelling regulatory reasons to prevent the establishment and development of direct purchase plans in Ontario in the same manner as similar plans have developed in the U.S.”

The proposed rule has been developed as the result of proposals made to the commission by the Securities Transfer Association of Canada, the trade association of transfer agents in Canada.

STAC recommended the implementation of the proposed rule to the commission based on its understanding that issuers would find such plans beneficial and because of its understanding of the U.S. market.

STAC and OSC staff have worked together to develop the proposal, which is designed to facilitate the use of such plans while ensuring adequate investor protection.

Direct purchase plans operate similar to traditional dividend reinvestment and stock purchase plans, which are permitted in Ontario. Direct purchase plans are similar except that it is not necessary to already be a shareholder of the issuer.

The plans are designed primarily to permit investors to make regularly scheduled investments in securities, often in small quantities. These are primarily suitable for long-term investments because trades are processed only at regularly scheduled times.

The OSC is now prepared to make this move after granting suitability relief for discount brokers, noting that it is consistent with other moves it has made to accommodate investors who don’t want advice and who won’t be protected by “know your client” obligations. It essentially provides registration relief for issuers who conform to this new regime.

Comments on the proposed rule are due by February 16, 2001.