A Brief Dive Into the Multijurisdictional Disclosure System (MJDS)

The MJDS allows the U.S. Securities and Exchange Commission to review applications for selling securities in the U.S. markets based on documents prepared for the Canadian counterpart. This agreement reduces filing costs and administrative burdens for both countries. However, only larger publicly-listed companies can take advantage of this process, excluding small companies and startups planning to launch an initial public offering (IPO).

Basics

The Multijurisdictional Disclosure System (MJDS) was jointly established in July 1991 by the U.S. Securities and Exchange Commission (SEC) and the Canadian Securities Administrators. It simplifies the process for eligible Canadian issuers to register securities under the Securities Act and report under the Exchange Act using documents that meet Canadian requirements. This system enables eligible Canadian companies to offer securities in the U.S. by using a prospectus that complies with Canadian disclosure standards, making it easier for companies from both countries to list their stocks on exchanges in each other's markets.

How Does the MJDS Work?

Under the Multijurisdictional Disclosure System, eligible issuers have the opportunity to fulfill U.S. continuous reporting obligations by submitting their Canadian disclosure documents to the U.S. SEC, accompanied by additional U.S. requirements. Additionally, these companies can file their routine Canadian disclosure documents with the SEC, subject to a few more U.S. requirements. While the SEC maintains the authority to review MJDS filings, it generally defers to the Canadian regulatory review unless there are concerns about the filing. This system effectively acknowledges that the Canadian regulatory requirements are sufficient to protect U.S. investors.

MJDS Effect

The MJDS agreement simplifies the fundraising process for Canadian companies by allowing them to raise funds through securities offerings in both the U.S. and Canada. This reduces the cost, time, and administrative burdens associated with issuing stocks and complying with multiple disclosure systems. Eligible Canadian companies can choose to raise funds either in conjunction with securities offerings in Canada or exclusively in the U.S. Additionally, there is a reciprocal agreement that permits U.S. firms to raise funds through securities offerings in Canada, although this is less commonly utilized.

To qualify for the MJDS, Canadian companies must meet specific requirements. This includes being publicly listed in Canada and having a minimum public float of a certain size. By meeting these criteria, Canadian companies can take advantage of the streamlined process provided by the MJDS to access funding opportunities in both the U.S. and Canadian markets, enhancing their fundraising capabilities and expanding their investor base.

Eligibility Rules for the MJDS

The MJDS offers a streamlined fundraising process; however, it is not accessible for smaller Canadian companies and startups seeking to raise funds through IPOs. While these companies have alternative avenues to raise funds in the U.S., they are not eligible for the simplified system provided by the MJDS, which is designed for larger publicly-listed companies.

On the other hand, for eligible companies that can take advantage of the MJDS, it offers significant benefits. It allows companies to raise funds in the U.S. market using various types of securities, except for certain derivative instruments. This provides flexibility in choosing the most suitable funding options while complying with the specified limitations.

By leveraging the MJDS, eligible companies can tap into the benefits of the streamlined fundraising process, reducing costs, time, and administrative burdens. However, it's important to note that the scope of eligibility for the MJDS is limited to larger publicly-listed companies, excluding smaller companies and startups looking to launch IPOs. These companies still have opportunities to raise funds in the U.S., but they need to navigate a different pathway without the streamlined benefits provided by the MJDS.

Conclusion

The Multijurisdictional Disclosure System simplifies the process for eligible Canadian issuers to register securities and report under the Securities Act and the Exchange Act in the U.S. using Canadian disclosure documents. This system reduces filing costs and administrative burdens for both countries, providing Canadian companies with access to U.S. funding opportunities and expanding their investor base. However, the MJDS is only available to larger publicly-listed companies, excluding smaller companies and startups planning to launch an IPO.