Rule_237_Supporting_Statement (06.21.17 DRAFT)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 237
A.

JUSTIFICATION
1. Necessity for the Information Collection
In Canada, as in the United States, individuals can invest a portion of their earnings in

tax-deferred retirement savings accounts (“Canadian retirement accounts”). These accounts,
which operate in a manner similar to individual retirement accounts in the United States, encourage
retirement savings by permitting savings on a tax-deferred basis. Individuals who establish
Canadian retirement accounts while living and working in Canada and who later move to the United
States (“Canadian-U.S. Participants” or “participants”) often continue to hold their retirement
assets in their Canadian retirement accounts rather than prematurely withdrawing (or “cashing
out”) those assets, which would result in immediate taxation in Canada.
Once in the United States, however, these participants historically have been unable to
manage their Canadian retirement account investments. Most securities that are “qualified
investments” for Canadian retirement accounts are not registered under the U.S. securities laws.
Those securities, therefore, generally cannot be publicly offered and sold in the United States
without violating the registration requirement of the Securities Act of 1933 (“Securities Act”) (15
U.S.C. 77). 1 As a result of this registration requirement, Canadian-U.S. Participants previously

1

In addition, the offering and selling of securities of investment companies (“funds”) that are
not registered pursuant to the Investment Company Act of 1940 (“Investment Company Act”)
(15 U.S.C. 80a) is generally prohibited by U.S. securities laws.

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were not able to purchase or exchange securities for their Canadian retirement accounts as needed
to meet their changing investment goals or income needs.
The Commission issued a rulemaking in 2000 that enabled Canadian-U.S. Participants to
manage the assets in their Canadian retirement accounts by providing relief from the U.S.
registration requirements for offers of securities of foreign issuers to Canadian-U.S. Participants
and sales to Canadian retirement accounts. 2 Rule 237 under the Securities Act 3 permits securities
of foreign issuers, including securities of foreign funds, to be offered to Canadian-U.S. Participants
and sold to their Canadian retirement accounts without being registered under the Securities Act.
Rule 237 contains a “collection of information” requirement within the meaning of the
Paperwork Reduction Act of 1995 (“PRA”). 4 Rule 237 requires written offering materials for
securities that are offered and sold in reliance on the rule to disclose prominently that those
securities are not registered with the Commission and are exempt from registration under the U.S.
securities laws. Rule 237 does not require any documents to be filed with the Commission.
2.

Purpose and Use of the Information Collection

Rule 237 has provided relief from the U.S. registration requirements for the offer of a
foreign issuer’s securities to a Canadian-U.S. Participant and the sale of those securities to his or
2

See Offer and Sale of Securities to Canadian Tax-Deferred Retirement Savings Accounts,
Release Nos. 33-7860, 34-42905, IC-24491 (June 7, 2000) [65 FR 37672 (June 15, 2000)].
This rulemaking also included new rule 7d-2 under the Investment Company Act, permitting
foreign funds to offer securities to Canadian-U.S. Participants and sell securities to Canadian
retirement accounts without registering as investment companies under the Investment
Company Act. 17 CFR 270.7d-2.

3

17 CFR 230.237.

4

44 U.S.C. 3501 - 3502.

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her Canadian retirement account. Written offering materials concerning securities offered or sold in
reliance on the rule must disclose prominently that those securities are not registered with the
Commission, and are exempt from registration. The rule is designed to ensure that Canadian-U.S.
Participants are aware that those securities are not subject to the protections afforded by
registration under the U.S. securities laws.
3.

Consideration Given to Information Technology

There are no requirements in rule 237 that any documents be filed with the Commission.
There is no “collection of information” that involves the use of automated, electronic, mechanical, or
other forms of information technology.
4.

Duplication

No other rule duplicates the requirement that written offering materials concerning
securities offered or sold in reliance on rule 237 disclose that those securities are not registered with
the Commission. 5 This information likely would not be readily available to Canadian-U.S.
Participants without this disclosure requirement.
5.

5

Effect on Small Entities

Rule 7d-2 under the Investment Company Act requires that the fund provide similar, but not
identical, disclosures. The differences reflect that investment companies are registered under
the Investment Company Act, while securities issued by the funds to the public are registered
under the Securities Act. Canadian funds can rely on both rule 7d-2 and rule 237 to offer
securities to participants and sell securities to their Canadian retirement accounts. Rule 237,
however, does not require any disclosure in addition to that required by rule 7d-2. Thus, the
disclosure requirements of rule 237 do not impose any burden on Canadian funds in addition to
the burden imposed by the disclosure requirements of rule 7d-2. To avoid double-counting this
burden, the staff has excluded Canadian funds from the estimate of the hourly burden
associated with rule 237.

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Rule 237 enables Canadian-U.S. participants to manage assets in their Canadian retirement
accounts by providing relief from U.S. registration requirements. The burden under the rule
consists of adding certain disclosure information to written offering materials. This is a minimal and
non-recurring burden that applies equally to both small and large entities. The Commission believes
that it would not be feasible to adjust the rule to lessen this minor burden on small entities because
the disclosure requirements ensure that participants are aware that securities covered by the rule
are not subject to protections afforded under the U.S. securities laws.
6.

Consequences of Not Conducting Collection

The rule requires each written offering document for securities offered or sold in reliance on
the rule to disclose prominently that those securities are not registered with the Commission. Less
frequent disclosure of this information would not fulfill the objective of ensuring that Canadian-U.S.
Participants are aware that the investments that they make for their Canadian retirement accounts
are not subject to the protections afforded by registration under the U.S. securities laws.
7.

Inconsistencies With Guidelines in 5 CFR 1230.5(d)(2)

Not applicable.
8.

Consultations Outside of the Agency

The Commission requested public comment on the collection of information requirements in
rule 237 before it submitted this request for extension and approval to the Office of Management
and Budget. The Commission received no comments in response to its request.
The Commission and the staff of the Division of Investment Management participate in an
ongoing dialogue with representatives of the fund industry through public conferences, meetings,

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and informal exchanges. These forums provide the Commission and the staff means of
ascertaining and acting upon paperwork burdens confronting the industry.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

Not applicable.
12.

Burden of Information Collection

Rule 237 requires written offering documents for securities offered and sold in reliance on
the rule to disclose prominently that the securities are not registered with the Commission and are
exempt from registration under the U.S. securities laws. The burden under the rule associated with
adding this disclosure to written offering documents is minimal and is non-recurring. The foreign
issuer, underwriter, or broker-dealer can re-draft an existing prospectus or other written offering
material to add this disclosure statement, or may draft a sticker or supplement containing this
disclosure to be added to existing offering materials. In either case, the staff estimates that it would
take an average of 10 minutes per document to draft the requisite disclosure statement.
The Commission understands that there are approximately 2,412 Canadian issuers other
than funds that may rely on rule 237 to make an initial public offering of their securities to
Canadian-U.S. Participants. 6 The staff estimates that in any given year approximately 24 (or 1

6

This estimate is based on the following calculation: 2,322 equity issuers + 90 bond issuers =

(continued . . .)

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percent) of those issuers are likely to rely on rule 237 to make a public offering of their securities to
participants, and that each of those 24 issuers, on average, distributes 3 different written offering
documents concerning those securities, for a total of 72 offering documents.
The staff therefore estimates that during each year that rule 237 is in effect, approximately
24 respondents 7 would be required to make 72 responses by adding the new disclosure statements
to approximately 72 written offering documents. Thus, the staff estimates that the total annual
burden associated with the rule 237 disclosure requirement would be approximately 12 hours (72
offering documents x 10 minutes per document). The total annual cost of internal burden hours is
estimated to be $4,980 (12 hours x $415 per hour of attorney time). 8
In addition, issuers from foreign countries other than Canada could rely on rule 237 to offer
securities to Canadian-U.S. Participants and sell securities to their accounts without becoming
subject to the registration requirements of the Securities Act. However, the staff believes that the
number of issuers from other countries that rely on rule 237, and that therefore are required to
comply with the offering document disclosure requirements, is negligible.

2,412 total issuers (as of Dec. 2018). See The MiG Report, Toronto Stock Exchange and
TSX Venture Exchange (Dec. 2018) (providing number of equity and bond issuers on the
Toronto Exchange).
7

This estimate of respondents only includes foreign issuers. The number of respondents would
be greater if foreign underwriters or broker-dealers draft stickers or supplements to add the
required disclosure to existing offering documents.

8

The Commission’s estimate concerning the wage rate for attorney time is based on salary
information for the securities industry compiled by the Securities Industry and Financial
Markets Association (“SIFMA”). The $415 per hour figure for an attorney is from SIFMA’s
Management & Professional Earnings in the Securities Industry 2013, modified by
Commission staff to account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits, overhead, and inflation.

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13.

Cost to Respondents

The disclosure requirements do not entail any annual external cost burden in addition to the
cost of the hourly burden discussed above.
14.

Cost to the Federal Government

The disclosure requirements would not entail any cost to the federal government. Rule 237
does not require issuers to file any documents with the Commission.
15.

Changes in Burden

The burden hours for rule 237 decreased from 18 hours to 12 hours based on a decrease in
the estimated number of issuers that may rely on the rule. There are no changes to the external cost
burdens.
Rule 237
Information
Collection
Disclosure
requiremen
t

Previousl
y
approved
108

Annual No.
of Responses
Requested

Chang
e

72

-36

Annual Time Burden (Hrs.)
Previousl
Chang
y
Requested
e
approved
18

12

-6

Burden Cost Burden ($)
Previousl
Chang
y
Requested
e
approved
0

0

0

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16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submisisons

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.