The Ontario Securities Commission (OSC) granted an Ontario corporation, Fractionvest Inc., exemptive relief from the requirement to register as a dealer under Ontario securities legislation. This decision allows the company to conduct a time-limited pilot test of its innovative business model, which involves using blockchain technology to tokenize and offer fractional ownership in a real estate asset.
The pilot test will focus on a single property in the Greater Toronto Area and will be available to a limited number of accredited investors who complete the company’s onboarding process. The property will be owned by a special purpose vehicle (SPV), structured as a limited partnership, with token holders becoming limited partners. These token holders will receive distributions of rental income, less expenses.
The OSC’s decision is based on the recognition of the growth in tokenized real estate businesses and the need to facilitate innovation while protecting investors. The relief is granted under section 25 of the Securities Act (Ontario) and is subject to several conditions, including:
– The pilot test is limited to one property and 100 investors.
– Only accredited investors can participate.
– The maximum investment per investor is $150,000.
– The Filer must deal fairly, honestly, and in good faith with investors.
– Funds received for token purchases must be held in escrow until the offering amount is raised or the offering period ends.
– The Filer cannot facilitate secondary trading of tokens or list them on a marketplace.
– Investors have a two-day right of withdrawal and a minimum hold period of two years for the tokens.
– The Filer must maintain a centralized register of token holders and provide an offering memorandum to investors.
– The Filer must submit an application to become registered within 9 months from the date of the decision.
The relief expires 18 months from the date of the decision or when the Filer becomes registered, whichever comes first. The decision is supported by various instruments, including National Instrument 45-106 Prospectus Exemptions, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, and Ontario Securities Commission Rule 72-503 Distributions Outside of Canada.