24) We expect issuers using the Start-Up Exemption to maintain
the information provided in the Issuer Information form and the
Offering Document form updated throughout the distribution
period. Should there be an obligation for issuers to further
update that information outside the distribution period?
No, the PCMA believes that maintaining the issuer and offering
forms outside of the distribution period represents an unnecessary
requirement and cost to issuers. Refer to question 23) regarding
our comments regarding ongoing disclosure.
25) Should investors have the right to withdraw their
subscription at least 48 hours prior to the disclosed offering
deadline, as proposed under the Crowdfunding Prospectus
No, the PCMA believes investors should not have the right to
withdraw their subscription at least 48 hours prior to the offering
deadline – rather, investors should have a two-day withdrawal right
after they commit to an investment. Allowing withdrawal rights at
least 48 hours prior to the disclosed offering deadline would allow
promoters to ‘game the system’ and recruit investors to invest
intially to give the appearance of a successful capital raise only to
have them withdraw prior to the deadline.
26) For Nova Scotia only, should Community Economic
Development Investment Funds (CEDIFs) be eligible to use
the Crowdfunding Prospectus Exemption and/or Start-Up
Exemption? If so, why? If not, why?
Yes, the PCMA believes that CEDIFs should be eligible to
use the Crowdfunding Prospectus Exemption and/or the Start-Up
Exemption notwithstanding the investment fund prohibition. CEDIFs
are a critical part of the capital raising ecosystem in Nova Scotia
and tax-incented structures should work hand-in-hand with the
Crowdfunding Prospectus Exemption and/or Start-Up Exemption.
27) Are there other requirements that should be imposed
to protect investors, taking into account the stage of
development of the issuers susceptible to issue securities
under the exemption?
No, the PCMA believes the proposed requirements are
The PCMA submits that the current OM Prospectus Exemption
is likely not an appropriate exemption for start-up businesses and
that CSA members who are not a Participating Jurisdiction should
consider adopting the Start-Up Exemption, provided that the
concerns we address above can be addressed.
Extract from the PCMA response to the OSC involving
Question #8 in its March 20, 2014 request for comments on the
Proposed OM Exemption involving the related issuer prohibition.
8) Do you agree with our proposal to prohibit registrants that
are “related” to the issuer (as defined in National Instrument
33-105 Underwriting Conflicts) from participating in an OM
distribution? We have significant investor protection concerns
about the activities of some EMDs that distribute securities of
“related” issuers. How would this restriction affect the ability
of start-ups and SMEs to raise capital?
The PCMA does not agree with the OSC’s proposal to prohibit
registrants that are “related” to an issuer from participating in an
OM distribution. Having to contract the services of a non-related
EMD to undertake a financing transaction will simply increase
the cost of capital for issuers who want to distribute their own
securities, and unduly restrict capital raising.
We respectfully disagree with the assumption that selling
securities of a related issuer is fundamentally unsound and
should be prohibited. Conceptually, there are many valid business
reasons for an issuer selling its own securities including wanting
to pay no or little commissions to third parties and controlling its
own distribution channels.
We believe if an issuer is in the “business of trading” securities
and must become registered as a dealer, or sell securities through
a dealer, the fact that an issuer becomes registered should be seen
as a positive outcome from a regulatory and industry perspective.
This was a fundamental intention behind NI 31-103. The issuer
itself, or through a related entity, is now regulated and subject
to the securities laws governing all registrants and its particular
category of registration. However, the OSC appears to be taking
the view that this situation is somehow worse for investors than
when the issuer was unregulated. We strongly disagree.
We believe the public interest is served by having such
an issuer registered and subject to the full oversight of a
securities regulator. Accordingly, the question should be
about what, if any, measures are needed to better regulate
a dealer selling securities of a related issuer rather than the
imposition of a blanket prohibition. We respectfully submit
that the prohibition is an over-reaction to some dealers
apparent disclosure and KYC deficiencies and is not the
appropriate approach in these circumstances.
We note that no other CSA member, other than Ontario and
New Brunswick, has proposed a prohibition on selling securities