public for various reasons. They would prefer to raise capital
under the OM Prospectus Exemption and not under a prospectus
given the inherent costs associated with preparing and filing a
prospectus, as well as ongoing reporting requirements.
We note that the OM Prospectus Exemption is not typically
used for start-up and early stage financings. The amount of capital
required for growth and expansion capital vary widely by industry
sector, stage of development and business strategy. Indeed, the
cost of compliance when relying on the OM Prospectus Exemption
is significant. To impose caps would further dissuade issuers from
relying on it.
(b) The OM Prospectus Exemption has been used extensively
in Western Canada in multiple industries by issuers at various
stages and offering sizes, with no limits on capital raised. We
believe Ontario should follow the same approach. Accordingly, we
agree with the OSC’s proposal that there should be no issuer caps
and no limits on the number of times an issuer can utilize the OM
Prospectus Exemption, in any time-frame.
3) a) What type of issuer is most likely to use the OM
Prospectus Exemption to raise capital? (b) Should we vary the
requirements of the OM Prospectus Exemption to be different
(for example, disclosure requirements) depending on the
issuer’s industry, such as real estate or mining?
(a) We believe a prospectus exemption should be available
to any issuer in any sector and not necessarily tailored for any
particular issuer or industry.
How frequently the OM Prospectus Exemption is used or not
and by which types of issuers and/or sectors is result of a number
of factors. For example, certain sectors such as real estate, may
use the OM Prospectus Exemption more frequently than other
sectors since EMDs are more inclined to sell a security that provide
investors with regular distributions than one that does not (e.g., a
technology or manufacturing issuer that provides no distributions
and is purely an equity investment opportunity). EMDs sell
securities that are in demand by investors and the use, or non-use,
of the OM Prospectus Exemption may be more a reflection of such
dynamics. Potentially, a lack of knowledge about the exemption
and/or the cost of preparing an OM may also dissuade certain
types of issuers from using the OM Prospectus Exemption.
As stated in #1 above, we do not believe that start-ups will make
significant use of the OM Prospectus Exemption since the cost of
compliance is too great. In order to improve access to capital for
SMEs, we believe the OSC should include the exemptive relief set
out in the Blanket Orders, as part of the proposed OM Prospectus
Exemption and also consider adopting the Start-Up Exemption -
provided that the funding portal is regulated in a manner similar to
the way the OSC contemplates regulating funding portals under
proposed MI 45-108.
(b) Yes, the OSC should vary the disclosure requirements of
the OM Prospectus Exemption to be tailored to a particular issuer’s
industry. Different industry sectors would absolutely benefit from
additional rules and guidance by the OSC on specific disclosure
requirements for certain industries or securities.
For example, when real estate is sold with a management
contract where an investor receives regular distributions, such
arrangements are typically viewed as an “investment contract”
which is a type of security. Alberta, for example, has tailored
disclosure in such instances for what are called real estate
securities. We believe the OSC, the ASC and other CSA members
should update and review such disclosure and provide uniform
disclosure requirements for real estate securities. We also believe
additional rules and guidance should be provided for mining, real
estate development, early stage and other types of issuers.
Additionally, disclosure guidelines are needed where a Topco
raises capital under a trust or limited partnership vehicle, which
then provides the proceeds to an underlying operating company in
exchange for debt and/or equity in Bottomco. Additional guidance
is required for these indirect offering structures in the private
OM disclosure is about the exercise of judgment about what
information is required to be included in an OM and what is not.
We find that different CSA members have different views on the
length and quality of disclosure, which also differs between the
corporate finance/investment fund groups within a given CSA
member, and their respective compliance and enforcement
branches. Issuers and professionals are in need of additional OM
disclosure guidance from the CSA, including the OSC, since no
issuer wants to be cease traded for inadequate disclosure and be
required to offer investors rescission rights if the issuer wants to
sell securities again.
Notwithstanding this, the OSC should not delay
implementing the OM Prospectus Exemption in the interest of
developing these industry-specific disclosure requirements. We
recommend these be considered as a phase two of the Exempt
Market Review initiated by the OSC and broadened to include
other CSA members.
4) We have identified certain concerns with the sale of real
estate securities by non-reporting issuers in the exempt
market. As phase two of the Exempt Market Review, we
propose to develop tailored disclosure requirements for
these types of issuers. Is this timing appropriate or should
we consider including tailored disclosure requirements
concurrently with the introduction of the OM Prospectus
Exemption in Ontario?
The PCMA recognizes that the OM Prospectus Exemption
introduces a new way to raise capital in Ontario and there will be a
learning curve for both Ontario issuers and the OSC. However, the
need for increased capital is more critical now than ever and we
note it has already been almost two years since the OSC began
considering new ways of raising capital. We appreciate necessary