(f) If investment caps are introduced, they should apply per
amounts raised per issuer
If the FCNB adopt investment caps, then the PCMA believes
they should apply for all amounts raised by an issuer during an
annual period and not for any and all issuers during an annual
period. This would alleviate some of the concerns we have with
adopting a fixed investment cap per investor.
(g) Limited data to support an investment cap of $30,000 per
annum
Lastly, we understand that the proposed investment cap of
$30,000 is based on two years of data provided by the Alberta
Securities Commission. We are not aware of any other data from any
other CSA member, including the FCNB, where the OM Exemption
has been available for many years. In the absence of such data,
we submit that adopting an investment cap is inconsistent with
the current approach for evidence‐based regulation. Moreover,
any arbitrary limits, or tiered investment thresholds based on the
eligibility or accreditation of investors, simply serves to restrict
access to capital that is needed to support Canadian businesses
and our economy.
Notwithstanding our comments in (e) and (f) above, we
wish to reiterate that the PCMA is fundamentally opposed to
the introduction of investment limits as proposed by the FCNB,
particularly when a dealer is involved in the transaction. We believe
the suitability obligations placed upon dealers are the fundamental
regulatory principle that should apply to all decisions on how much
an investor can, or should, be investing.
18) Should Ne w Brunswick prohibit the use of the OM Exemption
by investment funds? Please explain your reasoning.
The PCMA does not support the FCNB’s proposal to exclude
investment funds in the proposed OM Exemption and we strongly
believe investment funds should be permitted for the reasons set
out below.
(a) Investment funds can be used to help SMEs
Investment funds can be used to help finance SMEs and
provide diversification of risk for investors. Some investors would
like to participate in an investment vehicle that invests in equity
or debt securities of SMEs (not start‐ups) which would not be
permitted if the investment fund prohibition were introduced.
(b) Investment funds that have a registrant adequately protect
investors
PCMA believes that certain investment funds that are
managed by a portfolio manager (PM) adequately protect investors
and such investment funds should not be prohibited under the
OM Exemption. The involvement of a registrant provides added
protections for investors.
For example, it is not clear why issuers, such as flow‐through
limited partnerships (FTLPs), which are investment funds and
utilize a PM, should be barred from using the OM Exemption.
The investment fund prohibition will have serious capital
raising implications for FTLPs and issuers particularly in the
mining and oil and gas sector since a significant amount of capital
is raised in Canada under the OM Exemption for such issuers.
(c) New Brunswick and Ontario are the only jurisdictions to have
this concern
Other than the FCNB and the Ontario Securities Commission
(the OSC), no other CSA member seeks to impose the investment
fund prohibition, not even British Columbia or Alberta where the
OM Exemption has been in use for many years. In the absence
of specific concerns or evidence of problems in New Brunswick,
it is not clear why the FCNB is proposing such changes. If such
concerns do exist, we respectfully request FCNB to share those
concerns in detail so we may then have the opportunity to
provide a meaningful response to those concerns. If the FCNB
are concerned about certain types of investment funds, then we
would also request those to be clearly identified by the FCNB (and
the OSC) rather than simply proposing a blanket prohibition.
We respectfully submit that the FCNB and the OSC are creating
a barrier to capital raising and standing in the way of adopting
a nationalized and harmonized approach to the OM Prospectus
Exemption by introducing an investment fund prohibition.
(d) The definition of the term “investment fund” is not well defined
or agreed upon by Canadian securities regulators
The term “investment fund” is defined under securities
legislation and means a mutual fund and a non‐redeemable
investment fund. Under securities legislation, a “non‐redeemable
investment fund” means an issuer (a) whose primary purpose is
to invest money provided by its security holders, (b) that does not
invest with a view to exercising control of an issuer or with a view
to being actively involved in the management of an issuer, and (c)
who is not a mutual fund.
We note there is disagreement about the definition of a non‐
redeemable investment fund between the corporate finance
and investment funds branches within certain CSA members
and between CSA members. Although there has been some
recent guidance provided by certain CSA members involving
mortgage investment corporations, it is still not consistently
applied within and between CSA members. This uncertainty is
not in the public interest.
We are concerned that this uncertainty could lead to an offering
of securities by a fund that a market participant does not believe
is an “investment fund” (often based on advice of counsel and/or
opinions solicited from the investment funds branch or corporate
finance branch of a CSA member) and have another CSA member
object to such an offering and require it to be withdrawn. This
uncertainty and potential to force the withdrawal of an offering by
an issuer relying on the OM Exemption is inconsistent with our
mutual interests of fair and efficient capital markets.
Accordingly, we recommend that the FCNB withdraw
its proposed prohibition on investment funds under the OM
Exemption for New Brunswick.
