certain exceptions for venture issuers) and should be treated
equally. We see no reason to distinguish TSX-V issuers and venture
issuers listed on other exchanges for the purpose of eligibility to
use the Existing Security Holder Prospectus Exemption.
2) Do you agree that the offer must be made to all security
holders and on a pro rata basis? Do you agree that these
conditions support the fair treatment of all security holders?
No, the PCMA believes that the cost of administering a pro
rata rights offering is cost prohibitive to small issuers.
There is no requirement that an issuer make the offer on a pro
rata basis under the existing security holder exemption adopted in
all of the other provinces and territories in Canada. Ontario should
not impose a requirement that differs and potentially puts Ontario-based issuers and investors at a disadvantage or otherwise makes
the exemption unattractive.
The requirement to offer securities on a pro rata basis is one
of the reasons reporting issuers do not use the existing rights
offering exemption in Canada. Issuers when offering securities on
a pro rata basis must contact each shareholder by first contacting
their transfer agent to do a broker search for objecting and
non-objecting beneficial shareholders as of the record date for the
offering. They then need to mail a notice regarding the offering to
registered shareholders and to intermediaries for delivery to the
underlying beneficial shareholders and then wait a reasonable
time for response. This entails considerable time and added cost.
In addition, it provides a false sense of fair treatment as objecting
shareholders will not receive the offer eliminating any true pro rata
offer to all the shareholders of an issuer.
The existing rule adopted by the other CSA members
requires investors to self-identify after seeing the press release,
which streamlines the process. Issuers in their press release are
to describe how they intend to allocate securities if aggregate
subscriptions for securities under the proposed distribution exceed
the maximum number of securities proposed to be distributed.
Applicable stock exchange rules concerning private placements
also provide issuers guidance and require shareholder approval
if a private placement will create a new control person or if the
private placement involves a related party transaction. A pro rata
requirement adds very little in terms of fair treatment for the added
cost, time, and complication.
3) Do you agree that it is not necessary to differentiate between
a security holder that bought securities in the secondary
market one day before the announcement of the offering
and a security holder that bought the securities some longer
period before the announcement of the offering?
Yes, the PCMA agrees that this differentiation is not necessary.
4) Should securities distributed under the Existing Security
Holder Prospectus Exemption be freely tradeable?
No, the PCMA believes that a four-month hold period should
apply to securities distributed under the Existing Security Holder
Prospectus Exemption. Imposing a four-month hold period is
consistent with the hold-period that applies to other available
prospectus exemptions under NI 45-106, such as the accredited
CROWDFUNDING PROSPECTUS EXEMPTION
Issuer Qualification Criteria
1) Should the availability of the Crowdfunding Prospectus
Exemption be restricted to non-reporting issuers?
No, the PCMA believes the Crowdfunding Prospectus
Exemption should be equally accessible to reporting and
2) Is the proposed exclusion of real estate issuers that are not
reporting issuers appropriate?
No, the PCMA believes that real estate is an important asset
class for both investors and issuers for the reasons set out below:
(a) there are many profitable real estate investments that
provide steady yield and cash flow to investors while not relying on
speculation or market appreciation to provide returns. Moreover,
private real estate is highly uncorrelated to the public markets and
therefore provides an alternative and important cash flowing asset
class for yield-hungry investors;
(b) investors can be educated on how real estate is valuated.
Expenses and budgets can be accurately projected up front
so that investors are made aware of the projected costs and
revenues before subscribing to an investment. In fact, the OSC
has published guidance on such matters as set out in OSC Staff
Notice 51-721 Forward Looking Information Disclosure;
(c) many investors understand real estate and want to invest
in their communities;
(d) many investors do not have the time, experience or capital
to invest in a real estate project on their own. However, they can
invest a small amount that forms a part of their individual portfolio
while partnering with an experienced real estate developer/
property manager to operate the asset; and
(e) real estate investments create jobs for local small and
medium size enterprises (SMEs). For example, a single $1.5M
equity crowdfunding investment can support a real estate
development of $5M with the use of a typical real estate mortgage.