Ontario’s Private Capital Markets and SMEs need a boost
2. Capital is raised in the private capital markets in reliance on
exemptions from the prospectus requirement of applicable securities legislation.
3. ;e vast majority of capital raised in Ontario is raised in reliance
on the accredited investor exemption. It is an exemption based on
the ;nancial pro;le of the investor.
4. ;ere is a limited pool of accredited investors in Ontario and in
5. SMEs have di;culty raising capital in the private capital
markets, creating a need for an alternative to the accredited
;e OM Exemption has missed the mark in Ontario
6. ;e OM Exemption was introduced in Ontario on January 13,
2016. It was a core initiative of the OSC’s Exempt Market
Advisory Committee established in the fall of 2012 to examine
new ways to raise capital in Ontario. ;e OM Exemption is an
exemption based on prescribed disclosure by the issuer along with
speci;ed ongoing reporting requirements.
7. It has been over a year since the OM Exemption was introduced
in the Province and the new exemption has had little impact on
capital raising in Ontario’s private capital markets.
8. ;e PCMA believes the OM Exemption is unattractive to
a. the disclosure and reporting burden is great; and
b. the capital raising potential is limited.
9. ;e limits on capital raising under the OM Exemption are the
a. investment caps on investors during a trailing 12-month period; and
b. exclusion of “investment funds”, “speci;ed derivatives” and
“structured ;nance products”, as those terms are de;ned under
Ontario securities law.
10. ;e PCMA believes that these limits make it too di;cult to
raise capital, particularly in light of the substantial disclosure and
reporting burden on issuers. In short, it is not worth it for issuers
to rely on the OM Exemption. We believe this is the primary
reason the OM Exemption has not been used as much as initially
anticipated by the OSC.
11. Ontario’s experience in the ;rst year of the OM Exemption
demonstrates that the exemption is having little impact.
PCMA RECOMMENDATIONS ON HOW TO FIX
ONTARIO’S OM EXEMPTION:
Remove some limits, adjust others
12. ;e PCMA believes the OM Exemption can be made more
e;ective by removing certain of the limits and adjusting others.
Adjust the balance between investor protection and capital raising
13. ;e PCMA recognizes that Ontario wants to protect investors.
We also recognize that Ontario wants to facilitate the formation of
3 ;ese objectives pull in opposite directions.
14. Currently, the OM Exemption protects investors in three main
a. mandatory disclosure and reporting requirements;
b. investment caps; and
c. exclusion of investment funds, speci;ed derivatives and
structured ;nance products.
15. We understand that protecting investors means protecting
them from making bad investments – investments that are, in
some objective sense, inherently too dangerous, too risky.
16. Of course, some investments will fail no matter what the rules
are. Even inherently sound investments can and do fail. ;is is all
part of the risk/reward continuum of investing. ;e PCMA
submits that it is not the job of the regulators, nor the responsibility of the participants in the capital markets, to eliminate investment risk. ;e objective should be to promote better and more
informed investment decisions.
17. Not all of the limits imposed by the OM Exemption promote
better investment decisions. Certain limits merely impede investment, impacting good investments and bad investments alike.
OFFERING MEMORANDUM EXEMPTION – BROADEN THE EXEMPTION
BRIEFING NOTE FOR THE PCMA’S PRESENTATION AT QUEEN'S PARK ON MARCH 9, 2017
ISSUE: 1. ;e Ontario Securities Commission (the OSC) has adopted the o;ering memorandum exemption (the OM
Exemption) 1 from the prospectus requirement of the Securities Act (Ontario), but has done so on terms that are too restrictive. ;e Private Capital Markets Association of Canada (the PCMA) wants a more meaningful alternative to the accredited investor exemption as a means of stimulating capital formation in the private capital markets in Ontario. As
presently enacted, the OM Exemption is not having a material positive impact on capital raising for small and medium-sized enterprises (SMEs). SMEs are an important part of the Ontario economy and a vital source of jobs in Ontario.