Private Capital Markets
Association of Canada
The Private Capital Markets Association of
Canada (PCMA) understands that capital is the
lifeblood of business. Entrepreneurs cannot start,
or build businesses if they cannot raise capital.
And when they need to raise that capital, they turn
overwhelmingly to the private markets.
The private markets have been a great success
in Canada. In 2011, for example, the Canadian
Securities Administrators (CSA) estimated that the
exempt market in Canada was in excess of $150
billion, compared to a public market of just $60
billion. The exempt market is particularly important
for small and medium sized enterprises (SMEs) that
are usually too small to access the public market in a
cost-effective manner, if they can access it at all. This
is particularly significant because SMEs account for
over 50% of jobs created across Canada.
Compared to other provinces, Ontario’s current
private capital market rules make it difficult for
SMEs to access the capital necessary to grow their
businesses. Now Ontario has the opportunity to
change this. The Ontario Securities Commission
(OSC) proposal to open up the Offering Memorandum
Exemption (OM Exemption) in Ontario is a very
positive step and it has the potential to provide small
businesses, entrepreneurs and investors access to
new capital, and new opportunities.
Unfortunately, the OSC is bringing its proposals
forward with new restrictions that may prevent Ontario
and its small and medium sized businesses from
reaping the full benefit of this important policy change.
First, Ontario, along with the regulators in
Alberta, Saskatchewan and Quebec, are proposing
that investors be limited to purchasing a maximum
of $30,000 of securities per year under the OM
Exemption. For issuers this restriction is problematic
and may in fact make it more expensive and time-consuming for companies to raise capital as they will
have to raise funds from a larger number of investors.
This would create a significant new barrier for SMEs
to raise money and will mean that the OM Exemption
will be less useful for them.
For dealers, the $30,000 cap would also add
an additional layer of suitability regulation that is not
needed. Exempt market dealers (EMDs) and for that
matter IIROC and MFDA dealers are already required
to ensure that investments are suitable for investors.
What does this investment cap add that isn’t already
clear in client suitability assessment obligations? The
CSA has reminded dealers in January’s CSA Staff
Notice 31-336 that part of a suitability determination
includes the size of a particular investment and whether
a particular client may be ‘over exposed’ to the risks of
a particular type of investment. It is far from clear that
arbitrary investment caps or ‘concentration limits’ are
the right way to ensure dealers arrive at appropriate
suitability assessments for their clients.
Secondly, the OSC is also proposing a related
party prohibition that would prevent an issuer from
retaining a related registered dealer or affiliate to sell its
securities under the new OM Exemption. The impact
of the related party prohibition would be significant for
OSC Offering Memorandum
Proposals a Positive Step
By Geoffrey Ritchie