many issuers/firms including mortgage investment corporations,
real estate or oil and gas companies that have in-house registered
dealers. We should also remember why most of those issuers have
related dealers – because NI 31-103 required issuers to register
as dealers if they were ‘in the business’ of selling securities. So
let’s be clear, regulators told issuers to register as dealers, and
now are telling those dealers they shouldn’t be selling their issuers
products. The restriction against dealers selling securities of their
own issuers through the OM Exemption is a fundamental flaw in
the Ontario approach.
This restriction would also create a material competitive
disadvantage for EMDs compared to other participants in the
Canadian capital raising industry. Securities dealers within major
banks, and other integrated financial institutions regularly sell their
own investment products on a public and exempt market basis.
Many large mutual fund dealers in Canada are owned by mutual
fund manufacturers and many exclusively sell their own related
products, yet no restrictions are being proposed for them.
The OSC’s explanation for the related party prohibition is that
it has “concerns about the activities of some EMDs that distribute
securities of ‘related’ issuers”. If in fact some EMDs are having
trouble managing conflicts or ensuring appropriate KYC, KYP and
suitability is being done, then lets address that problem with those
firms. There are many educational, compliance and enforcement
tools at the regulators disposal for that purpose. What is not
clear is why such a significant restriction, one that only applies
only to one prospectus exemption, is the right approach? This
restriction will disadvantage EMDs and exempt market issuers and
impede the growth of this segment of the securities market. This
seems at odds with the focus on growth and expanded capital
raising priorities in this sector, one that governments have been
encouraging given the vital role the private capital markets play in
helping SMEs raise capital.
Thankfully, these problematic points are only at the proposal
stage. As an industry we have an opportunity to work with
the regulators to voice our concerns and propose alternative
approaches. Together we can ensure that the adoption of the
OM Exemption in Ontario has the potential to increase access
to capital and boost the economic development and job creation
opportunities that come with it.
The OSC is accepting comments on their proposed
regulations until June 18. The PCMA will be submitting comments
on behalf of our members and encourages members to submit
comments on their own. More information on the proposals is
available at http://www.osc.gov. on.ca/en/15126.htm
For more information contact:
firstname.lastname@example.org | 416.509.9179
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