From the Regulators

A new report from the OSC finds that exempt-market issuance rose by 9% to a total of $72 billion in 2016 following a 40% gain in 2015

By James Langton |


Ontario's exempt market continued to grow in 2016 as companies began taking advantage of a series of new exemptions, according to a new report the Ontario Securities Commission (OSC) published on Thursday.

The OSC's report — which aims to assess activity in Ontario's exempt market in the wake of regulators' efforts to expand the availability of prospectus exemptions — indicates that exempt-market issuance increased by 9% year-over-year, raising a total of $72 billion in 2016 following a 40% gain in 2015.

U.S. issuers raised $28.2 billion of that, followed by Canadian issuers at $27 billion. The rest of the capital raising was by other foreign issuers. Although U.S. companies edged out Canadian firms based on the value of their exempt-market offerings, the latter accounted for almost two-thirds of the issuers.

From the investor side, the report indicates that more than 90% of the capital raised in the exempt market comes from accredited investors, mainly institutional investors, and that this was primarily invested in large foreign issuers such as banks, private equity funds and asset-backed structured finance vehicles.

Approximately 57% of the Canadian issuers that tapped Ontario's exempt market raised less than $1 million and they collectively accounted for less than 1% of annual gross proceeds raised by Canadian issuers, the report finds. This activity was concentrated in three sectors: natural resources, consumer goods and services, and real estate and mortgage finance.

So far, the new exemptions — including the offering memorandum (OM) exemption, friends and family exemption, and the existing shareholder exemption — have been used to raise a total of $163 million, the reports says.

Of this total, $68 million has been raised under the OM exemption, followed by the friends at family exemption, at $63 million, and $2 million for the existing shareholder exemption.

So far, the crowdfunding exemption has not been used, the report notes. However, it says that a small number of issuers "have used online funding portals to raise proceeds under the accredited investor or offering memorandum exemption."

For issuers relying on the new prospectus exemptions, natural resources issuers were the most frequent users measured by number of issues, whereas real estate and mortgage finance issuers accounted for most of the capital raised, the report says.

"Providing these data reflects our commitment to transparency and allows us to gauge the effectiveness of recently introduced capital-raising tools," says Paul Redman, chief economist with the OSC, in a statement. "These data also support the OSC's ongoing compliance and oversight efforts in the exempt market."

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