From the Regulators

Regulator promises to act early next year on other proposed exemptions

The Ontario Securities Commission (OSC) is adopting its proposed new prospectus exemption for existing shareholders, and promises to act on its other proposed new exemptions, using offering memorandums (OM) and crowdfunding, early next year.

The OSC has finalized its new exemption that will allow issuers listed on the Toronto Stock Exchange, TSX Venture Exchange, Canadian Securities Exchange, and the new Aequitas NEO Exchange, to cost-effectively raise fresh capital directly from existing shareholders without an offering document. At the same time, the exemption allows investors to acquire securities without turning to the secondary market. Subject to ministerial approval, the new exemption will come into effect on February 11, 2015.

The commission notes that the exemption includes a number of investor protection measures, including that investors will have to adhere to $15,000 investment limits, unless they obtain advice regarding the suitability of the investment. Issuers must make offerings under this exemption to all existing security holders. And, issuers will be subject to liability for any misrepresentations in their disclosure record.

Regulators in various other provinces have adopted their own version of the exemption. The OSC indicates that it has made a number of changes to its exemption in order to harmonize with the exemption adopted by the rest of the Canadian Securities Administrators (CSA). 

One difference that remains is that investment fund issuers in Ontario cannot use the exemption. The OSC says that the exclusion of investment funds is consistent with the objective of facilitating capital raising for small companies.

The OSC indicates that it is also still considering three other new exemptions, including an OM exemption, a crowdunding exemption, and a family, friends and business associates exemption. The commission says that it is still weighing the feedback it received during a consultation on these proposals.

"This work is a priority for the OSC," it says, adding that it intends to either publish the other three exemptions in final form, or for a second comment period, "as soon as reasonably practicable in the new year."

"The exempt market is a crucial source of capital for growing companies, and it is critical that it is globally competitive and that investors can participate in the market with confidence," said Howard Wetston, OSC chair and CEO. "This new prospectus exemption is the first of several exemptions we are considering, which are expected to help streamline capital raising for businesses in the exempt market."