Letter From The Editor | Issue 9
By: Cora Pettipas
One step forward, two steps back. At least that was the prevalent theme reading the OSC and CSA’s publications that were published on the same day: March 20, 2014. Both regulatory bodies were announcing a ninety day Exempt Market comment period about proposed rule changes.
With the OSC’s publication, it looked like a major step forward as they proposed to open up their Exempt Market with four new prospectus exemptions: The Offering Memorandum (OM), Friends Family & Business Associates (FFBA), Crowdfunding, and Existing Security Holder. Even though industry did not feel the proposals exactly hit the mark; it is seen as a victory, it means progress for those raising capital and for investors who want to participate in Exempt Market investments.
With the CSA’s proposal, it was definitely two steps back. There was an industry and investor outcry about the proposed investor limits for non-accredited investors. The proposed limits would create an effective annual contribution room, in aggregate, for Exempt Market product of $10,000 for non-eligible investors and $30,000 for non-accredited (but eligible) investors who use the OM exemption.
The proposed limits have been called draconian by industry. It has been argued at length that the suitability regime brought in by NI 31-103 solved the significant past problems the industry had, and that these rules are nothing more than ‘regulating for the past.’
The OSC has proposed effectively the same model for investor limits as was proposed in the CSA proposal. Even though the limits are unfounded in any jurisdiction, it is understandable that Ontario would be cautious about introducing the OM exemption (which effectively opens up a retail Exempt Market).
It is about perspective: the OSC proposal gives Ontario investors more rights and issuers more options. The CSA proposal takes them away.
NEMA made these investor limit proposals and subsequent comment period our main priority this past quarter. We did extensive qualitative research with industry on the topic. We have held three town halls nationally to discuss these proposals with industry. We have had meetings with approximately sixty stakeholders, industry leaders, and other related associations.
NEMA has also presented, and had consultation sessions, with six of the largest Exempt Market Dealers (EMDs) accounting for 270 Dealing Representatives (DRs). NEMA read through and discussed the content in hundreds of letters written by our members and Exempt Market investors. NEMA complied this information, and then wrote and submitted an extensive submission to the CSA and OSC.
Regulators received over one thousand letters from industry and Exempt Market investors against the proposed limits. Saying ‘thank you’ to our members that participated feels inadequate. NEMA deeply appreciates all its members’ contributions to the betterment of this industry. We heartily thank you for donating your time and talents to this letter campaign, as you made it successful.
Our membership has showed significant strength and fortitude in how they responded to these proposals. Our industry is more united, and has a renewed sense of pride.
NEMA will keep on top of this issue and keep you informed on new developments, as NEMA is your industry, your voice, and your future.