By: Craig Skauge
To the shock of the nation, Albertans elected a majority NDP government on May 5th 2015. The Progressive Conservative Party’s forty-four year dynasty crashed and burned before our very eyes in what was truly a historic election. What this means exactly for both Alberta and Canada remains to be seen, but while life in Alberta does not appear much different yet, the reality is that things are set to drastically change. While fresh ideas will undoubtedly be welcome in many areas, such as healthcare and education, there will inevitably be some changes coming that the business community may not like. And these will go beyond a royalty review, a minimum wage increase, and corporate tax hikes.
As it is generally not a concern to the average taxpayer, the role of government in securities legislation is rarely discussed during an election. Alberta’s provincial election this past May was no different. Voters, and accordingly those running for office, focused on a few select items; those being the realities of a sixty dollar per barrel economy, the inefficiencies in the healthcare system, and Alberta’s notoriously overcrowded schools.
During this recent election, there was a lot of general discussion surrounding the need for Alberta to diversify its economy and get off the boom and bust of the oil and gas cycle, but little was relayed by any party in terms of exactly how that could be accomplished. Fundamental to creating jobs and diversifying an economy is, of course, access to capital; which ties in directly to efficient securities legislation. But again, with big ticket items like eight hour emergency room waiting times on the agenda, each political party’s views on securities legislation, both on a provincial and national front, was left untouched.
For all their highly publicized shortcomings, the Alberta PC party historically stood its ground on many fronts, one of which was the notion that securities legislation was best handled locally. As such, despite significant pressure, Alberta opted, alongside Quebec, to not sign on to the Provincial Capital Markets Act (PCMA) or join the Cooperative Capital Market’s Regulator (CCMR). But will this position, like so many other things, change with a new provincial government? Alberta’s decision to decline joining the ‘Grand Market Regulator’ was due to a resistance from ASC Chair Bill Rice, former Minister of Finance Doug Horner (and his predecessors), and former Premier Jim Prentice (and his predecessors). Now that we have a new ruling party, a new Premier, a new Finance Minister, and an anticipated new ASC Chair, will Alberta stay the course or ultimately sign on? While subject to input from both the Minister of Finance and the ASC, this decision ultimately lies with the premier, who, by all appearances could not be more different than Mr. Prentice.
While having plenty of her own accolades to tout, Premier Rachel Notley and the NDP ran a campaign based very much on what they were not: Progressive Conservatives. The PCs were in such disfavor with the general public, that going the opposite direction of them was an obvious approach to take. So where does this leave us in terms of securities legislation? Given that it was effectively an unmentioned issue during the election, no promises will be kept or broken if the NDP opts to sign Alberta up for the CCMR.
Since the day she was elected the 17th Premier in Alberta’s history, Premier Notley has been very vocal about her intent to listen to Alberta’s business community and not join the legacy of Bob Rae. Be that as it may, despite significant pushback from Alberta business leaders (most of whom are opposed to Alberta joining the CCMR), the NDP have already announced the raising of taxes, both personal and corporate, increasing minimum wage by nearly 50%, and a royalty review. They are clearly signaling little interest in winning the popular vote of those who fill downtown office towers.
In spite of the evidence of a party interested in bucking the status quo, highly respected Alberta political analyst, Professor Duane Bratt of Mountain Royal University offered the following “It is tough to imagine any Alberta government, even an NDP one, signing on to a national securities regulator. Calgary has been trying to become a counterweight to Toronto financial dominance. It is starting to make inroads. Why would it give up its growing clout to a stock exchange system that would essentially be the TSE for the country? Hatred of eastern bankers has a rich tradition in Alberta - witness the creation and maintenance of ATB. Or the creation of First Energy to provide capital to the energy sector. Rachel Notley is an Alberta politician first, and a NDP politician second.”
While the addition of Prince Edward Island, New Brunswick and most recently the Yukon (!) to the CCMR may have been deemed newsworthy by some; the fact of the matter is that there are really only four seats at this table. Two of them have signed on, those being Ontario and British Columbia, and two of them have so far declined. Quebec will likely remain opposed to the idea. However Alberta, who once seemed unquestionably opposed, must now be looked at differently. As many market participants steer clear of Quebec due to translation requirements, a move by Alberta to join the CCMR would effectively leave many exempt market stakeholders under the rule of a single regulator. While the CCMR has promised to be respective of local markets, it is hard to imagine that an important item like the OM exemption will not become a national standard as this all unfolds. So while those in BC, for example, may feel that they have few worries given the historic resistance by the BC Securities Commission to alter exemptions, they may soon find their rulebook being heavily influenced by Ontario (and potentially Alberta) ideologies.
For those of us that earn a living in the securities world, particularly the retail exempt market, it is hardly news that each province has its own philosophy and subtle nuances when it comes to the business of raising capital. If you raise money from BC residents, you have generally enjoyed the freest market in the country, raising funds without worrying about an investor’s ‘status.’ In BC, the values of ease of capital formation, and a healthy business environment, governs above all else. Move next door to Alberta, and capital formation is important, but there is an extra onus on restrictions in the name of investor protection, limiting how much lower income earners can invest in the exempt market (the eligible investor regime). As has been well documented, Ontario has historically been very heavy on limitations rationalized for the investor protection front, allowing only the wealthiest to invest in exempt market securities by not even adopting the OM exemption (which is set to change soon).
Even thou we are a large and diverse country, what happens in one region effects the others. We are interdependent. To the multiple Issuers and EMDs who operate outside the boarders of their principal regulator, understanding multiple securities acts has been a necessary hurdle to expand their business. While most industry participants would unquestionably favour the BCSC’s pro capital formation model, industry has had to deal with the rules set by the jurisdiction(s) in which they have operated. This of course has proved advantageous for some (in BC) while restrictive for others (in ON). Nonetheless, the reality has been that where you live and operate has had a fundamental effect on your ability to earn a living, whether you are an Issuer in search of capital, a Dealing Representative who is raising capital, an investor in search of passive income, or even a securities lawyer who keeps your clients in line. As such, we have all typically only concerned ourselves with the rules in the jurisdiction(s) where we operate and let those in other provinces worry about their own turf.
With the pending mobilization of the CCMR however, this is about to change. The unification of securities regulators in British Columbia, Ontario, Saskatchewan, New Brunswick, PEI, and the Yukon will ultimately lead to a significantly uniform set of rules governing the capital markets as a whole, including the exempt market. Once mobilized, will BCSC’s traditional philosophy be abandoned in favour of the (much more dominant) OSC; whose version of the OM Exemption, will unquestionably have investor restrictions? Will the two biggest players presently at the table meet in the middle and adopt the Alberta model? Or will it be something entirely different? Without question, what happens outside of your province’s boarders matters now more than ever. When it comes to securities legislation, we no longer live in a world of provincial isolation.
So where will this land you ask? Your guess is as good as mine - but do not be too sure of anything until it is official - because remember: Albertans would never elect an NDP government.