THE FUTURE: IS IT HERE YET?
By: Peter Figura
The growth and importance of the Exempt Market is indisputable. While it seems like a long time ago, it has only been five years since the required registration of the Dealing Representatives through NI 31-103 was introduced, opening up the first Exempt Market Dealerships (EMDs) for business. Since then, it appears that the changes are happening more rapidly. Perhaps just by being in the middle of the changes, it appears that the speed in which the industry is shaping up is sometimes overwhelming.
Most recent activities and, in particular, the upcoming regulatory changes (Offering Memorandum (OM) exemptions in Ontario) and the launch of TSX Private Markets by TMX Group confirm the importance of the private equity component of the securities industry. “The launch of TSX Private Markets is incredibly exciting.
Together with the OM Exemption coming in 2015 they will deliver the one-two punch that will establish the Exempt
I knew if I stayed here long enough this day would come,” states Stephen Freedman, President of Sloane Capital Corp. and EMD that operates nationally.
The exempt market will grow and it will get stronger. The attention from TMX Group only reaffirms that there is a need for a private equity component in investment portfolios, and therefore a trading platform to facilitate that need.
The new initiatives happened really fast. Less than 8 months ago, TMX announced their plans to launch the new trading platform for private markets, a service to facilitate capital formation and secondary trading of securities in the Exempt Market across Canada. TSX Private Markets enables TMX Group to serve companies throughout their evolution in both private and public sectors. The new platform will also enable industry to provide investors and shareholders with unique investment opportunities and increased liquidity.
TSX Private Markets will be ready to provide such capital formation and liquidity services. With the new services such as secondary trading of private issuer securities, public issuer ‘hold period’ shares, capital formation for private issuers, and the exemption available from the prospectus requirements for a proposed transaction, the importance of this initiative was quickly noticed by the financial press. In an article published by the Financial Post, Kevan Cowan said “the launch of TSX Private Markets will assist private companies in accessing capital in early stages of their development. On the execution side, we believe that private markets in Canada stand to benefit from and complement the proven success of our premier public markets.”
The attention that securities regulators are paying to private equities in Canada and the launch of the TSX Private Markets is a real game changer. Not only is this a recognition of the size of the market (OSC last provided figures reported that in 2011 in Ontario alone $86.5 Billion dollars was raised through exempt distributions), but it also highlights the increased importance of assuring functionality of this market in a manner that would increase participation by the investors, dealerships and the advisors in a manner similar to the public markets.
The importance of the efficiency of the private markets in Canada is really a nationwide effort. Peter Conroy is President of Shorcan Brokers Limited, a wholly-owned subsidiary of the TMX Group, and an EMD in every jurisdiction in Canada, which operates TSX Private Markets. He has been busy promoting the idea of TSX Private Markets to brokers, private equity firms, provincial securities commissions and other market participants for quite some time, and says that it was Shorcan oil and gas division that originally came up with the idea.
Mr. Conroy credits Tarun Ajwani, Vice President of Calgary- based Shorcan Energy Brokers, with suggesting TMX create a platform that would bring many market participants together to buy and sell private securities, improve liquidity, and also make valuations more transparent. All of these issues are taken for granted in the public market space, but exist in the private equity markets so-called ‘grey area’.
The idea of taking trading of private equities semi-public suggests a new and important trend that would lead to improved efficiency of capital markets in Canada. It has already happened south of the border through NASDAQ OMX’s joint venture with SharesPost in March of 2013 to create NASDAQ Private Market.
Why is this new initiative so important? After all, many investors would prefer to stay in private investments, avoiding all the criteria and consequences of existence in the public market space. The fact is that in many cases, the venture capital process in Canada was not functioning well. Smaller companies were not able to access the capital they needed from private sources and, as a result, they would either rush into either foreign ownership, look for strategic buyers, or simply apply too early for listing on public markets.
The new platform offered by the TMX Group was officially launched Friday, November 14, 2014. TSX Private Markets offers increased liquidity and significantly improved, more rational equity pricing, but it also exists to support small and mid-sized companies gain access to the necessary funding to transform into market leaders in the not-so-distant future. “TSX Private Markets is open for business, and we are excited to begin onboarding dealers and companies” stated Mr. Cowan. “Our new service offering aims to address existing challenges and create opportunities in an underserved segment of our markets.”