When pigs fly | the OM exemptions pending arrival in Ontario
By: Craig Skauge
On a trip to Toronto in late 2011, almost every person I met with, be they an EMD, Issuer, securities lawyer, or otherwise said that the biggest change they would like to see in the Exempt Market in Ontario was adoption of the OM exemption. Having said that, they each pretty much said a variation of the same thing about the possibility of that happening….
‘You’ll Never See It’
‘Not Gonna Happen’
‘They Won’t Even Consider It’
‘When Pigs Fly’
Always one to enjoy a challenge, it was then that I decided it was time to see if the impossible was in fact possible and if not, at least ruffle a few feathers and get NEMA (then WEMA) noticed by regulators.
In the first issue of this publication, I wrote an article entitled “The Island of Ontario.” Being extremely familiar with the inner workings of the retail Exempt Market and having been enlightened during my recent trip, I’d become perplexed with how different the OSC’s treatment of the retail Exempt Market was when compared to other jurisdictions. On one hand, the OSC appeared to be ahead of the curve implementing a Limited Market Dealer (LMD) regime well before NI 31-103 came into force, but on the other hand, their lack of retail based investor exemptions made that very registration category fairly useless. Why hold a license that only allows you to speak to 2% of the population?
As it did not appear to be on the OSC’s agenda at the time, it needed to be brought up so I put my pen to paper and spoke my mind. When I wrote the aforementioned article, like many in this publication, its purpose was no more than to start a conversation. While I knew some might be offended by my commentary, the lack of an OM exemption in Ontario was an elephant in the room that was long overdue in being pointed out. It turned out that with a bit of prompting, being through letter campaigns on both the CSA review of the MA/AI Exemptions (where many brought up the lack of the OM exemption in Ontario) and the OSC’s 2012-2013 Statement of Priorities; the OSC was in fact open to discussing change. These letter campaigns and other efforts resulted in the formation of the OSC Exempt Market Advisory Committee (EMAC) in September of last year, which ultimately resulted in OSC Exempt Market Review Consultation Paper 45-710.
Between the numerous meetings of the EMAC, which I had the privilege of sitting on, and thorough public consultation, OSC staff have gone to great lengths to ensure that they make the right decision in regards to which new prospectus exemptions to add. While for many, the pace of regulatory change seems to move with glacial speed, it is a process that cannot be taken lightly. Juggling investor protection, access to capital, harmonization, and the interests of all must make juggling fire in the literal sense seem like child’s play. The ripple effects resulting from the adoption of these exemptions will be large and wide for investors, regulators, and the economy. Knowing this, OSC staff has utilized considerable resources ensuring that the decisions made properly reflect what is best for the investing public and businesses, and not just one particular stakeholder…even if that stakeholder is NEMA. While I’m not one to often pat regulators on the back, OSC staff that has overseen operation of the EMAC committee and this review should be commended for their efforts to understand the ins and outs of this exemption from everyone’s perspective.
While not every hurdle has been cleared and the ending results remain to be seen, it appears as though everyone’s efforts have not been in vain. OSC Notice 45-712 (Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising) released August 28, 2013 painted a clear picture of where things are likely headed. While it may have slipped by many, page 6 of the report stated “We intend to develop a proposal for an offering memorandum exemption in Ontario securities law that is substantially harmonized with the existing Alberta model of the offering memorandum exemption in National Instrument 45-106 Prospectus and Registration Exemptions.” So the OSC not only listened when the Exempt Market said it was time to look at adopting the same exemption that all other jurisdictions allow but they also listened when industry told them (through 45-710 responses) that the idea of investors subscribing for a maximum of $2,500 via an offering memorandum was misguided.
As NEMA is a sounding board for the Exempt Market, we hear a lot of member concerns about regulators not listening. While that may be true in some cases, it’s not in all as has been illustrated by the OSC throughout this campaign. If we don’t want regulators to paint all Exempt Market participants with the same brush as the miscreants in our space, perhaps we should not paint all regulators with the same brush as those that do not appear to be open to change.
So while it appeared to us out West that Ontario was an island unto itself when it came to the Exempt Market, it appears that the “Island of Ontario” is in fact drifting back towards mainland Canada and that if we operate in an organized fashion and promote well thought out ideas, any change is possible.