Regulatory Changes Ahead in Attempt to Breathe Life into the Venture Markets

bcsc

Over the past year, there has been a quietly growing movement to reduce some of the regulation experienced by venture market participants in order for them to access capital in a more cost efficient manner.  In particular, a small group of brokers have been working with all of the heads of the brokerage firms in Vancouver as well as the British Columbia Securities Commission (BCSC) and Toronto Stock Exhcange on specific changes which they feel will reduce the regulatory burden that could be inhibiting junior companies from raising adequate capital to sustain their businesses.

As is often the case with regulation, it tends to over-regulate following the bust of a bubble and under-regulate causing a bubble.  It is the nature of regulation, to be a trial and error mechanism given that the outcomes are so uncertain.  We credit the BCSC for their obvious commitment in creating the framework to enable the most efficient and safe marketplace.  Also, we credit them for listening to what market participants are saying and making changes accordingly.

These changes which this group has been working on includes non-shareholder approved roll backs which were approved earlier this year by the BCSC.  This roll back change was intended to be done in accordance with the following change: a prospectus exemption which would allow companies to raise money from existing securities or a ’quasi-rights offering’.  This change is now up for public comment and on its way to being finalized.

Why not simply use the existing rights offering facility which exists on the exchange today?  The reason is simple; a rights issue is costly (lawyer fees) and time consuming.  Given the current environment, this makes it next to impossible for venture market participants to endure.

According to the BCSC, in order to acquire securities under this exemption, an existing security holder would have to confirm in writing that they were a security holder as of the record date for the offering.  This limits use of the exemption to investors that have already made an investment decision in the issuer. Other key conditions designed for investor protection include:

  • unless the investor has obtained advice regarding the suitability of the investment from a registered investment dealer, the aggregate amount invested by the investor in the last 12 months under the exemption must not be more than $15,000, and
  • the investor must be provided with rights of action in the event of a misrepresentation in the issuer’s continuous disclosure record.

This exemption is now up for comment until January 20, 2014.

Read: Canadian Securities Regulators Propose New Exemption for Distributions to Existing Security Holders

The Promoter’s Petition

I have just signed the Venture Funding Crisis Committee’s petition: “British Columbia Securities Commission: Please review the proposal to revoke the NW Exemption.”

For those unaware, the Northwest Exemption enables unlicensed finders to be compensated for introducing certain accreddited investors to private placements.

Vancouver VC Praveen Varshney commented, “We need more sources & means of fundraising for these companies, not less, or they won’t survive.”

Source: Change.org (lol).

Howe Street Has A Dog In Northwest Exemption Fight

TSXV President John McCoach

TSXV President John McCoach

Early in 2013, the BC Securities Commission moved to ban unlicensed finders from accepting fees as a result of introducing accredited investors to private placements. The BCSC concluded that approximately 1% of capital raised would be impacted by the decision. However on February 28, 2013, TSX Venture Exchange President John McCoach wrote in a letter to the BCSC, “Our review of a sample of associated Exchange filings indicated that 30-35% of these financings involved non-registrants actings as finders for at least a portion of the financing,” urging the BCSC to reconsider its ruling.

A number of industry leaders including Glenn Ives, Chairman, Deloitte Canada, Rob Blanchard, President, Haywood Securities, Gord Medland, Chairman, Leede Financial, Joe Martin, Chairman, Cambridge House, and John Kaiser, Kaiser Research, have formed a committee to help defend the exemption. A petition is also in the works.

Source: Venture Funding Crisis Committee

BCSC Moves To Ban Unlicensed “Finders”

New regulation complicates Canadian companies’ ability to raise capital at home and abroad.

Source: British Columbia Securities Commission.  See also: BCSC to End Finder’s Fees for Capital Raising Except by Registered Dealer (Clark Wilson).

BCN 2013/01 Notice and Request for Comment – Proposed Revocation of BC Instrument 32-513 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions and BC Instrument 32-517 Exemption from Dealer Registration Requirement for Trades in Securities of Mortgage Investment Entities [BCN]

Published January 3, 2012
View PDF of BCN 2013/01   PDF

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