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.