OSC reveals next steps in exempt market review

The Ontario Securities Commission has outlined the next steps of its current exempt market review.

The commission says it wants to facilitate capital raising for start-ups, as well as small and medium-sized enterprises. Ensuing rules changes will help modernize Ontario’s exempt market regulatory regime and also protect investors.

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After reviewing feedback from a broad range of stakeholders, the OSC will consider the following capital raising prospectus exemptions:

• a crowd funding exemption, which aims to develop a crowd funding regulatory framework (focused most on investing through online funding portals);
• a family, friends and business associates exemption, given versions of this exemption are currently available in other Canadian jurisdictions;
• an offering memorandum exemption that would be substantially harmonized with the existing model in Alberta and other Canadian jurisdictions; and
• a streamlined version of the existing rights offering exemption currently available across Canada.

“The exempt market plays an important role in Ontario’s capital markets, especially for start-ups and SMEs,” says Howard Wetston, chair and CEO of OSC. “Our continued work in this area promotes an exempt market that is innovative and globally competitive.”

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Any resulting rules proposals brought forward by OSC will be released for comment. The commission says the work completed to date regarding its exempt market review includes:

• A consultation paper that considered concept ideas for new capital raising prospectus exemptions. It garnered more than 100 comment letters;
• An investor survey that examined retail investors’ interest in start-ups and SMEs; and
• The forming of an ad hoc committee that advises on exempt market issues.

Quick facts about the 2012 exempt market:

• The total amount of capital raised in Ontario increased by 20% to approximately $104 billion, compared to $87 billion in 2011
• Of that amount, approximately $37 billion was raised by issuers other than investment funds
• The accredited investor exemption accounted for approximately $94 billion, or 90% of the total capital raised in Ontario’s exempt market. That compares to $73 billion in 2011, or about 83%.

Nearly $7 billion was raised under the minimum amount prospectus exemption, compared to $4 billion in 2011.

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