The Ontario Securities Commission is giving companies more scope to sell securities in the exempt market, introducing provisions that allow shares to be sold to family members, friends and business associates without having to issue a prospectus.
The changes are part of a broader national strategy to review how private placements and other securities offerings are done in the exempt market to qualified or accredited investors – typically people who are wealthier and more sophisticated investors.
Several proposals published last year for comment were adopted Thursday by the OSC and by the Canadian Securities Administrators, the umbrella group for provincial securities commissions. But one of the highest-profile anticipated changes is not included in the new amendments.
The OSC said its proposed new crowd-funding rule, which would allow companies to raise capital from the public through crowd-funding web sites, is still under review, along with another change allowing companies to raise funds by issuing a streamlined document known as an offering memorandum.
In a report Thursday, the OSC said it and five other participating provincial securities regulators received 916 comment letters about the offering memorandum plan and 45 on crowdfunding proposals, requiring more review of the proposals. The OSC said its goal is to publish new rules in both areas this summer, and said it is still unsure whether it will publish final rules based on the original proposals, or if it will be making major revisions to the proposals and issue them again for further public comment.
In the exempt market, shares can be sold without requiring the more complex process of issuing a formal prospectus that is approved by regulators before shares can be sold broadly to a wider array of investors. Companies have pushed for a variety of amendments to the exempt market rules to make it easier for smaller firms to raise capital.
The CSA's new national standards, unveiled Thursday, include a provision requiring accredited investors to sign a new "risk acknowledgment form" to ensure they know the rules about who qualifies as an accredited investor, and what the risks are of investing in the exempt market. The amendments are intended to address criticisms that people often don't understand the risks of exempt market investments, and don't even qualify as accredited investors.
The amendments do not change existing net income and net asset tests that investors must meet to buy shares in the exempt market.
The CSA has also changed rules for issuing short-term debt in the exempt market, including changing the credit ratings required to issue corporate commercial paper.
The OSC said its new family and friends change will harmonize Ontario's rules with those already in place in other provinces, allowing companies to raise capital from a network of close associates.
The exemption requires investors to have a sufficiently close relationship or friendship with a key executive to be able to "assess the capabilities and trustworthiness of the principals" of a company.
OSC chair Howard Wetston said the new exemption will give early-stage companies easier access to capital from a close circle of acquaintances.
"Investors will also benefit through greater access to opportunities at the ground level, and everyone benefits from greater harmonization across Canada," Mr. Wetston added in a statement.
The OSC previously announced a further change to exempt market rules, which took effect last week. The provision allows companies to issue more securities to existing shareholders without a prospectus.