OSC Publishes Report on Exempt Market Activity

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Ontario Securities Commission | June 15, 2017

TORONTO - The Ontario Securities Commission (OSC) today published OSC Staff Notice 45-715 2017 Ontario Exempt Market Report, which provides a snapshot of the current state of Ontario’s exempt market and a preliminary assessment of recent regulatory reforms.

The report summarizes capital raising activity by corporate (non-investment fund) issuers in Ontario’s exempt market during 2015 and 2016. Additionally, the report examines capital formation by small Canadian issuers in Ontario’s exempt market, and the impact of recently introduced prospectus exemptions.

“Providing this data reflects our commitment to transparency and allows us to gauge the effectiveness of recently introduced capital raising tools,” said Paul Redman, Chief Economist at the OSC. “This data also supports the OSC’s ongoing compliance and oversight efforts in the exempt market.”

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Key Findings:

  • Approximately 57% of Canadian issuers that participated in Ontario’s exempt market were small issuers, which
    we defined as issuers raising less than $1 million annually. Notwithstanding the large number of small issuers,
    they only accounted for less than 1% of annual gross proceeds raised by Canadian issuers.
  • In 2016, there was a notable increase in both the number of small Canadian issuers (30%) and the gross proceeds
    raised by these issuers (40%). The increased activity was concentrated among small Canadian issuers in three
    main industries: natural resources; consumer goods and services; and real estate and mortgage finance.
  • Collectively, the new prospectus exemptions have gained traction among a sizeable proportion (25%) of
    Canadian issuers in the short period that they have been introduced. In 2016, approximately 400 issuers relied on
    the new prospectus exemptions to raise approximately $133 million, with close to half of these issuers raising
    capital in Ontario for the first time since 2014.
  • Among issuers relying on the new prospectus exemptions, natural resource issuers represented the largest
    industry group by number of issuers (37%), whereas real estate and mortgage finance issuers accounted for most
    of the capital raised (70%).
  • Accredited investors, mainly institutional investors, contributed over 90% of the total capital invested in the
    Ontario exempt market. However, most of the capital was invested in large issuers, primarily foreign-based and
    consisting of financial entities such as banks, private equity funds and asset-backed structured finance vehicles.
  • Within the context of the broader Canadian capital market, Ontario’s exempt market accounted for less than
    one-fifth of the total gross proceeds raised by Canadian issuers domestically and less than one-tenth of gross
    proceeds raised globally.

The report revealed increased activity in Ontario’s exempt market, especially among Canadian issuers and among small businesses. In 2016, approximately $27 billion was raised by about 1,600 Canadian issuers from Ontario investors. Approximately 57 per cent of these Canadian issuers that participated in Ontario’s exempt market were small issuers, raising less than $1 million annually. However, despite the large number of small issuers, this group only accounted for less than 1 per cent of annual gross proceeds raised by Canadian issuers.

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The report also found that the new prospectus exemptions have gained traction among a sizeable proportion (25 per cent) of Canadian issuers participating in the exempt market. In 2016, approximately 400 issuers relied on the new prospectus exemptions to raise approximately $133 million, with close to half of these issuers raising capital in Ontario for the first time since 2014.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in the capital markets. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca

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