Analysis of Changes in Different 

Exemptions and Their Impact Over Exempt Market

exempt market securitiesVarious changes have been implemented by CSA in different exemptions with the aim of protecting investors while they invest in exempt market securities. Let us look at some of these changes and the effect they will have on overall functioning within the exempt market.

Changes in Different Exemptions and Their Effect on Exempt Market

Changes in Registration as well as Prospectus Exemptions

Let us first start by looking at the amendments implemented in these two exemptions.

  • After the change those issuers replying on AI exemption would have to acquire a signed risk acknowledgment form signed by the AI. This would be necessary in case the AI does not fall in the category of permitted clients.
  • The changes also plan to constrain the minimum amount (MA) exemption available to non-individual investors.
  • Improve definition of accredited investor so that fully managed accounts get the permission to purchase securities in Ontario.
  • These changes will also modify current exemption related to short term debts used in connection with utilization of commercial paper.
  • The amendments also plan to introduce fresh prospectus exemption to be used for distributing commercial paper which is asset backed. Such commercial paper is one type of securitized product (of short term).

Moreover, OSC has included a new exemption called family, friend and business associate exemption which will provide cost effective option to businesses for raising capital.

Modifications in AI Exemption

Few of the modifications which have been applied to AI exemption consist of:

  • Individual accredited investors qualifying on the basis of income and assets test will have to fill as well as sign a risk assessment form. This form will explain the different categories which are available for accredited investors. Additionally, it will describe the various associated risks of investing in exempt market securities. But in case AIs net assets are over $5 million then the accredited investor will not have to fill this form.
  • The risk assessment form should have details of people meeting AIs or providing information to them.
  • The changes implemented in the AI exemption also describe the process to be used for verifying status of any accredited investor. These amendments also specify some specific conditions to be utilized for other exemptions, the details for the same have been provided in the companion policy.
  • These amendments will improve adherence to compliance requirements by sellers. Now it will be necessary to explain terms and conditions to buyers as well as to retrieve factual data from them regarding the income and assets they have before discussions are initiated about investment options. 
  • Previously companies used to decide about accredited investor status of any buyer just by relying on factual representation made by the buyer. But now sellers will have to take required steps for verifying any representation buyer makes.
  • The definition for accredited investor has been changed so that fully managed accounts are able to purchase investment fund securities in Ontario. The positive aspect of this change would be that managed accounts will get synchronized.

Conclusion

To summarize we will say that these amendments will prove to be quite helpful for exempt market and help in improving overall functioning within the exempt market.

Changes and Their Impact On The Exempt Market
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