| TORONTO, Sept 20
TORONTO, Sept 20 Canada's main stock exchanges
are pushing for regulatory changes that could make it easier for
retail investors to participate in small financings long deemed
too risky for the general public, a move that could help shore
up the country's hard-hit junior mining sector.
John McCoach, president of market operator TMX Group Ltd's
small-cap TSX Venture Exchange, said his organization has
asked Canada's securities regulators to consider allowing a
public company's existing shareholders to participate in private
Private placements are share issues that are offered to
select buyers such as institutional investors and wealthy
individuals who qualify as "accredited investors," and not to
the general public.
The TSX Venture Exchange, the main trading venue for
hundreds of small Canadian-listed mining and energy companies,
wants to expand the qualifying group.
Under its proposal, investors who have held stock in the
issuer or 60 days or more would qualify to be included in
private placements, but their investments would be capped at
C$10,000 ($9,800) per company per year.
The rules limiting access to the exempt or "closed" market
were designed to protect small investors, who may be less
sophisticated, from the risks of sinking their savings into
stocks that can be highly speculative.
McCoach said Canada's securities commissions are considering
the proposal. He said he has been informed that regulators in
some of the country's provinces have already drafted exemptions,
but would not say which provinces are moving on the idea.
"It gives listed companies another tool to access capital,"
McCoach said of the proposal. "But even more importantly, it
allows existing shareholders to participate in the growth of the
companies they are already shareholders in."
The Ontario Securities Commission and the British Columbia
Securities Commission, primary regulators for the vast majority
of junior mining companies in Canada, did not immediately
respond to requests for comment.
HELP FOR JUNIOR MINERS
A drop in the price of commodities and a spike in costs has
drained money from the mining sector, especially Venture
Exchange-listed exploration companies that rely on equity
financing. Over the past year, dozens of cash-strapped companies
have closed tiny private placements at rock-bottom prices,
hoping to ride out the tough market.
Private placements are a relatively inexpensive way of
raising funds, and thus a key source of capital for small
companies. Making it easier for investors to participate could
boost the funds available to junior miners, buttressing Canada's
reputation as a center of mining finance.
But changing the rules could take a year or more because of
the lengthy comment period required, and may come too late for
the most vulnerable juniors. Others would benefit over the
The change would level the playing field for retail
investors, who are shut out of private placements that can end
up badly diluting their investments in small companies. In
theory, just about anyone can invest in a public company by
buying shares on an exchange, but in practice many penny stocks
are thinly traded.
In part, private placement deals have been restricted to
sophisticated investors because retail investors may not have as
much insight into how a security will trade once it is on the
market or its level of liquidity.
Private placements are generally done without a prospectus -
a document that discloses the risks associated with an
investment and gives buyers certain legal rights if they are
misled - relying on the fact that "accredited investors" will be
aware of the risks.
Institutional investors such as banks and pension funds are
accredited investors, but few individuals are allowed to buy new
securities without a prospectus, and those that are must have
financial assets worth more than C$1 million.
The Ontario Securities Commission's website explains that
"the law assumes that accredited investors do not need the
protections offered by a prospectus" because they can get the
information they need to evaluate an investment on their own,
and can handle losing their entire investment.
McCoach said this exempt or "closed" market has worked well,
and that it is an efficient way of raising funds, but that it
can be expanded.
"I think it's an appropriate evolution of how we've managed
the closed system in Canada," he said.