Canadian Securities Administrators chair Bill Rice is seen during a presentation at the TSX Broadcast Centre in this file photo.Tim Fraser/The Globe and Mail
Investors in most Canadian provinces are likely to start getting pitches from companies to buy a little more of stocks they already hold. A group of securities regulators across the country are going ahead with a proposal to allow companies to raise cash by selling stock to their existing investors, without the hassle of a prospectus.
The decision means that the brokerages and issuers who were pushing for the changes got what they wanted, and even a bit more. Instead of just TSX Venture-listed companies, the exemption will be open to companies listed on the Toronto Stock Exchange and the Canadian Securities Exchange.
The move is an attempt to ease the burden on financially strapped companies that are looking for ways to bring in new money. The logic is that investors in a company already should be familiar with the company, and could easily buy more stock on the open market. Why force the company to file a costly and time consuming prospectus to sell more stock to those same investors? Investors would also get the benefit of buying more shares without paying brokerage commissions, and they could benefit from any discounted pricing in an offering.
Such offerings are usually open to only institutional investors and wealthy individuals, who are allowed to participate in sales done without a prospectus.
The idea is based somewhat on the notion of a rights offering, where shares are offered first to existing shareholders. Unlike a rights offering, however, investors won't be able to trade their rights to others. If they don't use the option to buy stock, they won't be able to pass it on.
Support for the idea in comments submitted to the regulators was "overwhelming," Bill Rice, head of the Alberta Securities Commission, said in a statement. Mr. Rice is also chair of the Canadian Securities Administrators, the umbrella group for Canada's 13 provincial and territorial securities regulators that is tasked with coordinating and harmonizing regulation.
The implementation of the new rule reflects Canada's patchwork regulation system. For now, the option will only be available in 11 jurisdictions.
All the provinces but Newfoundland and Ontario are on side. Ontario is looking at the idea, but on its own timeline. The Ontario Securities Commission said in December that it would publish the exemption for comment in March.
An investor will be limited to putting $15,000 in any one stock in a single year without a second opinion from a registered investment dealer. Investors will also have the right to sue if a company turns out to have been fudging its public disclosures, which will be key without a prospectus.