The British Columbia Securities Commission (BCSC), along with most other provincial securities regulators across the country, is proposing new rules to make it easier for companies listed on the TSX Venture Exchange to raise new money from investors.
On November 21, regulators in every province except Ontario and Newfoundland and Labrador announced a new proposed prospectus exemption that would allow venture companies to raise money from anyone who already owns shares of the company, whether they bought shares in an IPO or on the secondary market.
Under the proposed exemption, unless an investor has obtained investment advice from an adviser about the suitability of the investment, existing retail shareholders of an issuer interested in participating in a new offering of shares can only purchase up to $15,000 worth of company shares in a 12-month period.
Market participants in B.C., Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and the territories have until January 20, 2014, to comment on the proposed exemption.
The idea of the new exemption was discussed at the 2013 Capital Ideas conference organized by the BCSC and was suggested as a way to help junior mining companies that have struggled to raise capital over the past couple years.
"We can't change what our [mining stock] index is going to look like six months from now," said Bruce McLeod, president and CEO at Mercator Minerals (TSX:ML). "But I think we can level the playing field and re-enfranchise some of those retail shareholders."
Currently, companies listed on the TSX Venture Exchange are limited in how they can raise additional capital after completing their initial public offering. To issue additional shares into the market, they must either produce a detailed document called a prospectus that's aimed to help investors make informed decisions, or use a limited number of prospectus exemptions. A commonly-used exemption is the accredited investor exemption, which allows companies to raise funds from investors that have net personal income of at least $200,000 or at least $1 million in financial assets.
Given the costs associated with producing a prospectus, many companies don't generate one to raise additional capital after an IPO. And while many companies use the accredited investor exemption, the high net worth requirements limit the pool of potential investors for junior companies in B.C.
At the BCSC conference, expanding access to the junior capital markets to more retail investors was seen as key to keeping B.C. a dominant global market for the mining sector.
"I think we are at a crossroads. We have a choice to make," said McLeod. "We can continue to be part of the best venture mining exchange in the world and adapt, or we can be part of history."
