Thursday, June 07, 2007

Angels, Advisors and VCs Beware: the Securities Commissions Are At It Again

Like me, I’m sure most of you begin each day with a nonfat latte and a browse through the website for the Ontario Securities Commission where, after 5-10 clickthroughs you can locate and read the latest proposed rules posted for “public” comment.

No? Then you’re missing what are increasing efforts by the OSC to regulate small and madcap market transactions in unprecedented detail. Take a closer look at the latest, National Instrument 31-103. As I read it, many advisors, consultants and angels are about to find themselves subject to a new regulatory regime.

Naomi Morisawa de Koven has posted the details on her blog here, but the bottom line appears to be this: under the proposed rule, angel managers, financial advisors and anyone else who is in the business of advising others on the buying or selling of securities will be required to register with the securities commissions as a dealer. (As I read it, it may also catch VCs in certain circumstances).

As an Exempt Market Dealer (the old category of “limited market dealer” would be eliminated), these people would have a number of new obligations. Naomi notes these would include meeting proficiency (exam-based) and integrity standards, being subject to audit requirements, and meeting solvency requirements which require the maintaining minimum excess working capital of $50,000, as well as insurance through a financial institution bond.

The comment period is open until June 20, and I strongly recommend all interested parties find a securities lawyer to prepare a comment letter addressing your concerns to the OSC. Naomi, who is on the OSC’s Small Business Advisory Committee, would have my vote. The last thing we need is yet another roadblock to building companies.

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