Major participants and regulators should work together to create an “exempt market data repository”, suggests a new report produced by the University of Calgary’s School of Public Policy.
This collection of data would include information on different industries within the exempt market, the size of an issuer and whether it is a reporting issuer or not. The repository should also provide details on the size of each issue, the types of security, the intended use of the capital, the liquidity and duration of the security as well as requiring notification of redemptions.
It is the absence of this data that is making regulators’ efforts to make rules in this space problematic, according to the report entitled The exempt market in Canada: empirics, observations and recommendations.
“Data about the so-called exempt market are so lacking that were regulators in Ontario and the other provinces contemplating new exempt-market regulations to proceed, they would be creating policies based on anecdotal, incomplete and potentially incorrect evidence,” notes the report, written by Vijay Jog, a research fellow at the School of Public Policy and chancellor’s professor at Carleton University’s Sprott School of Business in Ottawa.
Craig Skauge, president and chair of Calgary-based National Exempt Market Association, agrees and says the availability of this type of information would be helpful to advisors who work in the exempt market.
“Where these advisors are today is that policies are being formed based on anecdotal information, not on data,” he says. “Advisors are subject to an unstable regulatory environment because regulations are not being based on evidence but being based on opinion.”
The issue is regulators’ tendency to collect information about exempt market dealers (EMD) using investors’ personal experiences, according to Skauge.
“Nobody calls the regulator when they have a good experience, they call when they have a bad experience,” he says.
This information would also be helpful to investors and should be made readily available through regulators’ websites, says Jog.
“It’s no different than people looking at stock market information and what happens to their investments in the stock market,” he says.
The availability of this type of information would improve capital market efficiency because investors will be informed on whether investments are successful or not, explains Jog.
The way in which the EMD information currently being collected is stored is also an issue, according to Jog.
Data is saved in PDF forms and is therefore unable to be analyzed. Any researchers looking for information would have to go through each form to find it, which takes too long, says Jog.
This is why there needs to be a moratorium on putting restrictions to EMDs’ access to capital until the regulators have more of this type of data available, says Skauge.
He suggests the systemizing of the information could take two to three years while collecting enough of it to provide reliable data might require another five to ten years.
“It’s not the industry’s fault that [regulators] are 15 years behind today,” says Skauge. “You can’t make changes that will potentially shift billions of dollars and affect the business community because you think it’s a good idea.”