NI 31-103 is a really bold change

Individuals and firms who distribute exempt-market securities are scrambling to meet the new requirements they’ll face beginning Sept. 28. In fact, some are even moving out of the exempt-securities realm altogether as they assess the drastic regulatory reforms associated with National Instrument 31-103.

The new regulations include widespread changes for exempt-market dealers. EMDs include those who distribute prospectus-exempt securities such as hedge funds, principal-protected notes and limited partnerships, as well as those who work with accredited investors. 

“This is the one area of NI 31-103 that is a really bold change,” says Geoffrey Ritchie, executive director of the Toronto-based Exempt Market Dealers Association of Canada. “It’s a huge transition.”

Most of NI 31-103’s new regulations came into effect on Sept. 28, 2009. However, existing EMD firms and reps had one year to comply with some of the requirements. Regulators are warning that registrants who fail to meet the looming deadline could face immediate suspension until they comply.

For firms dealing in exempt securities, the upcoming deadline includes new capital requirements, beefed-up disclosure rules and new filing requirements for financial statements. Dealing reps at these firms, meanwhile, face new proficiency requirements under which they must successfully complete either the Canadian securities course offered by Toronto-based CSI Global Education Inc. or the more specialized exempt-market products course offered by the Investment Funds Institute of Canada’s IFSE Institute. 

Chief compliance officers with EMDs are also required to complete one of these two courses, along with either IFSE’s officers, partners and directors course or CSI’s partners, directors and senior officers course.

The new proficiency requirements are intended to protect investors, according to the Ontario Securities Commission, by ensuring that reps who deal with the exempt market meet minimum qualifications.
Find out more about the Exempt Market Dealers Association http://www.emdacanada.com/

Big, greedy drug companies don't do any research

Innovation seems to be thought of as something that just happens - shezaam, eureka. The head of Government Health in South Africa back in 1994, demanded that the greedy pharmas hand over their drugs at cost and went on to berate corporate drug companies. That health minister is now dead but the argument about greedy pharma continues. Derek Lowe has something to say to the folks who claim that all the "real" research on pharmaceuticals is done in universities, and drug companies just steal

Allow me to rant for a bit, because I saw yet another argument the other day that the big drug companies don't do any research, no, it's all done at universities with public funds, at which point Big Pharma just swoops in and makes off with the swag. You know the stuff. Well, I would absolutely love to have the people who hold that view explain the PPAR story to me. I really would. The drug industry poured a huge amount of time and money into both basic and applied research in that area, and they did it for years. No one has to take my word for it - ask any of the academic leaders in the field if GSK or Merck, to name just two companies, managed to make any contributions.

We did it, naturally, because we expected to make a profit out of it in the end. The whole PPAR story looked like a great way to affect metabolic disorders and plenty of other diseases as well: cancer, inflammation, cardiovascular. That is, if we could just manage to understand what was going on. But we didn't. Once we all figured out that nuclear receptors were involved and got busy on drug discovery on that basis, we didn't help anyone with any diseases, and we didn't make any profits. Big piles of money actually disappeared during the process, never to be seen again. You could ask Merck about that, or GSK (post-rosiglitazone), or Lilly, or BMS, or Bayer, and plenty of other players large and small.

No one hears about these things.  We're understandably reluctant to go on about our failures in this industry, but the side effect is that people who aren't paying attention end up thinking that we don't have any. Nothing could be more mistaken. And they aren't failures to come up with a catchy slogan or to find a good color scheme for the packaging - they're failures back at the actual science, where reality meets our ideas about it, and likely as not beats them down to the floor.

Honestly, I don't understand where these they-don't-do-any-research folks get off. Look at the patent filings. Look at the open literature. Where on earth do you think all those molecules come from, all those research programs to fill up all those servers? There are whole scientific journals that wouldn't exist if it weren't for a steady stream of failed research projects. Where's it all coming from?

What is happening to entrepreneurial businesses

My partner and I own a successful e-commerce website. We started it in the late 1990's by ourselves and now we have five employees. Our growth came from personal resources, as well as credit card lines. Each year we saw sales increases of at least 10-20%. However, in late 2008/early 2009, we started seeing our sales slipping. As a result (and watching our competitors) we lowered our on-line prices to continue to drive sales. As of today, our prices are 40% below where they were in 2008. However, we have the same number of customers - we just work a heck of a lot harder!

On the negative side, we saw all of our credit card lines cut, so we can no longer use them. Bank financing is completely out as we have no business assets so to speak (our business is online - not manufacturing). We have cut costs by moving to a cheaper office location, letting one employee go and demanding lower prices from our own suppliers (mostly successful). As a result of our cost cutting, our bottom line has only slipped 10%. We feel very fortunate in this regard.

As to what would help our small business grow and hire people again - simple; more sales! We do NOT need to borrow more money as we already owe enough and our capacity is only at 50%. So what would we borrow money for? More production? We don't have the sales.

So QE actions by the Fed have no effect on us. Interest rates could go to zero and it still would not matter. What we are NOT seeing are credit card rates going down - now THAT might help us somewhat. Regardless, it seems that the economists in charge are playing from the old handbook of everyone borrowing money to spend money. Needless to say, it's not working - but you already knew that. Thanks again and keep telling the truth.

Danny
Austin, Texas

Will Canadian Firms Size-Up Enough?

In the past year, many company owners have contacted me to sell their companies. They do not have anything near the value they expect. Why is there such a gap in expectations?
First and biggest reason for the gap is if your company is under $20M in revenues, this greatly reduces your universe of potential buyers. This smaller size also means you get an immediate steep discount on your end sale valuation. Investors with the money are seeking companies with operating revenues over $20M, and if you are under that amount, your asking price drops off the cliff.
Canadian companies are small and conservative. Many are family owned and do not wish to risk growing organically or by acquisition. I do not blame them, but they must see the game has changed. Right now, we are global. It means you have to think global and that means get bigger than $20M. I have had this conversation with many family business owners and it is not necessary. If they got in private equity partners at 30% ownership, they would get money out for their family and get on with growth. Their second sale would be worth far more.

Exempt Market Dealers Have Business Trigger

Canadian securities legislation creates two categories of securities that may be sold: 

(i) prospectus securities; and 

(ii) securities issued under prospectus exemption. 

Securities issued under the prospectus exemptions, otherwise known as non-reporting issuers, are typically considered to form the "exempt market". 

Under NI 31-103, a new dealer registration category is introduced in all jurisdictions across Canada to regulate the sale of securities in the exempt market - the exempt market dealer (EMD).

A critical change under NI 31-103 is the introduction of the "business trigger" for dealer registration. Prior to September 28, 2010, the requirement to be registered as a dealer is triggered by a person engaging in a "trade" of securities. With the new rules introduced in 31-103, the "trade trigger" is replaced with a "business trigger", so the dealer registration requirement will only apply to those whose trading in securities amounts to carrying on the business of trading in securities. Companion Policy 31-103CP provides guidance on what acts are deemed to be sufficient to trip the "business trigger".

NI 31-103 introduces consistent rules concerning proficiency, conduct, capital and compliance requirements and makes it clear that EMDs are subject to the same know-your-client ("KYC") and suitability requirements as other dealer categories.