By Paradigm Market Research Inc.
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From the Covid lows of 2019-2020, the markets rose like a phoenix from the ashes on the heels of Fed Chair Jerome Powell’s “Printing press” (more eloquently known as Quantitative Easing (“QE”)). Under the responsible guise of “Modern Monetary Theory” and a “responsible 2% inflation average over time” capital flowed into the markets in a near unprecedented fashion. Coupled with the lowest borrowing rates ever seen, “Cash” and its ugly step-cousin “Debt” were leveraged to the hilt in attempts to capitalize on a “once in a life time amalgamation of events.”
Despite the dizzying highs that were the zenith of the 2021 market, its most iconic moment could most likely be distilled to a singular publicized event – that would later be known as “The GameStop Saga.” In true Hollywood fashion, the event played out in a true David Vs Goliath showdown of biblical proportions (pun certainly intended). The everyman, the lowly retail investor against “The street” and all its unbridled power.
For the first time in recent memory, market activity became mainstream news with the retail heroes of “wallstreetbets” taking on institutional titans: Melvin Capital and Citadel (with a $2B infusion of their own) by exposing largely unchallenged notion(s), “The (Naked) Short.” Though these events shook the financial world to the core, depending on you who ask, the Titans of Wall Street may have obtained their “pound of flesh” in the end.
“The Saga,” if even for a brief moment, pulled back the curtain on the inner workings of the markets at large. The titans were fallible; their subjective corrupt antics laid bare for the rest of the world to see.
A near direct result of the “Gamestop Saga,” On August 17th, 2022, IIROC (The Investment Industry Regulatory Organization of Canada) issued guidance on the predatory, manipulative and deceptive practice of “naked shorting.”
The result produced unprecedented accountability for larger firms and institutions in an attempt to even the playing field between “David and Goliath;” especially (in our biased opinion) on the Canadian Venture Exchange with particular focus in the mining sector.
In conjunction with the above two events, the third and final event today in our opinion gives the retail investor an unprecedented seat at the table to investing in “private placements.”
On November 21st 2022, a pilot project initiated by the Ontario Securities Commission (“OSC”) will come into effect: “The Self-Certified Prospectus Exemption”
Until the end of next month, the “gatekeeping” of the exchange will persist. At present, in order to participate in a Private Placement, Initial Public Offering or related Prospectus a series of accreditation criteria are required; most notably:
- “Income
- Your net income before taxes exceeded $200,000 in both of the last two years and you expect to maintain at least the same level of income this year; OR
- Your net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and you expect to maintain at least the same level income this year;
- Financial Assets
- You alone or together with a spouse, own financial assets worth more than $1 million before taxes but net of related liabilities.
- Cash, or certain investments such as public equity or bonds, would be considered liquid/financial assets.”
(As quoted from the above link at startupheretoronto.com)
Needless to say, those in power make the rules. The above criteria are but a pipe dream for the everyman.
Those who managed to take on the task against the titans of Wallstreet entered their own coliseum of sorts in the markets, duking it out with the ancient equivalent of “Cataphractarius” in their heavily armoured attire and access to much finer weapons.
Only by fighting at a disadvantage for what could be years, a lesser investor/gladiator may rise, reach the heights of glory and obtain their “Rudis,” Freedom, (or Accreditation status).
As of November 21st 2022 the investing landscape changes, potentially forever with the below updated parameters:
- Accreditation criteria are no longer required;
- provided the investor does not invest more than $30,000 CAD per calandar year;
- (The $30,000 CAD) May be diversified among several issues however.
- “4 Month holds” on a prospectus/financing are also null and void. Shares may be traded the moment the financing closes and shares are distributed into the investor’s account(s).
- The issuing company is permitted to use the exemption to raise a maximum of $5,000,000 CAD plus 10% of their combined market value prior to the announced financing to a maximum of $10,000,000 CAD.
- A raise of this kind is allowed once per Calander year;
- A raise of this kind must not dilute the existing share structure by more than 50% prior to the raise/prospectus being announced.
In Conclusion, the tide is turning! IIROC appears to be making meaningful change to an archaic market structure; attempting to level the playing field and allow knowledgeable investors who may not have copious amounts of capital to have a “seat at the investment table.”
This influx of retail investors may also be a boon for the companies themselves. Potentially, with more retail capital available for raises, venture companies may no longer have to “bend the knee” to funds and institutions strategic placement requests (at a sizeable discount of course). This increased competition could ensure fair value for raises going avoiding the manipulation of larger funds.
Time will only tell how the above catalysts will play out, but we will be watching with great interest! Bullish sentiment may yet return to the jr. markets – and sooner than we think!
As always, seek professional financial advice and conduct your own due diligence prior to making any investment decisions,
Paradigm Market Research inc.
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