A united voice

Investment Executive - - FRONT PAGE - BY FIONA COL­LIE

the toronto-based pri­vate Cap­i­tal Mar­kets As­so­ci­a­tion (PCMA) and the Cal­gary-based Na­tional Ex­empt Mar­ket As­so­ci­a­tion (NEMA) have com­bined forces in an ef­fort to cre­ate a sin­gle, louder voice for their mem­bers in the pri­vate cap­i­tal mar­kets busi­ness.

The amal­ga­mated as­so­ci­a­tion will con­tinue to op­er­ate un­der the PCMA name and now has more than 2,000 mem­bers within

its ranks. The merger, an­nounced in Fe­bru­ary, is de­signed to stream­line both or­ga­ni­za­tions’ op­er­a­tions and lob­by­ing ef­forts.

“Ul­ti­mately, the pri­vate cap­i­tal mar­kets aren’t large enough, nec­es­sar­ily, to war­rant sep­a­rate in­ter­est groups,” says Craig Skauge, founder and pres­i­dent of NEMA, “and we felt that we could bring the best of both worlds to­gether.”

In­deed, the merger fol­lows sev­eral years of change at both as­so­ci­a­tions. Case in point: Skauge, who also is pres­i­dent of Cal­gary-based Olympia Trust Co. Inc., orig­i­nally launched NEMA in 2011 un­der the name of the West­ern Ex­empt Mar­ket As­so­ci­a­tion. That or­ga­ni­za­tion was re­named NEMA in 2013 to re­flect the in­creas­ingly na­tional scope of its mem­ber­ship.

The PCMA, which fo­cused pri­mar­ily on Eastern Canada, orig­i­nally was formed in 2002 as the Lim­ited Mar­ket Deal­ers’ As­so­ci­a­tion of Canada. Sub­se­quently, the or­ga­ni­za­tion changed its name in 2009 to the Ex­empt Mar­ket Deal­ers As­so­ci­a­tion of Canada be­fore set­tling on its cur­rent moniker in 2014.

That both or­ga­ni­za­tions have gone through such change isn’t sur­pris­ing, given the on­go­ing evo­lu­tion of the ex­empt-mar­ket space. More specif­i­cally, ex­empt-mar­ket deal­ers (EMDs) have faced higher reg­u­la­tory re­quire­ments since 2009, in­clud­ing re­port­ing, “know your client” re­quire­ments and higher pro­fi­ciency stan­dards for com­pli­ance of­fi­cers and in­di­vid­u­als trad­ing in ex­empt se­cu­ri­ties.

The changes i ntro­duced i n 2009 pri­mar­ily af­fected EMDs (pre­vi­ously called lim­ited mar­ket deal­ers [LMDs]) in On­tario and New­found­land and Labrador; many com­pa­nies i n West­ern Canada were ex­empt from reg­is­tra­tion re­quire­ments via the “North­west ex­emp­tion.”

This raft of reg­u­la­tory changes and the pos­si­bil­ity of more in the fu­ture are the driv­ers for a louder in­dus­try voice.

“As the num­ber of reg­u­la­tions and the num­ber of re­quire­ments for reg­is­tra­tion in­creases, hav­ing any in­flu­ence is more dif­fi­cult for smaller groups,” says Craig Ge­of­frey, as­sis­tant pro­fes­sor, teach­ing stream, in the fi­nance fac­ulty at the Uni­ver­sity of Toronto’s Rot­man School of Busi­ness. (Ge­of­frey worked for a small hedge fund that was reg­is­tered as an LMD be­tween 2008 and 2010.) “So, it’s maybe a chicken and egg thing. But the more reg­u­la­tion there is, the more im­por­tant [hav­ing a larger ad­vo­cate] is for in­dus­try peo­ple.”

The first or­der of busi­ness for the newly merged or­ga­ni­za­tion is to bring its mem­ber­ship to­gether. To be­gin with, the en­tire boards of di­rec­tors of NEMA and the PCMA will join to­gether, for a to­tal of 45 di­rec­tors.

The or­ga­ni­za­tion plans to re­duce the board to 24 mem­bers by yearend. The board’s num­bers will be pared down mainly through at­tri­tion, as some di­rec­tors plan to re­tire or to step down in or­der to fo­cus on spe­cific ad­vo­cacy ef­forts as mem­bers of one of the PCMA’s 10 com­mit­tees.

“Our strength has been a rel­a­tively large board, [and] that has worked pretty ef­fec­tively at the PCMA,” says Doug Bedard, the PCMA’s chair­man and se­nior vice pres­i­dent and di­rec­tor of MNP Cor­po­rate Fi­nance Inc. “So, that’s the struc­ture that we en­vi­sion go­ing for­ward.”

Skauge plans to take a less ac­tive role in the newly merged or­ga­ni­za­tion for the fore­see­able fu­ture i n or­der to fo­cus on per­sonal and pro­fes­sional re­spon­si­bil­i­ties.

Be­fore then, though, Skauge will be work­ing to bring NEMA’s rank and file mem­bers into the PCMA fold. This month, Skauge will be con­tact­ing those in­di­vid­u­als who are not also mem­bers of the orig­i­nal PCMA to in­vite them to join the merged or­ga­ni­za­tion.

The fi­nal count of PCMA mem­bers will meet for­mally as one or­ga­ni­za­tion at a con­fer­ence in Toronto in April 2018.

“[NEMA’s rank and file] typ­i­cally have fol­lowed my vi­sion for NEMA, and I don’t fore­see any hes­i­ta­tion from them to move over to the PCMA,” says Skauge. “Re­ally, what our mem­bers want, whether it’s PCMA or NEMA, is good ad­vo­cacy [on their be­half ].”

The new PCMA also hopes to stream­line its ad­vo­cacy ef­forts, but both Bedard and Skauge worry that the un­cer­tain fu­ture makeup of Canada’s pro­vin­cial reg­u­la­tors will make that a dif­fi­cult task.

“One of the most im­por­tant things for an ad­vo­cacy or­ga­ni­za­tion such as ours is to have good re­la­tion­ships with reg­u­la­tors,” says Skauge. “But we don’t re­ally know who’s go­ing to be reg­u­lat­ing what — nei­ther does any­one else right now, given that the [pro­posed Cap­i­tal Mar­kets Reg­u­la­tory Au­thor­ity] still is in flux.”

Given both the un­cer­tainty sur­round­ing the cre­ation of that na­tional reg­u­la­tor and the fact that EMDs don’t have a sel­f­reg­u­la­tory or­ga­ni­za­tion, Bedard and Skauge say the PCMA will con­tinue to ad­vo­cate for more con­sis­tent reg­u­la­tions across the coun­try — par­tic­u­larly for na­tional prod­uct dis­tri­bu­tions, which they de­scribe as a com­plex and ex­pen­sive process.

“When you’re bring­ing out an of­fer­ing in this mar­ket, there are a lot of idio­syn­cra­sies among the prov­inces,” Bedard says, “and for­mat­ting some­thing for Canadaw­ide dis­tri­bu­tion still is quite a bit of work. There are a lot of ef­fi­cien­cies that we want to [achieve].”

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