OSC emerging markets guidance is ‘constructive’: Waitzer

The Ontario Securities Commission’s recent guide, published November 9, outlining the regulator’s expectations for directors and management of emerging market issuers (EMIs) contains “constructive” advice, says Edward Waitzer, a top corporate lawyer at Stikeman Elliott:

They have identified a lot of what is common sense when you are dealing in a foreign jurisdiction where the legal framework and the culture of doing business and enforcement mechanisms are very different than our own.

As Waitzer sets out in his firm’s blog, the guide follows a regulatory review of EMIs announced in June 2011 and a subsequent report setting out the results of the OSC’s review published in March of this year.

The OSC’s regulatory review of EMIs comes in the wake of the OSC’s allegations of fraud against Sino-Forest Corporation and other scandals involving Canadian listed companies operating in emerging markets.

Waitzer thinks that the November report is a major improvement over the initial March report, where, according to Waizer, the OSC did more “finger pointing” than providing constructive advice on how to avoid problems in the future:

It was conspicuous because it was selective in who they were pointing fingers at and, in any event, pointing fingers is not a very helpful response if you are an investor.

In addition to providing a list of issues that people should think about when operating in emerging markets, the guide provides suggestions for disclosure, but Waitzer says doesn’t think that aspect will likely be as useful:

I am not sure that disclosure is an answer to any of this, but it can’t hurt so I guess the suggestions for better disclosure are at worst benign. …If someone is selling you the hottest new opportunity from China and tells you a great story about China, you are not going to read 400 pages of the prospectus before you make a decision.

One issue that Waitzer thinks the OSC should have addressed but didn’t is “reverse takeovers” (which allows a private company to morph into a public one quickly and more cheaply than through an initial public offering):

There seems to be a thought that reverse takeovers are really not their issue, it is a stock exchange issue, and I just disagree with that. I think that any regulatory issue is their issue because ultimately they exercise oversight over the exchange and that oversight responsibility has gone up dramatically since the exchange became a for profit entity. I don’t think they can ignore that issue.

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