The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange’s (BISX) chief executive says the publication of proposed ‘crowdfunding’ rules will help define “the space we can work in” with its Small Alternative Market (SAM).

Keith Davies told Tribune Business that BISX would have to study the guidelines released by the Securities Commission last Friday, which propose allowing Bahamian micro, small and medium-sized (MSMEs) businesses to raise up to $3 million annually on an ‘over-the-counter’ market (OTC).

Explaining that BISX had yet to see or review the proposals when it was contacted by this newspaper, Mr Davies said: “We’re going to have to review that.

“Whatever it is, I can say we definitely need to study it and incorporate their timelines and requirements into any model or structure we may be contemplating."

He added: “I’m happy the Commission has put something out, and that provides clarity for us. We know the space we can work in.

“We have to study it, and make sure we can use it to the best of our ability at BISX. By Monday [today], we will have some clarity on what it means for us.”

The Securities Commission’s proposed rules appear to dovetail nicely with BISX’s plans to develop its SAM market, targeted at entrepreneurs and small and medium-sized businesses seeking to raise up to $1 million from investors via a formal, transparent capital market.

And Mr Davies, just last month, told the Bahamas Institute of Chartered Accountants (BICA) conference how BISX was looking to marry ‘crowdfunding’ with the SAM and its regulated market.

The Securities Commission’s rules, which would allow entrepreneurs to raise up to $1 million, and small businesses to raise up to $3 million per year, could provide a framework for BISX and the private sector to achieve just that.

Crowdfunding involves financing a project or business venture by raising small amounts of money from a large number of people, typically via the Internet. It pools money from friends, family and investors.

Bahamian entrepreneurs and small and medium-sized enterprises are especially familiar with this, as it is typically the mechanism they have employed to raise start-up and expansion capital.

The Securities Commission, in unveiling its rules, said they were designed to improve Bahamian access to capital by placing crowdfunding within a rules-based, regulated and transparent market. The capital markets regulator added that they are also designed to protect investors.

“The proposed ‘Crowdfunding Rules’ would allow the general public to participate in crowdfund investment offerings within limitations,” the Securities Commission said.

“They would also require that all equity crowdfund activities are conducted on a platform which is registered with the Commission.”

The Securities Commission did not specifically mention BISX as this ‘platform’, although it would appear best suited - and most experienced - to provide such a function, while using it would also minimise costs.

The regulator said it would engage Bahamian broker/dealers and others for input on the draft Rules over the next month, with the goal of releasing them for general public consultation in early 2017. It plans to implement the finalised Rules soon after.

“To help protect retail (small and/or unsophisticated) investors, the Crowdfunding Rules would limit the amount such persons could invest to $500 per crowdfund arrangement, and $2,500 per year,” the Securities Commission said.

“‘Accredited’ investors (investors who meet certain wealth, income, institutional or other requirements as defined in securities laws), would not be limited in the amount they can invest via crowdfunding.

“Other investor protection features of the draft Rules include capital requirements for registered platforms and defined disclosure requirements for crowdfunding projects and their initiators, including the amount of capital raised and progress reports on initiatives funded using the crowdfund method.”

MSMEs will be allowed to raise up to $3 million annually in the OTC market without having to file a prospectus with the Securities Commission.

Instead, they will have to file an offering memorandum, which would provide comprehensive information to allow investors to make informed investment decisions.

The Securities Commission’s proposed Rules appear to be applying a lighter regulatory touch, while at the same time protecting investors and market participants, and enabling companies to establish a ‘track record’ that, over time, could allow them to graduate to BISX’s ‘Main Board’ of listings.

“One of the main purposes behind the MSME Rules would be to significantly reduce the costs for small business operators who wish to raise funding for their ventures by directly accessing the capital markets,” the Securities Commission said.

“To help protect retail investors in MSME offers, the draft Rules would limit the amount of money that such persons could invest to $1,000 per offering and $5,000 per year. As is the case for crowdfunding, accredited investors would not be subject to investment limitations under the draft Rules.”

Explaining the rationale for its initiative, the Securities Commission added: “MSMEs spur growth, development and innovation in an economy, and they account for 60 per cent to 70 per cent of jobs in most Organisation for Economic Co-operation and Development (OECD) countries.

“However, despite the many benefits MSMEs can bring, they suffer from insufficient funding, with commercial bank options unavailable or very costly, and traditional capital market alternatives also often cost-prohibitive. With the development of these new Rules, the Securities Commission is seeking to facilitate capital access in order to address this funding gap.”