Financing of Oil And Gas Companies Through the TSE

Abstract

Introduction THE Toronto Stock Exchange has recently adopted a new approach to the financing of junior companies and has revised its listing requirements so as to allow smaller and undercapitalized enterprises access to the Exchange's public market. This new opportunity may be of interest to those oil and gas companies which need public equity financing and broader investor exposure. In the wake of the 1965 "Windfall" disaster when speculative insanity drove a penny stock to $5.60 before collapsing, Ontario introduced severe restrictions on the public financing of junior resource companies. Recently the regulatory climate has improved considerably, particularly as a result of the TSE initiatives over the past two years. Qualifying companies, though still at an early stage of corporate development, may now apply for listing and take advantage of the financing facilities offered by the TSE. During the intervening years, it became obvious that Ontario's restrictive regulations aimed at protecting the investing public· from unscrupulous stock manipulators were, coincidentally, frustrating the development of many legitimate enterprises. Being practically denied public financing in Ontario, these companies either had to seek listing on the Vancouver Stock Exchange or try to obtain equity funds through brokerdealers, a very costly and often unacceptable alternative. Creation of a New Approach Growing and widely publicized concern about this state of affairs prompted the TSE, in the fall of 1980, to form a Market Access Committee to study the situation. The Committee was chaired by Hugh McMahon, a partner in Pit-field, Mackay. Ross Limited and, at that time, a member of the Exchange's Board of Governors. Another committee, under David Menzel, Q.C., representing the business community was set up by the Ontario government for the same purpose. In June 1981, on the Province's initiative, Hugh McMahon and Harry Knowles, Q. C., at that time Chairman of the Ontario Securities Commission, met with Premier Bill Davis to brief him on the views of the investment community. At that meeting Mr McMahon put forward three requirements considered essential for solving the existing impasse:a change in OSC regulations, particularly the abolition of Policy 3.02 which limited the stock position of founders and promotersallowing primary stock distribution on the floor of the Exchange ‘’ and the modification of listing requirementsincentive grants and tax credits for purchasers of initial share offerings by small companies. In 1980 the T.S.E. Market Access Committee published a comprehensive report which was widely distributed. Subsequently, the TSE formed an Implementation Committee charged with the preparation of recommendations as to procedures and mechanisms necessary to provide junior companies with access to the public market. In December 1982, the OSC held three days of public meetings to discuss the TSE recommendations and hear testimony from various interested parties. Final authority to put the new system and procedures into effect was granted in February 1983.