B.C. Regulation of OTC Bulletin Board Companies

I'm a fan of the BC Securities Commission, and I know they've had their hands full with unscrupulous OTCBB companies bilking BC investors, but this is a nasty little policy. Launched on September 15, 2008, BC Policy 51-509, Issuers Quoted in the U.S. Over-the-Counter Markets says basically this. If your company is listed on the OTC Bulletin Board and not on any senior exchange, and if (among other tests) its business is "directed or administered" in or from BC, it is deemed to be a reporting company in BC and must file all of the continuous disclosure documents that a BC reporting company must file. Net result - tens of thousands of dollars in compliance costs annually, in many cases without any benefit. A cynic might conclude that the real intention of this policy is to drive these companies out of our marketplace.

Here are a couple of problems with the policy.

Enforcement is tough. If companies don't comply, they'll be cease traded. But do they really care if their primary market is in the U.S.? The people who are really hurt are the BC investors in these companies who can no longer trade their shares - and aren't these the people that we're supposed to be protecting?

One of the ways an OTC company is caught is if its business is "directed or administered" in or from BC, but the tests of "direction or administration" aren't all that significant. Just having one executive officer resident in BC, even if the company has never distributed securities here, will catch you. The natural reaction of OTC companies that don't want to comply will be to dump their BC resident officers - just in time for the global recession. And again, it's difficult to see how the loss of key members of management will benefit the BC investors in these companies.

In my view, the reach of this policy should have been limited to OTC companies that distribute securities here or promote secondary trading here. The role of the Securities Commissions is to protect local investors, so if a foreign company has local investors, it makes sense that the Commission would take a stand to protect them. But without them, there's really no one to protect, is there? What's wrong with local entrepreneurs forming companies abroad in compliance with the laws of the jurisdictions in which they are formed? If the foreign jurisdictions don't see fit to protect their own residents, and there are no B.C. resident investors to protect, why are we attempting to impose our regulatory regime abroad? Having said that, I am a fan of the BC Securities Commission (or did I say that already?).