Toronto-based firm sells Canadian-listed versions of Cathie Wood's ETFs
Emerge Canada Inc. has been forced to cease operations for failing to comply with the Ontario Securities Commission’s working capital requirements.
The Toronto-based firm which has been selling Canadian-listed versions of Cathie Wood’s exchange-traded funds (ETFs) has been told to either wind down its business or find another firm to take over its activities.
The OSC has suspended the firm’s registration and says it must not participate in any registrable activities such as investment fund manager, portfolio manager and exempt market dealer.
The regulator notes that Emerge Canada has been calculating its excess working capital “by including an amount owed to it from Emerge Capital Management Inc. a related-party incorporated in the United States.”
While this amount was $3.4 million as of April 10, 2023, the OSC said that it was not readily convertible to cash. The rules require investment fund managers to have at least $100,000 in working capital.
OSC director Debra Foubert’s decision statement says that Emerge Canada has “been provided ample opportunity to remedy its working capital deficiency.”
She says that, even if the amount due from its US affiliate is paid, she is not confident that the firm can remain compliant in relation to working capital requirements.
Overly punitive
The regulatory filing includes assertions from Emerge Canada that winding-up is not in the best interest of unitholders because it “owes a receivable of approximately $5.5 million to the Emerge Ark ETFs and Emerge Canada is not able to pay the receivable it owes to the Emerge Ark ETFs until Emerge US pays the Related-Party Receivable in full.”
The firm says that the OSC action is “overly punitive and is unwarranted in the circumstances.”
It also says that shutting it down could cause reputational damage to other small Canadian ETF providers and highlighted its achievements in the market, including its niche and leadership milestone.
But Foubert stated: “While I applaud the fact that Emerge is breaking ground as North America’s first all-women investment team managing innovative and socially responsible investment strategies, it did not form any part of my decision as the regulatory requirements apply equally to all registrants, in the absence of specific exemptions.”
The decision includes the possibility of Emerge Canada finding another firm to take over its activities.
Either way, the firm has been told to act promptly, which may provide some relief to those investors who have been unable to trade their ETF holdings since April, although there is a possibility that they may not receive full Net Asset Value.
Cease Trading Order
OSC staff claim that Emerge Canada has not met the working capital requirements since at least September 2022, in breach of Ontario securities law.
In April 2023, the firm was issued with a Cease Trading Order (CTO) for 11 of its ETFs after missing the deadline to file audited annual financial statements, management's reports of fund performance and associated filings for the fiscal year ended December 31, 2022, before the prescribed deadline of March 31, 2023.
At the time, Emerge Canada said that “there is no other material information concerning the affairs of the Emerge ETFs that has not been generally disclosed.”
CEO Lisa Langley told Wealth Professional shortly afterwards that the firm was determined to rebuild trust and continue its innovative approach to the ETF industry.
