Exempt Market Dealer A Comprehensive Guide for Canadian Investors

As a Canadian investor, navigating the world of exempt market dealers can be a daunting task. An exempt market dealer is a firm that helps companies raise capital by selling securities to investors who are not necessarily accredited or institutional.

Exempt market dealers play a crucial role in providing access to capital for small and medium-sized businesses. They handle the sale of securities, ensuring that all necessary regulatory requirements are met.

In Canada, exempt market dealers are regulated by the securities commissions of each province. This means that they must comply with specific rules and guidelines to operate legally.

Exempt market dealers can offer a range of benefits to investors, including access to innovative investment opportunities and diversification of their portfolios.

An Exempt Market Dealer (EMD) is a firm or individual registered with securities regulatory authorities in Canada to trade securities not listed on a stock exchange.

These securities, also known as "exempt securities", include private company shares, limited partnership units, and other investments not readily available to the general public.

EMDs play a crucial role in connecting investors with opportunities in the exempt market, which can include early-stage companies, real estate projects, and other alternative investments.

EMDs are responsible for ensuring investors are fully informed about the risks and potential rewards of the exempt securities they are offering.

Setting up as an exempt market dealer requires you to meet certain requirements, including proficiency, conduct, capital, and compliance requirements. These rules are introduced by Regulation NI 31-103, which makes it clear that EMDs are subject to the same know-your-client ("KYC") and suitability requirements as other dealer categories.

To operate as an exempt market dealer, you must be aware of the different types of dealers, including full service investment dealers, mutual fund dealers, scholarship plan dealers, and restricted dealers. Full service investment dealers, for instance, are required to be members of the self-regulatory organization, the Investment Industry Regulatory Organization of Canada (IIROC).

Exempt market dealers must also ensure that any exempt security is suitable for a particular client by considering the particular investment product as well as each individual client's investment goals and profile. This includes making sure their letters of engagement and investment policy statements clearly outline mutual expectations and the manner in which the advisor is being paid.

The applicable provincial and territorial securities legislation, regulations, and rules for any person or firm will generally depend on the jurisdiction of residence of the investor and dealer or adviser and the jurisdiction in which the registerable activity occurs.

Setting up as an Exempt Market Dealer (EMD) comes with a range of requirements that you'll need to meet. One of the key requirements is proficiency, which means you'll need to have the necessary skills and knowledge to operate as an EMD.

Regulation NI 31-103 introduces consistent rules for EMDs concerning proficiency, conduct, capital, and compliance requirements. This means you'll need to ensure that you and your staff have the necessary qualifications and experience to operate as an EMD.

Exempt market dealers are subject to the same know-your-client (KYC) and suitability requirements as other dealer categories. This means you'll need to ensure that you understand your clients' investment goals and profiles before recommending any securities.

You'll also need to consider the following dealer categories when setting up your business:

To ensure that any exempt security is suitable for a particular client, you'll need to consider the particular investment product as well as each individual client's investment goals and profile.

In certain Western Canadian jurisdictions, a blanket order is in place to exempt firms or individuals from registration requirements. Alberta, for instance, has set their blanket order for NI 31-505 as of 2011.

Firms or individuals trading in securities under this blanket order must meet specific conditions. These conditions include trading under one of the following capital-raising exemptions in National Instrument 45-106: Accredited investor; Family, friends and business associates; Offering memorandum; or CAD$150,000 minimum purchase.

The conditions of the blanket order are quite specific, and it's essential to understand them to ensure compliance. Exempt market dealers are different from registered dealers in this regard.

The following exemptions are included in the blanket order:

Choosing an Exempt Market Dealer is a crucial step in exploring investment opportunities in the exempt market.

A reputable and experienced Exempt Market Dealer (EMD) can make all the difference in your investment journey. Look for firms or individuals that are registered with securities regulatory authorities and have a track record of success in the exempt market.

It's also a good idea to seek out an EMD that is a member of a self-regulatory organization, such as the Exempt Market Dealers Association of Canada, which sets standards for the industry and provides a dispute resolution process for investors.

To ensure you're working with a trustworthy EMD, research their background and reputation. A simple online search can go a long way in helping you make an informed decision.

Here are some key characteristics to look for in an EMD:

By considering these factors, you can increase your chances of working with a reliable and knowledgeable EMD who can help you navigate the exempt market with confidence.

Exempt securities, those not listed on a stock exchange, carry additional risks compared to traditional investment options.

Limited information about companies or projects can make it harder to make informed investment decisions. This is especially true for exempt securities, which may have less information available.

Lack of liquidity in exempt securities can make it difficult to sell your investment if you need to. This is a key risk to consider when investing in the exempt market.

Lack of regulatory oversight in the exempt market can increase the risk of fraud or other misconduct. Exempt securities are not subject to the same level of regulatory scrutiny as publicly traded securities.

To mitigate these risks, it's essential to conduct thorough due diligence on the company or project, as well as the EMD itself. This will help you make informed investment decisions and minimize risk.

Here are some key risks to consider when investing in the exempt market:

By understanding these risks and taking steps to mitigate them, you can make more informed investment decisions in the exempt market.