This resource has been prepared for educational purposes only. This information is current as of the date of writing and does not constitute legal, investment or other professional advice, which should be obtained prior to relying on anything herein.
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Did you know that an issuer / fund that would otherwise be required to register as an exempt market dealer (EMD) can use a third party EMD for compliance instead?
In Ontario, if you are in the business of trading in, advising on, or underwriting securities, you are required to register with the Ontario Securities Commission. This includes the registration category of exempt market dealer.
Registering as a dealer, however, can be a time consuming, costly, and requires specific expertise and ongoing compliance.
Notwithstanding the requirement to register, however, there are certain exemptions to registration found in NI 31-103 Part 8. Notably, section 8.5 of NI 31-103 states:
8.5 The dealer registration requirement does not apply to a person or company in respect of a trade in a security if either of the following applies:
a. the trade is made through a registered dealer, if the dealer is registered in a category that permits the trade unless, in furtherance of the trade, the person or company seeking the exemption solicits or contacts directly any purchaser or prospective purchaser in relation to the trade;
b. the trade is made to a registered dealer who is purchasing as principal, if the dealer is registered in a category that permits the trade.
Companion Policy to NI 31-103 elaborates on this exemption at: https://www.osc.ca/en/securities-law/instruments-rules-policies/3/31-103/unofficial-consolidation-companion-policy-31-103cp-registration-requirements-exemptions-and-1#_Toc102727184, stating:
Section 8.5 provides an exemption from the dealer registration requirement for trades made
- through an appropriately registered dealer, or
- to an appropriately registered dealer that is purchasing for that dealer’s account.
The exemption in paragraph 8.5(1)(a) for trades made through a registered dealer is not available if the person relying on it solicits or contacts purchasers of the securities directly. For example, if an individual acts in furtherance of a trade by soliciting or contacting potential purchasers of securities (sometimes referred to as a finder) and then the sale to the purchaser is executed through a registered dealer, the individual would not qualify for this exemption.
A person may utilize the exemption for acts in furtherance of a trade in relation to working with issuers or appropriately registered dealers, provided they do not directly solicit or contact purchasers.
Notably, when relying on this exemption, the Issuer itself is prohibited from soliciting investments. This means that any such solicitations would have to be made by a different person/entity than the issuer such as the EMD or a third party company or finder.