Exempt Market in Canada
In Canada’s current financial world, interest rates are usually between 0.5-2% for most banking and public financial institutions. If you are willing to risk some of your money, there are options such as private investments and mutual funds where interest rates are higher but money back is not always a guarantee. Some people go even farther to invest money into an exempt market, which is where companies can sell their securities with exemptions from certain requirements, such as the prospectus and registration. This may sound risky for the investor but most people do not know how expensive a prospectus is. A prospectus is a legal document that allows a company to sell their securities publicly and informs all parties about the company and standings. However, these documents require a lawyer, an accountant, filing fees, printing and delivery time. Therefore, most small and medium businesses that wish to go public choose to do so under a prospectus exemption to avoid large expenses.
Exempt Market Dealers (EMDs) are the individual companies who trade the securities that are prospectus-exempt. In the past, Canada’s exempt market was fairly unregulated and it did not require dealers to have specific qualifications. In 2010, it became the law in Canada that all EMDs must be registered in order to sell investments through the framework of the National Instrument 31-103: Registration Requirements, Exemptions and Ongoing Registrant Obligations. Depending on the location of the EMD, they had to answer to the local authorities of their province; for example, the Alberta Securities Commission (ASC). EMDs are also allowed to be a dealer for securities that are prospectus qualified, just as long as they are sold to clients who qualify for exempt securities. These regulations are explained in the National Instrument 45-106: Prospectus and Registration Exemptions.
The exempt market in Canada is a multibillion-dollar investment arena for those wealthy enough to join. This market is aimed at wealthy individuals who know and accept the risk of investing their money, rather than regular individuals who could invest and lose all their life savings. Since regulations are relatively new to this area of finance, it is likely that new rules will be imposed in the coming years.
