Q: Just What is an Exempt Market Dealer? 

A: As defined in the National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, an Exempt Market Dealer is an entity or a person registered in at least one jurisdiction in Canada who is allowed to act as a dealer that trades in securities that are prospectus-exempt, or as an underwriter of such securities. 

Q: What is an Exempt Market Product or Security? 

A: It is a product or security that is traded in the Exempt Market, also known as the Private Capital Market, because they are issued by private companies who would not normally issue a prospectus. An Exempt Market Product or Security is made available to investors who qualify under at least one of the Prospectus Exemptions allowed by the Securities Commission(s) of the jurisdictions where they are being traded.  

Q: What are the benefits of investing in the Exempt Market? 

• Allows certain types of investors to access investment products that are usually only allowed for large-scale, institutional investors.  

• Provided one qualifies as an Eligible or Accredited Investor, certain products that are not available in the retail market can be made available for a qualified investor to subscribe to and benefit from.

• On the other side, smaller businesses and issuers that may not have the resources to “go public” but also need to raise money for expansion, operation, and innovation may benefit from the Exempt Market by connecting with Eligible or Accredited Investors. 

Q: What is an example of an Exempt Market Product or Security? 

• Some examples include Non-Public funds such as hedge funds, venture capital funds, private equity funds, asset-backed securities, Real Estate Investment Trusts (REITs), shares or units of Mortgage Investment Corporations (MIC’s), and shares or units of a Land Development Limited Partnership 

Q: What are examples of Prospectus Exemptions? 

• As listed in such regulations as the Canadian Securities Administrators’ NI 45-106, some examples include the Accredited Investor (AI) Exemption, the Minimum Amount (MA) Exemption, and the Offering Memorandum (OM) Exemption. 

Q: What is the role of the Exempt Market Dealer: 

• An Exempt Market Dealer facilitates the trade (sale) of carefully selected products by issuers they have vetted for their product shelves. Through their Dealer Representatives (DR’s), they distribute shares or units of these products through the Subscription process. 

Q: What are the responsibilities of an Exempt Market Dealer? 

• EMD’s are required to submit each investment scenario through a rigorous due diligence process, which includes a Know Your Client (KYC) test and a Know Your Product (KYP) test, and to assess whether the investment is suitable for their client.  

• They are required to have sufficient knowledge about the products they deal in, and to have a good knowledge of the potential investor’s situation, including their ability to handle risk. 

• They must maintain good standing with the securities regulators of the jurisdictions that they are registered to do business in. This includes being responsive to the inquiries of these securities regulators, and to ensure that their business practices benefit and protect the client, and preserve the reputation of both the Exempt Market Dealer and the capital markets as a whole.