On June 20, 2024, the Canadian Securities Administrators announced a multilateral initiative by the securities regulatory authorities in Ontario, Quebec, British Columbia, Saskatchewan, Alberta, and Nova Scotia (collectively, the “Participating Jurisdictions”) to temporarily extend the role of exempt market dealers (“EMDs”).
The Participating Jurisdictions have implemented the initiative by releasing synchronized blanket orders (collectively, the “Blanket Orders”) effective June 20, 2024, until December 20, 2025, unless extended by the Participating Jurisdictions. It is anticipated that the securities regulatory authority in New Brunswick will also be publishing a similar blanket order in the coming weeks.
Currently, EMDs play a significant role in assisting in raising capital for start-ups and small to medium-sized businesses by distributing the company’s securities under prospectus requirement exemptions. Due to restrictions on their permitted activities, EMDs are unable to participate once businesses grow and seek financing through prospectus offerings.
If certain conditions are satisfied, the Blanket Orders allow an EMD to act as a dealer in a distribution of securities made under a prospectus. The conditions include the following:
(a) the EMD acts in accordance with the terms of the selling group agreement with the issuer or investment dealer acting as the lead underwriter in the distribution of the securities made under the prospectus;
(b) the EMD acts as a dealer only to a person or company in respect of whom an exemption from the prospectus requirement would be available if the distribution of securities had been made under an exemption from the prospectus requirement;
(c) the EMD does not act as an underwriter in connection with the distribution of the securities under the prospectus and limits its interest in the transaction to receiving the usual and customary distributor’s or seller’s commission payable by an underwriter or issuer such that it comes within the exemption for selling group members in the definition of an “underwriter” under the securities legislation; and
(d) the total compensation to the EMD does not exceed 50% of the lowest total compensation paid or payable to any selling group member that is an investment dealer.
Allowing EMDs to participate as a member of a selling group in prospectus offerings provides another route for raising capital to issuers and provides more investment opportunities to investors. EMDs will now be able to partake in an issuer from early stages to maturity. EMDs intending to rely on the Blanket Orders will have to report a change in business activity indicating they will be participating as a member of selling groups in prospectus offerings.
If you have any questions concerning the participation of EMDs in prospectus offerings or the Blanket Orders, please contact Keith Inman at [email protected] or by phone at 250-869-1195.
