Exempt market dealer

An owner raising money from investors, or a buyer pulling investors together for an acquisition, may find that selling securities is itself a regulated activity. The exempt market dealer category covers dealing in securities that are sold without a prospectus. Ask early whether the person arranging the sale is registered, and in which category.

What the rules say

National Instrument 31-103, a Canadian Securities Administrators instrument, lists exempt market dealer as one of the dealer categories in subsection 7.1(1); subsection 7.1(4) says that subsection does not apply in Ontario, where the instrument notes the same categories are set out in subsection 26(2) of the Securities Act (Ontario). Among the activities paragraph 7.1(2)(d) permits, an exempt market dealer may act as a dealer by trading a security distributed under an exemption from the prospectus requirement, and may act as an underwriter in such a distribution. In an illustrative case, the Alberta Securities Commission says that a firm acting as a dealer of prospectus-exempt securities is considered to be in the business of trading securities and will require exempt market dealer registration.

What to check or ask

• Which registration category the firm and the individual hold, confirmed with the securities regulator where the investors live.
• Whether an exemption from the requirement to register is being relied on instead; Part 8 of the instrument sets those exemptions.
• Which prospectus exemption the sale relies on; see accredited investor exemption.

For how an owner brings in outside money, see how to sell equity in a company. This entry follows the instrument as published by the British Columbia Securities Commission and Alberta guidance; check the rules where you are.