What is an EMD?
An exempt market dealer, or EMD, is a person or company that is registered with one or more provincial securities regulators and is a registered dealer that is restricted to dealing in the prospectus-exempt market, other than as permitted by the Blanket Orders (as defined below).
Overview of announcement
On June 20, 2024, securities regulatory authorities in Alberta, British Columbia, Nova Scotia, Ontario, Québec and Saskatchewan announced an initiative that provides a temporary exemption from certain restrictions applicable to EMDs under National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations, in order to permit EMDs to participate as selling group members in prospectus offerings, subject to certain conditions. The participating jurisdictions have published local blanket orders (Blanket Orders), which came into effect on June 20, 2024, and remain in effect until December 20, 2025, unless extended by the participating jurisdictions. It is expected that the securities regulatory authority in New Brunswick will publish a similar local blanket order in the coming weeks.
Reasons for the Blanket Orders
The participating jurisdictions recognize the important role of start-up and small businesses in provincial economies and the key role that EMDs play in assisting such issuers to raise capital early in their lifecycles, under prospectus exempt financings. Once such issuers seek financing through distributions under a prospectus, EMDs were unable to continue to support these issuers. Allowing EMDs to participate as members of a selling group in prospectus offerings may (a) provide additional channels or sources of capital to issuers, (b) provide investors with more investment opportunities, and (c) allow EMDs to participate in an issuer's financing activities throughout its lifecycle.
Description of Blanket Orders
The Blanket Orders provide that an EMD may act as a dealer in a distribution of securities made under a prospectus, provided that certain conditions are met. This includes the following:
- 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;
- 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;
- 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 of the applicable jurisdiction; and
- 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.
EMDs that intend to rely on the Blanket Orders must report a change in business activity by filing Form 33-109F5 – Change of Registration Information under National Instrument 33-109 – Registration Information, indicating that they will be participating as a member of selling groups in prospectus offerings.
Key takeaways
The changes introduced by the Blanket Orders allow EMDs to maintain their relationships with issuers as they transition in size, provide growing businesses with more access to capital and enable EMDs to participate more fully in capital markets.
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