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New Multilateral Initiative Temporarily Expands the Role of Exempt Market Dealers

By Christopher Jones, Karam Putros and Ruben Pinchas (Summer Law Student)
July 9, 2024

On June 20, 2024, the Canadian Securities Administrators (CSA) issued a notice regarding Coordinated Blanket Order 31-930 - Exemption to Allow Exempt Market Dealer Participation in Selling Groups in Offerings of Securities under a Prospectus (order), which will temporarily allow exempt market dealers (EMDs) to participate in prospectus offerings as a member of a selling group, subject to certain limitations. This follows the Ontario Securities Commission’s recent initiatives to facilitate capital raising for early-stage businesses (see our June 2024 Blakes Bulletin: OSC Introduces Initiatives to Support Capital Raising for Early-Stage Businesses in Ontario for more information). 

Ordinarily, EMDs act as dealers or underwriters for companies that are distributing securities under an exemption from the prospectus requirement. Pursuant to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations, absent the order, EMDs are not permitted to participate in a distribution of securities made under a prospectus, whether individually or as part of a selling group. By temporarily allowing EMDs to participate in such distributions as members of selling groups, the CSA is exploring whether this initiative will enhance the ability of early-stage businesses to access capital as they mature. 

Securities regulatory authorities in Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan have implemented the order, which will be effective for 18 months unless extended by the participating jurisdictions. 

Coordinated Blanket Order 31-930

The order allows EMDs to participate as members of “selling groups” (as defined in each participating jurisdiction’s local blanket order) in prospectus offerings if all of the following conditions are met:

  1. 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;
  2. 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;
  3. The EMD does not act as an underwriter in connection with the distribution and limits its interest in the transaction to receiving the 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
  4. The total compensation to the exempt market dealer does not exceed 50% of the lowest total compensation paid or payable to any selling group member that is an investment dealer.

EMDs seeking to rely on this exemption are required to report a change in business activity by filing a Form 33-109F5 Change of Registration Information, indicating that they will be participating as a member of selling groups in prospectus offerings. 

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