Exempt Market Dealers Now Permitted to Participate as Members of Selling Groups in Prospectus Offerings

July 3, 2024
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Exempt market dealers play a key role in assisting small and medium-sized issuers raise capital, by acting as dealers or underwriters and/or distributing securities under exemption(s) from prospectus requirements. However, as issuers grow and mature, many begin to consider prospectus offerings as another, often preferable, avenue for capital raising. At this stage, many exempt market dealers, which are typically limited to acting in respect of distributions of securities under prospectus exemptions, have found it difficult to continue their support of issuers’ capital raising efforts.

On June 20, 2024, the securities regulatory authorities in Alberta, British Columbia, Nova Scotia, Ontario, Québec and Saskatchewan (the participating jurisdictions) announced coordinated blanket orders (the “Blanket Orders“) allowing a temporary exemption from the restrictions set out in subsection 7.1(2)(d) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.. These exemptions allow qualifying exempt market dealers to participate in prospectus offerings as members of selling groups.

Qualifying Criteria

To qualify, an exempt market dealer wishing to act as a dealer in a distribution of securities made under a prospectus must meet the following criteria:

  1. the exempt market dealer acts as a dealer only in accordance with the terms of a selling group agreement with the issuer or an investment dealer acting as the lead underwriter in the distribution of the securities made under the prospectus;
  2. the exempt market dealer acts as a dealer only to a person or company in respect of whom an exemption from the prospectus requirement would have been available if the distribution of securities had been made under an exemption from the prospectus requirement;
  3. the exempt market dealer does not act as an underwriter in connection with the distribution of the securities under the prospectus and limits its interest in the transaction such that it comes within the exemption for selling group members in clause (a) of the definition of “underwriter” in the Securities Act (Ontario); and
  4. the total compensation paid or payable to the exempt market dealer does not exceed 50% of the lowest total amount of compensation paid or payable in connection with the distribution of the securities under the prospectus to any selling group member that is an investment dealer.

Exempt market dealers that meet the above criteria and intend to rely on the Blanket Orders are required under National Instrument 33-109 Registration Information 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.

The Blanket Orders came into force on June 20, 2024, and remain in force until December 20, 2025, unless extended by the participating jurisdictions.

If you would like to learn more about the impact of the Blanket Orders on your business, please contact any member of the Capital Markets and Securities Group at Fogler, Rubinoff LLP.

This publication is intended for general information purposes only and should not be relied upon as legal advice.