Green light for exempt market dealers to participate in public offerings

On June 20, 2024, the securities regulatory authorities in Alberta, British Columbia, Nova Scotia, Ontario, Québec, and Saskatchewan (the “participating jurisdictions”) published local blanket orders (collectively, the “Blanket Orders”) pursuant to which exempt market dealers (“EMDs”) will be permitted to participate in offerings under a prospectus as members of selling groups. The Blanket Orders, which are substantively harmonized across the participating jurisdictions, became effective June 20, 2024 and are to remain in effect until December 20, 2025.

The time-limited Blanket Orders are intended to support capital-raising by early-stage businesses by providing EMDs with an ability to participate in public offerings. EMDs play an important role in assisting issuers raise capital through private placement offerings without the use of a prospectus. Until now, EMDs have not been able to participate in prospectus offerings. The Blanket Orders will enable EMDs to continue to support issuers in their capital raising efforts should they pursue prospectus offerings and are expected to provide more capital-raising opportunities for Canadian small businesses.

Background on exempt market dealers

As a general rule, any person or company that: trades in securities; advises in securities; acts as an underwriter or agent; or acts as an investment fund manager to or on behalf of persons resident in a Canadian province or territory, must be registered with the relevant securities regulatory authorities, unless an exemption is available. Trading includes the sale or disposition of a security for valuable consideration, as well as acts, advertisements, solicitations, conduct or negotiations directly or indirectly in furtherance thereof.

In accordance with part 7 of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”), a person or company must register under one or more registration categories that set out the permitted activities in which the registrant may engage. Under the existing rules, the EMD category outlined in section 7.1(2)(d) of NI 31-103 provides that an EMD may only act as a dealer or underwriter for an issuer, including a reporting issuer, that is distributing securities under a prospectus exemption. Accordingly, prior to the temporary exemption under the Blanket Orders, EMDs were prohibited from acting as a dealer or underwriter in distributions of securities under a prospectus.

The Blanket Orders

The Blanket Orders provide that an EMD can act as a dealer in a distribution of securities made under a prospectus if certain conditions are met, including where the EMD:

• acts in accordance with the selling group agreement with the issuer or investment dealer acting as lead underwriter in a distribution of securities under a prospectus;
• only acts as a dealer to a person to whom a prospectus exemption would be available if the distribution of securities were being made under a prospectus exemption;
• does not act as an underwriter in connection with the distribution of securities under a prospectus and limits its interests in the transaction to receiving the usual and customary distributor’s or seller’s commission that falls within the exemption for selling group members in the definition of an “underwriter” under the securities legislation; and
• receives total compensation that is less than 50 percent of the lowest total compensation payable to a selling group member that is an investment dealer.

Investment dealers will remain involved in prospectus offerings, including by acting as underwriter and signing the underwriter’s certificate to the prospectus.

EMDs relying on the Blanket Orders must report a change in business activity by filing a Form 33-109F5 – Change of Registration Information pursuant to National Instrument 33-109 – Registration Information indicating that they will be participating as a member of selling groups in a distribution under a prospectus.

Potential impact on issuers and investors

EMDs typically act as dealers or underwriters when small to medium sized issuers distribute securities pursuant to a prospectus exemption, thereby playing a key role in allowing such companies to raise capital. As issuers grow and mature, they may turn to offering their securities under a prospectus in order to benefit from a broader market. Under the existing rules, EMDs were restricted from participating in such distributions as members of the selling group.

Under the Blanket Orders, EMDs may now continue supporting these businesses through all stages of their lifecycle (provided they satisfy the conditions in the Blanket Orders), thereby expanding the universe of potential sources of capitals and providing investors with more investment opportunities. For further details on the terms and conditions relating thereto, please visit the Blanket Orders published in each of the participating jurisdictions.

If you have any questions regarding the Blanket Orders or any topic discussed above, please contact a member ‎of DLA ‎Piper Canada’ s Capital Markets group.‎