EMDs allowed limited participation in prospectus offerings

On June 20, securities regulatory authorities in each of Alberta, British Columbia, Nova Scotia, Ontario, Quebec and Saskatchewan (the participating jurisdictions) issued temporary local blanket orders that allow exempt market dealers (EMDs) to participate in prospectus offerings subject to the restrictions set out below (the Blanket Orders). A similar blanket order is anticipated shortly in New Brunswick.

Prior to implementation of the Blanket Orders, which are substantially similar in each participating jurisdiction, EMDs were restricted to acting as dealers only where a distribution was made pursuant to an exemption from the prospectus requirement contained in the relevant securities legislation and in certain other limited circumstances. EMDs were not permitted to participate in a prospectus offering.

The Blanket Orders follow the January 2021 recommendation of the Capital Markets Modernization Taskforce to the Ontario government to amend Ontario securities laws to allow EMDs to participate as members of a selling group in prospectus offerings. The recommendation recognized the need for additional sources of finance for smaller and mid-size issuers in order to foster competitive capital markets. 

Recognizing that the EMD registration category is subject to less stringent requirements than the investment dealer registration category, the Blanket Orders impose the following restrictions on an EMD’s participation in a prospectus offering:

• the EMD must act in accordance with the selling group agreement with the issuer or the investment dealer acting as the lead underwriter of the offering;
• the EMD can only trade in the offering’s securities to persons in respect of whom a prospectus exemption would be available if the prospectus offering was made under a prospectus exemption (for example, accredited investors);
• the EMD must not act as an “underwriter” in connection with the prospectus offering and its interest in the offering must be limited to receiving “usual and customary distributor’s or seller’s commission” payable by an underwriter or issuer. The purpose of this condition is to ensure that the EMD’s activities fall within the exemption from the definition of underwriter contained in the relevant provincial securities legislation. For example, the definition of underwriter in the Securities Act (Ontario) excludes persons receiving “usual and customary distributor’s or seller’s commission”; and
• the EMD’s total compensation must not exceed 50% of the lowest total compensation payable to a selling group member that is an investment dealer.

The Blanket Orders will remain in effect until December 20, 2025, unless extended by the participating jurisdictions. 

The CSA Notice regarding the coordinated Blanket Orders is available here. The following are links to the relevant orders of each of the participating jurisdictions:

• Alberta
• British Columbia
• Nova Scotia
• Ontario
• Quebec
• Saskatchewan