On July 17, 2009, the Canadian Securities Administrators (the CSA) published in final form their reforms to the registration regime in National Instrument 31-103 – Registration Requirements and Exemptions (NI 31-103), along with certain consequential amendments to other securities laws (collectively, the new rules). Subject to ministerial approval requirements, NI 31-103 will come into force on September 28, 2009 (the effective date).
Did You Know?
- The requirement to register as an exempt market dealer (EMD) applies differently in certain parts of the country.
These and other important changes in the regulation of the exempt market under NI 31-103 are discussed below in this issue.
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Harmonization of Registration Categories Across Canada
The CSA have always presented harmonization and simplification of the registration rules among the jurisdictions of Canada as a key goal of the registration reform project. Generally, the new regime will provide uniform requirements and categories of registration across the country. Under NI 31-103, a new dealer registration category is introduced in all jurisdictions across Canada to regulate trading in the exempt market — the EMD. In Ontario and Newfoundland and Labrador, the EMD category replaces the LMD category, making the EMD registration category uniform across the country.
Exemption from EMD Registration in Certain Jurisdictions A number of registration exemptions are being maintained in certain jurisdictions. This has the effect of creating an uneven playing field in the application of the EMD registration requirement, effectively continuing to divide the country along geographic lines. Alberta, British Columbia, Manitoba, the Northwest Territories, Nunavut and the Yukon Territory1 have indicated that they will each pass a blanket order (Blanket Order) as of the effective date, exempting individuals and firms from the EMD
registration requirement. As presently cast, the Blanket Order would provide an exemption where a firm or person trades in securities under one of the following capital-raising exemptions in National Instrument 45-106 – Prospectus and Registration Exemptions2:
- accredited investor;
- family, friends and business associates;
- offering memorandum; and
- $150,000 minimum purchase.
However, to rely on this exemption, a firm or person must meet certain conditions, including:
- not being registered in any category of registration in any jurisdiction;3
- not providing suitability advice about the trade to the client;
- except in British Columbia, not otherwise providing financial services to the client;
- not holding or having access to the client’s assets;
- providing risk disclosure in the prescribed form to the client; and
- filing an information report with the regulator.
Those who rely on the Blanket Order must confine their trading activities to (i) their local jurisdiction or other jurisdictions in the north-western block, and (ii) trades within the specified capital-raising exemptions.
Notably, firms that are registered as an EMD (or in any other category of registration) in any jurisdiction in Canada cannot rely on the Blanket Order.
Other Registration Reforms
NI 31-103 and the new rules include other significant changes to registration requirements for dealers, advisers and investment fund managers in Canada.