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 new international dealer exemption changes the list of clients for which a registered international dealer may trade.

These and other important changes in the regulation of international dealers under NI 31-103 are discussed below in this issue.

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Permitted Clients for International Dealer Exemption

The list of “permitted clients” for the purposes of the international dealer exemption includes the following categories of clients:

  1. most Canadian institutional investors;
  2. a person or company, other than an individual or an investment fund, with net assets of at least C$25,000,000 as shown on its most recent financial statements;
  3. an investment fund if the fund is managed by a person or company registered as an investment fund manager or advised by a person or company authorized to act as an adviser in Canada;
  4. an individual with net financial assets before taxes in excess of C$5,000,000;
  5. a person or company that distributes its own securities in Canada only to other permitted clients.

The list of permitted clients is not the same as the list of designated institutions with which an international dealer is currently permitted to trade. As a result, the client base for a dealer relying on the international dealer exemption is different than the client base for a dealer currently registered as an international dealer. The key differences between the list of permitted clients and the list of designated institutions are described below.

The list of permitted clients does not include the following clients that were on the list of designated institutions:

  • a corporate entity with net assets of C$5,000,000 (the permitted-client list includes a corporate entity with shareholder’s equity of C$25,000,000); and
  • an investment fund that is advised by a person not registered in a jurisdiction in Canada as a portfolio manager or an investment fund manager (the permitted-client list includes an investment fund that is advised by a person registered in a jurisdiction in Canada as a portfolio manager or an investment fund manager).

The list of permitted clients does include the following clients that were not on the list of designated institutions:

  • individuals who beneficially own, directly or indirectly, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds C$5,000,000;
  • a person or company that is entirely owned, legally and beneficially, by such an individual or individuals; and
  • the pension fund category has been expanded to include a wholly-owned subsidiary of a registered pension fund.

Depending on the business model of the international dealer the list of permitted clients may be an expansion or a contraction of its book of business.

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.