Securities dealers, investment fund managers and others selling securities into Canada need to be aware of Canada’s securities dealer registration requirements and determine the best way to comply with them.
Who Must Register as a Securities Dealer?
In Canada, the requirement to register as a securities dealer is triggered by being in the business of trading in securities, which is called the business trigger. If you sell securities to investors in Canada as part of your business, you may trip the trigger and have to register as a dealer in Canada. Even issuers selling their own securities and investment fund managers selling securities of the funds they manage can be caught by the dealer registration requirement.
Am I Caught by the Business Trigger?
You may be in the business of trading and trip the trigger if you
- carry on the kinds of activities normally performed by a broker or dealer,
- intermediate trades in securities between sellers and buyers,
- engage in frequent or regular trading activities,
- are compensated for what you do, or
- contact anyone to solicit transactions in securities.
The Canadian regulators have said that issuers of securities and investment fund managers may have to register as dealers if they frequently trade in securities, perform activities similar to those performed by a broker or dealer, or actively solicit investors. However, registration is generally not required for one-time activities, limited activities or trading activities that are considered only incidental to some other business. So, for example, an investment fund manager who makes a one-time sale of fund securities in Canada in response to a request from a Canadian investor should not trip the trigger; however, a fund manager who seeks out investors in Canada and makes regular Canadian sales would likely trip the trigger.
What Happens if I Trip the Trigger?
If you are in the business of trading in securities, you will have to register as a Canadian securities dealer unless there is some exemption that you can rely on. Issuers and investment fund managers who trip the trigger might consider registering as an exempt market dealer, which is the simplest kind of registration available. But even that simplified type of registration is a fairly lengthy and relatively complicated process. A number of requirements may be difficult to satisfy, including having a chief compliance officer who meets the necessary education and experience requirements, as well as the registration, education and experience requirements that apply to all individuals acting as salespersons.
Do U.S.-Registered Broker-Dealers Get Any Special Treatment?
If you are already registered as a broker-dealer in the United States (or another country), you can very easily become qualified as an international dealer in Canada, which will allow you to trade securities of non-Canadian companies to Canadian institutional investors and high-net-worth individuals who qualify as permitted clients. You will have to appoint a registered agent in Canada (such as a Canadian law firm) and comply with a few other simple and straightforward requirements. International dealer status entitles you to an exemption from registration, so none of the usual requirements for actually becoming registered as a dealer in Canada will apply.
Can I Hire Someone Else to Sell Securities for Me?
Even if you are in the business of trading in securities, you are exempt from the dealer registration requirement if all the trades that you make to purchasers in Canada are made solely through an agentthat is registered as a dealer (or qualified as an international dealer). An investment fund manager may, for example, wish to engage a Canadian registered dealer to act as the distributor in Canada. So long as all the sales in Canada are made solely through that registered dealer, the investment fund manager will be exempt from registration.
Canada and the United States have a lot in common, including the general principles behind their securities laws. But there are some differences you might find surprising.