Exempt market dealers (EMDs) will no longer have to hand off their startup clients to investment dealers as they grow and seek to raise capital under prospectuses, thanks to a new temporary exemption, regulators announced Thursday.
A group of the country’s major securities regulators — including Ontario, Quebec, Alberta, British Columbia, Nova Scotia and Saskatchewan — issued co-ordinated blanket orders that will allow EMDs to distribute securities issued by prospectus, subject to certain conditions.
Currently, these firms typically raise capital for startups when they are small and their financing needs can be met through exempt market offerings. However, when these startups grow and require larger financings that are more suited to prospectus offerings, the EMDs are sidelined and can’t participate in these deals.
Under the temporary exemption announced Thursday, EMDs will be better able to maintain their relationships with these issuers and participate in their follow-on offerings.
In a joint notice, the regulators said allowing exempt market dealers to participate as a member of a selling group in prospectus offerings “may make available additional channels of potential sources of capital to issuers, may provide investors with more investment opportunities, and allows exempt market dealers to participate in an issuer’s entire lifecycle.”
The new provision allows EMDs to act as dealers in underwriting syndicates, but not as the underwriters — that will remain the territory of investment dealers.
“Fostering the right conditions to enable businesses to thrive is crucial to our collective economic success. The measures announced today show how securities regulators are supporting the growth and prosperity of our capital markets” said Grant Vingoe, CEO of the Ontario Securities Commission, in a release.
“We are pleased that Ontario, Quebec, British Columbia, Saskatchewan, Alberta and Nova Scotia are working together to put these measures in place and are finding ways to harmonize regulation in support of Canadian businesses” said Stan Magidson, chair of the Canadian Securities Administrators (CSA) and chair and CEO of the Alberta Securities Commission.
Regulators in New Brunswick are expected to adopt a similar local order in the coming weeks, the CSA noted.
The temporary exemption will be in effect until Dec. 20, 2025, unless it’s extended by regulators.