In September 2009, new securities regulations came into force
across all Canadian jurisdictions that imposed a registration
obligation on any person or entity in the business of trading in
securities distributed under a prospectus exemption. This new
Exempt Market Dealer ("EMD") category was designed to
provide to securities regulators increased oversight and regulation
of market participants in the exempt market. Previously, only
Ontario and Newfoundland and Labrador imposed a Limited Market
Dealer registration obligation, but that category did not impose as
significant obligations as the new EMD category.
According to a staff notice issued by the Canadian Securities
Administrators ("CSA") in September 2011, a number of
firms registered in the EMD category have been carrying out
brokerage activities, including trading securities on foreign and
Canadian markets, for Accredited Investors. The category of
"Accredited Investor" includes many types of
institutional investors and persons or entities who meet certain
prescribed income or asset levels, and who are able to purchase
securities distributed by an issuer or otherwise without the need
for a prospectus. The CSA indicate in their notice that they do not
believe that the EMD category was intended for firms that conduct
Of particular concern for U.S.‐based EMD registrants,
the CSA highlight that the firms which primarily are acting
contrary to the intended scope of the category are
broker‐dealer firms registered in the United States that
are members of the Financial Industry Regulatory Authority (FINRA).
The CSA note they have also received applications from firms
seeking registration in the EMD category to allow these kinds of
The CSA are of the view that these activities raise serious
policy issues that both regulators and the industry need to
consider. The CSA state that they did not envision that EMDs would
be involved in brokerage activities, including trading securities
on an exchange or entering into arrangements similar to
introducing‐carrying broker activities. In this regard,
the CSA intend to examine the issues in a wider consultation and
In Canada, firms providing brokerage activities have
historically been categorized and registered as investment dealers,
which are subject to oversight and regulation by the Investment
Industry Regulatory Organization of Canada (IIROC). Under the
current situation, where EMDs are providing services similar to
those provided by IIROC members, the CSA are concerned that these
similar activities result in different regulatory oversight schemes
for the same activity depending on whether the registrant is an EMD
or a registered investment dealer.
In view of these regulatory concerns but taking into account
arguably permissive language in the applicable regulations, the CSA
indicate willingness during the consultation period to register
broker‐dealers in a restricted dealer category with terms
and conditions. Among the conditions that should be expected to be
imposed would be that firms are limited to acting only for
"Permitted Clients", and the registration would be
limited in time to align with the expected consultation process.
Under applicable Canadian securities laws, a "Permitted
Client" is a category of investor which, at the typical client
level, imposes higher asset threshold levels than the Accredited
Investor category and does not include a 'significant
In closing, the CSA indicate that their goal is to ensure
appropriate regulatory requirements apply to all firms that engage
in brokerage activities in Canada, and state that it is likely that
the result of the consultation process will be a change in the
rules that apply to entities engaged in brokerage activities.
We would be pleased to assess the activities of firms registered
as EMDs and provide our views as to whether the activities are
permitted by the applicable regulations. We are also pleased to
assist firms in making registration applications and seeking
exemptive relief as may be appropriate.
About Fraser Milner Casgrain LLP (FMC)
FMC is one of Canada's leading business and litigation law
firms with more than 500 lawyers in six full-service offices
located in the country's key business centres. We focus on
providing outstanding service and value to our clients, and we
strive to excel as a workplace of choice for our people. Regardless
of where you choose to do business in Canada, our strong team of
professionals possess knowledge and expertise on regional, national
and cross-border matters. FMC's well-earned reputation for
consistently delivering the highest quality legal services and
counsel to our clients is complemented by an ongoing commitment to
diversity and inclusion to broaden our insight and perspective on
our clients' needs. Visit:
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