On June 20, 2024, securities regulators in Alberta, British Columbia, Nova Scotia, Ontario, Quebec, and Saskatchewan (the “Securities Regulators”) published Coordinated Blanket Order 31-930 (“Blanket Order”), allowing exempt market dealers (or “EMDs”) to participate in the distribution of securities made under a prospectus.
The Blanket Order is part of a concerted effort by regulators (notably, the Ontario Securities Commission) to continue providing enhanced access to capital markets for both issuers and investors. In Ontario, the Blanket Order follows on the heels of a series of recently issued early-stage capital exemptions.[1] The Securities Regulators published the Blanket Order as a temporary exemption from the restrictions set out in subsection 7.1(2)(d) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Overview
Implementation of the Blanket Order allows EMDs to participate in the distribution of securities made under a prospectus – traditionally the realm of Canadian Investment Regulatory Organization (CIRO) registrants such as investment and broker dealers whereas Exempt Market Dealers are conventionally restricted to acting as dealers or underwriters for distributions of securities under a prospectus exemption (for example, that of accredited investor, offering memorandum, friends and family, etc.). The effect of the Blanket Order is to expand the distribution networks of issuers in prospectus offerings such as Initial Public Offerings (IPOs) or other public offerings by allowing exempt market dealers to assist issuers throughout their entire lifecycles.
Conditions to Meet
In order for exempt market dealers to fall within the scope of the Blanket Order, they must:
- Act in accordance with the selling group agreement with the issuer or the investment dealer acting as the lead underwriter.
- Deal only with investors that would qualify for a prospectus exemption if the securities had been distributed under an exemption from the prospectus requirement.
- Refrain from acting as an underwriter in the distribution of securities under the prospectus requirement and receive only the usual distributor’s commission payable by an underwriter or issuer.
- Receive no more than 50% of the lowest total compensation paid or payable to any investment dealer in the selling group.
EMDs intending to rely on the Blanket Order are required to report a change in business activity by filing form 33-109F5 under National Instrument 33-109 Registration Information. This form indicates that such EMD will be participating as a member of selling groups in prospectus offerings.
While the Blanket Order aim to strengthen start-ups, small-sized issuers, and medium-sized issuers’ access to capital, they are also set to expire on December 20, 2025, subject to extensions by the participating jurisdictions. Should you have any further questions about how the Blanket Order might impact your business, please reach out to a member of our business law group.
[1]These include the recently issued Ontario Instrument 45-507 (Self-Certified Investor Prospectus Exemption), Ontario Instrument 32-508 (the Angel Investor Group Registration Exemption), Ontario Instrument 32-509 (the Early-Stage Business Registration Exemption), and Ontario Instrument 45-509 (the Report of Distributions Under the Self-Certified Investor Prospectus Exemption), which we recently wrote about here.
The author would like to thank Abigail Smith, Summer Student-at-Law, for her assistance with this blog.