Do You Need an Exempt Market Dealer?

The Short Answer

We are not lawyers and we cannot and do not provide legal advice. We share this to help you frame the conversation with qualified securities counsel.

Sometimes even if you are selling only to accredited investors. Canadian securities law separates two key requirements: - the prospectus requirement, and - the dealer registration requirement Relying on the accredited investor exemption removes the need for a prospectus, but it does not automatically eliminate the requirement to use a registered dealer, such as an Exempt Market Dealer (EMD). The central legal question is whether you are “in the business of trading securities.” If the answer may be yes, regulators generally expect securities to be distributed through a registered dealer or by a registered firm.

Why This Matters

Canadian securities regulators actively enforce dealer registration rules, particularly in the exempt market. In several enforcement cases involving pooled investment vehicles, regulators found issuers had effectively acted as dealers and required them to retain an EMD for suitability reviews and pay significant administrative penalties. Penalties in these cases have reached $100,000 to $400,000 or more.

Regulatory Factors Considered

Canadian regulators assess whether an issuer is “in the business of trading securities” based on the totality of its conduct.

Key factors include: - Frequency of capital raising - Active solicitation of investors (including conferences and marketing) - Compensation tied to capital raising - Intermediation between investors and investment vehicles - Scale of investor participation No single factor is determinative, regulators assess the overall pattern of conduct.

Accredited Investors: What Changes?

Selling only to accredited investors removes the prospectus requirement. However, it does not remove the dealer registration requirement. Issuer-direct distributions are more likely to be acceptable where: - the financing is limited or one-time - investors are institutional or known to the issuer - no one receives transaction-based compensation - there is no active marketing Where capital raising becomes structured or repeated, regulators may still expect dealer involvement.

Ongoing Fundraising and Pooled Investment Vehicles

Regulatory scrutiny increases where issuers operate pooled investment vehicles, structures where multiple investors combine capital into a single managed investment. Examples include mortgage investment corporations, real estate investment funds, private credit funds, venture capital funds, infrastructure projects, syndicated mortgages, and limited partnerships. Where these vehicles continuously raise capital, regulators may conclude the issuer is engaged in dealer activity.

Conferences and Investor Promotion

Industry conferences are a common feature of capital raising. Participation becomes higher risk where it is used to promote a specific investment opportunity, encourage attendees to invest, distribute offering materials, collect investor contact information, or arrange follow-up meetings.

Risk increases where issuers pay to appear as speakers or panelists, as this may indicate systematic marketing of securities. Where conference participation becomes part of an organized investor acquisition strategy, regulators may view the activity as securities solicitation, which is typically expected to occur through a registered dealer.

Practical Rule of Thumb

If raising capital is becoming part of your business model, regulators may expect a registered dealer to be involved.

What Enforcement Cases Show

In Kuber Mortgage Investment Corporation, the issuer raised approximately $26 million from about 200 investors without dealer registration. Regulators required retention of an EMD and imposed a $400,000 penalty. In Moskowitz Capital Management, the issuer raised approximately $31.7 million from over 100 investors. Regulators required retention of an EMD and imposed $350,000 in penalties. These decisions demonstrate that regulators will treat issuer fundraising as dealer activity where it becomes organized, repeated, or broadly marketed.

When in Doubt

Where the analysis is unclear, many issuers choose to work with an Exempt Market Dealer rather than rely solely on issuer exemptions. Doing so can provide compliance support, investor onboarding, and reduced regulatory risk.

Further Reading

When Must Issuers Use an Exempt Market Dealer?

CSA Staff Notice 31-103 – Registration Requirements

National Instrument 45-106 – Prospectus Exemptions

Kuber Mortgage Investment Corporation (Re), 2020 ONSEC 10

Moskowitz Capital Management Inc. (Re), Capital Markets Tribunal (2021)