WHAT DEALING REPRRESENTATIVES NEED TO KNOW
1. What jurisdictions are impacted and when do the changes
come into effect?
Participating Jurisdictions - Changes to the current OM Exemption
will come into force on April 30, 2016 in the Participating Jurisdictions.
Ontario – The OM Exemption will be available for the first time in
Ontario starting January 13 2016.
No change in the following jurisdictions: British Columbia,
Manitoba, Newfoundland & Labrador, Northwest Territories,
Nunavut, Prince Edward Island, Yukon Territories
2. Investment limits
The Participating Jurisdictions and Ontario will be introducing the
following investment limits:
A non-eligible investor, who is an individual, cannot invest more
than $10,000 under the OM Exemption in a 12-month period.
Eligible investors – no suitability advice [non-brokered
An eligible investor, who is an individual, cannot invest more than
$30,000 under the OM Exemption in a 12-month period.
Eligible investors – with suitability advice from a EMD or other
registrant [brokered offering]
An eligible investor, who is an individual, that receives advice from
an exempt market dealer, portfolio manager or investment dealer
that an investment exceeding $30,000 is suitable, can make such
an investment provided that this investor has not invested more
than $100,000 under the OM Exemption in a 12-month period.
DRs need to understand that this 12-month period is a look-back rule
on what the investor has invested in the preceding 12 month period.
3. DRs cannot use a client-directed trade form
A DR must make a positive suitability determination before it
can make a recommendation to exceed the $30,000 investment
threshold for eligible investors under the OM Exemption.
A DR cannot recommend an unsuitable investment in excess of
the $30,000 investment limit and rely on a client-directed trade
to permit a higher investment amount up to the $100,000 limit.
The reason is that a positive suitability determination forms part
of the OM Exemption itself. This is a very subtle and significant
shift in the application of the exemption and we do not believe
an unsuitable trade can be made on the basis of a client-directed
trade mandate. This will put a lot of pressure on DRs and EMDs
to ensure they get it right in their suitability recommendations for
investments in that $30,000 - $100,000 range.
4. Individuals cannot create a corporation for purposes of
relying on the OM Exemption
The investment limits apply to investors who are individuals and
that is defined in securities legislation to mean a natural person
and excludes partnerships, trusts, unincorporated syndicates, and
You cannot create a corporation or trust for the purposes of avoiding
the application of the investment limits under the OM Exemption.
However, such limits do not apply for holding companies or trusts
that have been established for bona fide purposes, such as part
of a financial plan prepared by an accountant, lawyer or other
financial planning professional. The determination of whether the
creation of any such corporation is for bona fide purposes, and
not for purposes of exceeding the investment limit, will depend on
the facts. DRs should expect close scrutiny on this from internal
compliance and from a regulator in a compliance review situation.
5. Risk Acknowledgement Form – Form 45-106F4
No changes - Form 45-106F4 will still be required to be signed by
all investors under the OM Exemption.
6. Two NEW schedules to be completed/signed by investors
under the OM Exemption
a) Schedule I – Classification of Investors Under the Offering
This form requires an investor to confirm their status as an eligible
investor, non-eligible investor, accredited investor or an investor
who would qualify to purchase securities under the family, friends
and business associates exemption. Some issuers and EMDs
already have such a form, so introducing it may not be new or an
additional burden for those EMDs.
b) Schedule II – Investment Limits for Investors Under the
Offering Memorandum Exemption
This form requires confirmation that an investor who is an