An exempt market dealer (EMD) must not make a recommendation in any medium
of communication to buy/sell/hold a security issued by the EMD or a “related issuer”
or “connected issuer” of the EMD unless the EMD discloses, in the same medium of
communication, the nature and extent of the relationship or connection between the firm
and issuer (e.g., related and/or connected issuer disclosure). The terms related issuer
and connected issuer are defined in National Instrument 33-105 Underwriting Conflicts
(NI 33-105)
Section 13. 6 of National Instrument 31-103 Registration Requirements, Exemptions
and Ongoing Registrant Obligations sets out the disclosure requirements for EMDs
who have relationships with related and connected issuers. However, many EMDs may
not know that related and connected issuer disclosure requirements are also set out
in NI 33-105.
Some EMDs may be of the view that NI 33-105 only applies to investment dealers
that act as underwriters in prospectus offerings. This is incorrect. As is made clear by the
wording of section 2. 3 of the Companion Policy to NI 33-105, the disclosure obligations in NI
33-105 generally apply to EMDs that act as principal or agent in connection with most but
not all types of prospectus-exempt distributions, including distributions made in reliance on
the accredited investor exemption in section 2. 3 of NI 45-106 Prospectus and Registration
Exemptions. In Ontario, NI 33-105 does not apply to EMDs selling mutual fund securities or
the following “exempt securities”:
Sections 2. 20 [Private investment club], 2. 21 [Private investment fund - loan and trust
pools], 2. 35 [Short-term debt], 2. 38 [Not for profit issuer] and 2. 39 [Variable insurance
contract] of National Instrument 45-106 Prospectus and Registration Exemptions.
Paragraphs 73(1)(a) and (b)of the Securities Act (Ontario) [This references the
exemptions in s. 35(1) to ( 4), namely debt securities issued or guaranteed by the federal
or provincial government, certain municipal debt, certain secured indebtedness as
defined in the PPSA, certain indebtedness secured by a mortgage]
Sections 2. 4 to 2. 6 of OSC Rule 45-501 [certain securities issued by a co-op or
credit union].
Paragraphs 2. 34( 2)(b),(d.1),(e) and (f) of National Instrument 45-106 Prospectus and
Registration Exemptions [certain types of “Specified debt” issued by the Asian Development
Bank, the European Bank for Reconstruction and Development, Inter-American Development
Bank, International Bank for Reconstruction and Development]
If the security is not an exempt security and the EMD is acting as an underwriter
(as defined in subsection 1(1) of the Securities Act (Ontario)) in the private placement,
NI 33-105 generally requires that any document used by an EMD to sell securities of the
issuer contain the disclosure required by Appendix C to NI 33-105.
EMDs and Conflicts of Interest
Related and Connected Issuer Disclosure
By Brian Koscak, EMDA Chairman and Partner, Cassels Brock & Blackwell LLP
