Exempt Market Dealers and Broker Warrant Compensation
Some exempt market dealers and dealing representatives
of EMDs (collectively, EMDs) are uncertain whether they
can be compensated with securities (e.g., broker warrants)
in connection with a private placement transaction.
The confusion stems from the definition of an Accredited Investor
under National Instrument 45-106 Prospectus and Registration
Exemptions (NI 45-106), which carves out limited market dealers
(LMDs) (a former registration category of dealer in Ontario).
The simply answer is yes, an EMD is an accredited investor.
Section 1.1(d) of NI 45-106 states that any registered person under
securities legislation of a jurisdiction of Canada as an advisor or
dealer, other than an LMD under one or both of the Securities Act
(Ontario) or the Securities Act (Newfoundland and Labrador), is an
The reference in Section 1.1(d) of NI 45-106 has caused
some confusion since some market participants have assumed
the reference to LMDs is extended to EMDs; it is not. The logic
is that under Registration Reform the EMD category became
a national and more robust registration category since it now
imposes, proficiency, insurance, regulatory capital and other
requirements which did not previously exist under securities
legislation in Ontario or elsewhere in Canada.
Therefore, the next time you are offered securities (e.g., broker
warrants) as part of your EMD compensation, be comfortable taking
them, since you satisfy the definition of an accredited investor.
A Caution for Northwestern Exemption Users
Unlike an EMD, a market intermediary operating under the
Northwestern Exemption cannot be compensated with securities
(e.g., broker warrants) in connection with a private placement
unless he/she/it satisfies a prospectus exemption.
For more information contact:
By Brian Koscak, EMDA Chairman, Partner, Cassels Brock & Blackwell LLP
David Gilkes, EMDA Director, President of North Star Compliance & Regulatory Solutions Inc.