The exempt market - an alternative to public investments
In recent years many businesses have decided to forego the public markets and have turned to private sources to raise capital for their enterprises. Responding to this trend, Canadian securities regulators drafted new regulations to manage this class of investment.
The most important change was a result of the regulator’s recognition that private investments may require much more sophisticated due diligence on the part of the investor than is generally required for their investments in public markets.
To manage this class of investment and to mitigate risk, without stifling a business’s ability to raise funds, securities regulators took several important steps. They enacted rules about who can invest and how much.
Potential Investors have to meet a series of asset and income benchmarks to be legally allowed to participate in private market investments. Broadly, experienced investors with significant assets are deemed to be more sophisticated and more risk tolerant than the average public market investor. As such, the regulators give those individuals more latitude in the nature of the investments they make and the amount of money they can invest.
The lower the investor income and asset level, the lower the amount that an individual can invest is correspondingly reduced. The levels and restrictions are detailed in a policy document (National Instrument 45-106) and its amendments enacted by Canadian Securities regulators. Broadly the regulations define limitations for Accredited Investors, Eligible Investors, Non-Eligible Investors, Friends and Family Investors, and Crowd-Funding.
For a better understanding of the Exempt Markets please read “The Exempt Market Report” produced in 2018 by the Ontario Securities Commission. For complete details refer to the regulation. Or talk to your Dealing Representative.
Exempt Market Dealers
Management of the compliance process is placed in the hands of a class of companies called Exempt Market Dealers. These companies and their Dealing Representatives are similar in role to the stockbrokers of the public markets. They serve as intermediaries between the private companies seeking investment and the investors that want to participate.
EMDs serve two extremely important roles. First is due diligence of the investment opportunity. They scrutinize every detail of the company seeking to raise funds. Their due diligence is critical. A company that does not meet their investment quality criteria will not be offered to the investing public by the EMD. Regulators and the EMDs point out that due diligence does not eliminate risk. Every investor must acknowledge in writing that they understand the risk they are assuming by investing in a private market product. But, proper due diligence does mitigate risk.
At the other end of the transaction the EMD goes through a detailed “know your client” exercise to determine to what level a potential investor qualifies under the terms of the securities regulations. The EMD is required to ensure that all investors adhere to regulatory standards.
Purchase of EquityLine Mortgage Investment Corporation class B shares qualify as a private market
investment according to securities regulators. EquityLine contracted exempt market dealers are legally
positioned to represent the investment opportunity to their clients, plus put us through an extremely thorough due diligence process and determine it to be appropriate to some of the individuals who meet the investor criteria. Please talk with your financial advisor or a Dealing Representative aligned with a contracted EMD to determine if you are eligible to participate in this investment opportunity.