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The “Private Market” or “Exempt Market” refers to companies raising capital without issuing a prospectus. Securities legislation allows for capital to be raised without a prospectus, provided an exemption from the prospectus use is available. Common prospectus exemptions used are issuing an offering memorandum or selling to accredited investors. Private companies that require capital from investors are not publicly traded but still need investors to achieve the goals for their companies and projects and want to do so without going public.

In Canada, issuing securities by way of filing a prospectus significantly increases the cost of raising capital so many private companies choose to raise capital using prospectus exemptions.

Investing in the “Private Market” or “Exempt Market” offers investors an opportunity to invest in an asset class that may not be available at most traditional financial institutions.

The securities commissions/regulatory authorities in each province and territory regulate the public and private capital markets in Canada through securities legislation, regulations, rules and national or multilateral instruments. Security law administration and enforcement is overseen by security regulators that have regulatory oversight of issuers of exempt products and market participants – dealers and dealing representatives.

Exempt market dealers are registered with the securities regulator of each province in which they operate, and each Dealing Representative is registered with the regulator of the province in which they reside. You can look up any dealer or Dealing Representative on the Canadian Securities Administrators website.

(NOTE: The CareVest Group is not associated with or specifically endorsed or recommended by the CSA or its Members and that although the information contained in their website is believed to be accurate, complete, and up to date when posted, the CSA or its Members cannot guarantee that it is or will remain accurate, complete or current).

The term Exempt Market Dealer (usually shortened to “EMD”), defines a company registered with securities regulators to trade in or underwrite investment securities that have not been qualified by a prospectus; instead, the investments are exempt from the prospectus requirement. Often referred to as ‘private capital’, these investments are often not publicly traded like other stocks and securities.

In 2009, the Canadian Securities Administrator enacted National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”), creating an investment dealer category called an Exempt Market Dealer (EMD), which would be allowed to trade in prospectus-exempt securities. Under NI 31-103, an EMD must be registered in the province or provinces where they perform dealing activities. Further, NI 31-103 set out fundamental obligations registrants must adhere to including know their investments (often shortened to KYP – Know Your Product), know their clients (KYC – Know Your Clients), suitability and maintain appropriate industry knowledge and proficiencies. These fundamental obligations of registrants include the activities of the EMD and the EMD’s Dealing Representatives. EMDs must also address complaints in a timely fashion and have sufficient insurance.

In addition, under the Securities Act, an EMD and its Dealing Representatives must deal fairly, honestly, and in good faith with their clients. It is important that investors ensure that both the firm and the Dealing Representative they work with regarding the purchase of private securities is appropriately registered. You can confirm a dealer’s and a Dealing Representative’s registration on the Canadian Securities Administrators website.

(NOTE: The CareVest Group is not associated with or specifically endorsed or recommended by the CSA or its Members and that although the information contained in their website is believed to be accurate, complete, and up to date when posted, the CSA or its Members cannot guarantee that it is or will remain accurate, complete or current)

The exempt market provides investors the ability to invest directly into local, privately held companies while providing capital to support their growth. Small and medium-sized enterprises (“SMEs”), are an important contributor to the Canadian economy as they accounted for 53.8% of all employment and employed nearly 9.5 million people in the country in 2023. These businesses have 1 to 499 employees.

Even though private market investments carry higher risks and lack liquidity – meaning they are subject to resale restrictions and are not readily convertible to cash – they may offer investors an investment opportunity while providing necessary sources of financing to local private businesses.

Although private market investments are not suitable for everyone and are not necessarily more profitable than traditional investments, there may be good reasons for including them in your investment portfolio. A licensed Dealing Representative is available to help you understand the investments, explain the risks, and assess whether a private investment is suitable for your needs and goals.

*Source: Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/250220/dq250220e-eng.htm

Many investors are eligible to invest in the private market or exempt market, provided an exempt market dealer determines it is suitable for your personal circumstances. In some circumstances investors have requirements for annual income, assets or annual investment limits to invest in the private market or exempt market, but that is not always the case. A licensed Dealing Representative is available to explain the requirements to you and assess whether you qualify to invest in the private market.

Please Contact Us and a licensed Dealing Representative will be in touch soon.

All investments have associated risks which investors should be aware of. We believe it is of the utmost importance that investors have a clear understanding of the risks and any conflicts of interest associated with their investments.

Each investment has its own risks which will be explained to you by a licensed Dealing Representative. Investment products sold in the exempt market are generally considered high risk because of some of the following factors:

• Private issuers are not publicly traded on a stock exchange and there may be other limitations that restrict you from liquidating your investment at will, meaning it is illiquid;
• Offering Memorandums and other offering documentation are not reviewed by securities regulators;
• A Prospectus is not prepared by the issuer, meaning you will not receive the benefits of having the document reviewed by securities regulators;
• Exempt market investments are not guaranteed or insured;
• Ongoing disclosure obligations are lower or non-existent for private companies, compared to publicly listed companies; and
• There are generally fewer governance standards for private companies compared to publicly listed companies.

An Offering Memorandum (“OM”) is a type of disclosure document that may be used in investing in private market investments. Set out within this document is prescribed standard information regarding the company seeking your investment. Some of these sections include ‘Use of Available Funds’, ‘Business of the Corporation’, ‘Capital Structure’, ‘Description of Securities Offered’ and within the section called ‘Risk Factors’ is a listing of applicable risks of the investment. Risks outlined in the OM are there to help you learn and understand the risks that may impact the investment’s performance or ability to perform.

You are not alone in trying to understand the investment’s risks. A licensed Dealing Representative will review the risks for the investments with you and assess the suitability of the product given your specific risk tolerance and investment objectives. The Dealing Representative will answer any questions you have along the way. In the end, we want you to be an informed investor.

Please Contact Us and fill out our contact form to speak with a licensed Dealing Representative for further information on investing in the exempt market. A licensed Dealing Representative will review available investment opportunities with you and explain the investment process.