What Is The Exempt Market?
What is an Exempt Market Product?
In Canada, the raising of capital through the sale of securities can be achieved through either:
A disclosure document known as a Prospectus
Or under certain conditions where there is an exemption from a prospectus
When there is an exemption from a prospectus, an Offering Memorandum is prepared instead. An Offering Memorandum must contain full disclosure of risks and no misrepresentations. Securities being sold on capital markets using an Offering Memorandum are known as Exempt Market Products.
There have always been circumstances where the prospectus and Dealer Registration requirements have not been necessary, and Issuers often choose to use an Offering Memorandum as there is typically less cost than a public offering.
Exempt Market investments have been offered for over 30 years in Western Canada, but have only really become common since the late 1990s. Generally Exempt Market products are backed by tangible assets and usually target higher than normal returns; however, they offer limited liquidity options , with their main risk being the risk of time.
There are many Exempt Market products that can demonstrate a track record of over 20 years without any negative return for their investors and most products offer RRSP and TFSA eligibility.
In 2010, $16.2 billion of Exempt Market business was filed with the British Columbia Securities Commission; about seven times larger than the prospectus market.
What Is An Exempt Market Dealer?
Prior to September 28th 2010, the Exempt Market industry was unregulated, making it virtually impossible for the Securities Commissions to monitor and govern the people and products in the industry. The Securities Commission recognized that there needed to be significant changes in the Exempt Market industry and so on 28th September 2010 the new rules took effect and all Exempt Market products had to be sold through an Exempt Market Dealer.
Exempt Market Dealers are responsible for performing extensive due diligence on all investments to be offered on their shelf, and for governing the people (Dealing Representatives) that sell the investments under their dealership.
What Are Dealing Representatives?
Dealing Representatives are individuals that sell exempt market investments. They are required to be registered under their Provincial Securities Commission and to meet certain education requirements. They are also responsible for determining the suitability of a particular product for a client and for using Exempt Market products appropriately within a client's portfolio.
Exempt Market Investing
Did You Know?
Exempt Market securities don't fluctuate in value based on market trends and emotions.
They are tangible, predictable and avoid the rollercoaster ride that many investors experience in the markets.