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EMDs and Conflicts of Interest Related and Connected Issuer Disclosure

July 24, 2012  
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By: Brian Koscak, EMDA Chairman and Partner, Cassels Brock & Blackwell LLP

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 fi rm and issuer (e.g., related and/or connected issuer disclosure). The terms related issuer and connected issuer are defi ned 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 off erings. 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”:

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