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The day the regulators learned about the Exempt Market

June 20, 2013  
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Source: Originally published in Exempt Market Update, Issue 3 - the leading national magazine for the exempt market professionals. 

by David Gilkes, President of North Star Compliance & Regulatory Solutions Inc.
EMDA Vice Chair, and Former Manager, Registrant Regulation, the Ontario Securities Commission


As the Exempt Market Dealers Association of Canada (EMDA) celebrates its 10th anniversary, one of its biggest and proudest moments was participation and impact on the development of NI 31-103. As a participant in the Registration Reform Working Group (the Working Group) and the Manager responsible for the project at the Ontario Securities Commission (OSC), I have good memories of meeting with members of the EMDA (then called the Limited Market Dealers Association of Canada).

The EMDA was engaged in Registration Reform early on in the process. I remember our first meeting at the OSC. It was a classic ‘don’t judge a book by its cover’ moment. This group didn’t look like the typical investment industry association that the OSC was used to meeting. However, from that first meeting, we on the Working Group realized this was a group of intelligent and well-seasoned dealers and issuers in the exempt market.

The Chairman of the EMDA at that time was Morley Salmon. Morley was adamant that the EMDA had to be heard and that regulators needed to better understand the exempt market. In that first meeting, Morley reinforced the EMDA’s message to us that the exempt market needs regulation to bring credibility and to rid the market of the bad apples.

I personally worked closely with the EMDA to understand the issues affecting the market and help lead the working group away from some of its "wrong-headed” concepts. However, the EMDA really proved its understanding of the market with an excellent comment letter on the second draft of NI 31-103. It was one of the most read comment letters by the members of the Working Group because we learned about customary practices in the exempt market and the EMDA offered pragmatic solutions to help us achieve our goals and avoid the wrong decisions.

However, the seminal moment came on November 27, 2007 at ‘Dialogue with the OSC’ when Morley Salmon was invited to sit on a panel with Murray Taylor (CEO Investors Group), Marsha Gerhart (then Staff of the OSC) and me as the moderator (then Staff of the OSC). The purpose of the panel was to discuss the impacts of proposed National Instrument 31-103 on two groups that had not previously been registered, exempt market dealers, and investment fund managers. The room was packed, standing room only. It was a lively discussion and Morley and the EMDA were the talk of the conference. He presented a very cogent argument about why exempt market dealers should be regulated but they were different than investment dealers, mutual fund dealers, and scholarship plan dealers. It was that day when the regulators first learned that there was an important market that needed careful regulation and there was an association – the Exempt Market Dealers Association of Canada – that could speak passionately and thoughtfully on behalf of the exempt market.

As a result of the EMDA, the Working Group sought a new proficiency course to be designed to focus on the exempt market rather than on a course designed for the conventional securities market and investment dealers. It was the EMDA that contacted the securities regulators to explain why trade confirms were typically not provided by exempt market dealers and a combination of documents served that purpose and satisfied the need for a traditional confirmation. Those discussions led to the guidance in CSA Staff Notice 31-313 which allowed for alternative methods for confirming a trade. Again, it was discussions that the EMDA initiated with various securities regulators across Canada about how account statements and ‘client name’ securities did not work well for the exempt market. Those discussions led to CSA Staff Notice 31-324 which eliminated the requirement for exempt market dealers to issue regular quarterly account statements in favour of a statement only in a quarter where there has been a transaction for a client.

Although the ground work had been laid earlier, it was November 2007 when securities regulators really opened up to the issues of the exempt market, and in no small part due to the efforts of EMDA Founder and Past Chairman Morley Salmon. By engaging the regulators, with articulate and passionate advocacy, the EMDA effected real and positive change in the development of the EMD regime under NI 31-103.

The EMDA continues to effect real and positive change in the exempt market. Of the many examples, an exciting new one is the agreement between the EMDA and IFSE to update, revise and rewrite the Exempt Market Products course that all EMD dealing representatives and CCO’s will take. As well, the EMDA just completed its first Chief Financial Officer education series for EMD’s and is making final preparations for a comprehensive EMD Chief Compliance Officer education series launching in spring 2013. These are major contributions to the exempt market and reflect the continuing role of the EMDA in leading change and initiating the critical educational infrastructure that will benefit the exempt market for years to come.

For more information contact: David Gilkes

For more articles, please download the Exempt Market Update, Issue 3 - the leading national magazine for the exempt market professionals

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