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Exempt Market Dealers and Broker Warrant Compensation
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By:
Brian Koscak, EMDA Chairman and Partner, Cassels Brock & Blackwell LLP
David Gilkes, EMDA Director and President of North Star Compliance & Regulatory Solutions Inc.

Some exempt market dealers and dealing representatives of EMDs (collectively, EMDs) are uncertain whether they can be compensated with securities (e.g., broker warrants) in connection with a private placement transaction. The confusion stems from the definition of an Accredited Investor under National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106), which carves out limited market dealers (LMDs) (a former registration category of dealer in Ontario).

The simply answer is yes, an EMD is an accredited investor.

Section 1.1(d) of NI 45-106 states that any registered person under securities legislation of a jurisdiction of Canada as an advisor or dealer, other than an LMD under one or both of the Securities Act (Ontario) orthe Securities Act (Newfoundland and Labrador), is an Accredited Investor.

The reference in Section 1.1(d) of NI 45-106 has caused some confusion since some market participants have assumed the reference to LMDs is extended to EMDs; it is not. The logic is that under Registration Reform the EMD category became a national and more robust registration category since it now imposes, proficiency, insurance, regulatory capital and other requirements which did not previously exist under securities legislation in Ontario or elsewhere in Canada.

Therefore, the next time you are offered securities (e.g.,broker warrants) as part of your EMD compensation,be comfortable taking them, since you satisfy the definition of an accredited investor.

A Caution for Northwestern Exemption Users

Unlike an EMD, a market intermediary operating under the Northwestern Exemption cannot be compensated with securities (e.g., broker warrants) in connection with a private placement unless he/she/it satisfies a prospectus exemption.

For more information contact:
Brian Koscak - bkoscak@casselsbrock.com
David Gilkes - davidgilkes@northstarcompliance.com

For more articles, please download the Exempt Market Update - the national magazine of the EMDA

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