What is an Exempt Market Dealer?
An Exempt Market Dealer (EMD) is a registered securities dealer which facilitates trades in the private capital market.
These trades are conducted in prospectus-exempt securities, or securities to qualified individuals to the exempt market.
In this article, we’ll dive more into exactly what Exempt Market Dealers are, what kind of assets they deal in, and the potential benefits of investing with an EMD vs. publicly-traded securities like stocks or bonds.
First, let’s dive into some important definitions.
What are exempt securities in Canada?
In Canada, exempt securities are securities that are exempt from the prospectus requirement under Canadian securities laws. They do not have to be registered with securities regulatory authorities and do not have to be publicly traded. This is in comparison to non-exempt securities like stocks or bonds.
An offering memorandum is a disclosure document that describes a company’s business, includes financial statements, discusses relevant risks, and explains how the company will use the money it raises. The offering memorandum prospectus exemption allows an issuer to sell its securities to a wider range of people than typically allowed for private placements.
What is an exempt market?
The exempt market simply refers to the market for exempt securities. It is an important sector of Canadian financial markets where limited partnerships, private placements, and other investment products are available to eligible investors.
The exempt market provides investors with the opportunity to invest in private companies in various sectors; these include real estate (residential, commercial, industrial), mortgage companies, private REITs, healthcare, oil and gas, and ESG companies to name a few.
Investments in the exempt market are subscribed through an offering memorandum: this allows investors who are qualified under suitability standards to invest in the private placement. The time horizon for investments in the alternative market can vary; typically between 2-5 years, although they can be longer or shorter in specific instances. Many of the investments made in the real estate sector tend to have a longer period of investment due to the length of time required to construct the project. The investor should expect a longer-term hold on the capital invested and a higher rate of return (IRR) once the project is completed.
What exactly does an Exempt Market Dealer do?
Exempt Market Dealers are regulated by provincial securities commissions which oversee dealer registration and compliance requirements. EMDs operate in all provinces and territories of Canada.
As EMDs deal in alternative investment opportunities, investing with an Exempt Market Dealer provides the ability to invest in multiple market sectors, for example, real estate, technology, health care, and ESGs.
The clients of EMDs are accredited investors, eligible investors, corporations, and institutional investors.
Benefits of Investing with an Exempt Market Dealer
Exempt market dealers occupy an important role in Canadian financial markets. They provide access to alternative investment opportunities that typically aren’t available to the public for a broader range of investors.
There are a number of benefits of investing with an Exempt Market Dealer versus traditional investment avenues, including
- The opportunity to invest in private deals and companies, as opposed to publicly-traded companies
- The private market has a low correlation to the stock market and tends to have less volatility
- Private investments provide portfolio diversification for investors
- Capital preservation accompanied by a higher rate of return in specific placements
- Tax benefits when investing with registered funds
Typically investments in the alternative markets provide distribution of interest income on monthly, quarterly or annual bases. The investments which require a longer-term hold of capital will see distributions occur at the end of the term or time horizon. One of the drawbacks of these investments is the lack of liquidity they provide. Generally, these investments are illiquid until the date of maturity or are subject to redemption fees.
As a result of the illiquid nature of these investments, EMDs such as Parvis have created solutions to the liquidity in the alternative market, by implementing a secondary market for transactions in the marketplace. Parvis has introduced blockchain technology in the alternative investment space, modernizing how investments are acquired and traded within the secondary market. The benefit is the liquidity now provided in what has been a typically illiquid market; the ability to purchase long-term investments at a shorter time horizon; and increased transparency into the investments.
Parvis is a registered Exempt Market Dealer offering institutional-level private real estate investment opportunities. To learn more or to explore our offerings, sign up today or connect below with our Investor Relations team.