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What is an exempt market dealer?

12 April 2019

These past few years, Canadians have been rethinking their investment decisions and placing more time into research and due diligence. At the same time, they seem too skeptical when it comes to getting an intermediary to assess their finances and investment growth.

Canada’s capital markets have consistently outperformed many other world markets and proven more resilient to the financial crisis that impacted the latter. Expanding market opportunities have brought to the surface new investments, and with these ventures now made available to Canadian and foreign investors, control measurements have been put in place and enforced by various regulatory bodies.

A type of venture that has become more accessible is private capital investing, which is traditionally sought after to help diversification amongst investors’ portfolios. These investments are tagged as private capital because, unlike stocks and other forms of securities, they are not listed and traded publicly.

Many privately owned Canadian businesses, as well as privately controlled funds who wish to raise capital for their company or fund, require an exempt market dealer (EMD) who can help them unlock their investment’s real value.

Working with an EMD can provide you with access to private investment opportunities that are not available to the larger marketplace.

What is an Exempt Market Dealer?

An Exempt Market Dealer (EMD) is a firm licensed by securities regulators. It is registered to trade in or underwrite securities.

Becoming an EMD

It’s hard to trust anyone with your money unless they are professionally certified and have the proper financial knowledge. This is why the Canadian Securities Administrators created rules to regulate and register dealers in exempt market securities across the country.

Not everyone can be an exempt market dealer even if they are experienced investment professionals. However, anyone who wants to be an EMD needs to register at their local securities regulators and adhere to the requirements.

A series of prohibitive qualifications including capital requirements, educational requirements, background checks, and various other measures are in place to ensure that not everyone is able to launch an EMD. The process of becoming an EMD is long and cumbersome and designed to ensure that only qualified individuals can act as EMDs.

Why Work with an EMD

How you invest your money determines your potential growth as an investor. Investing requires due diligence and discipline. However, working with an EMD gives investors access to opportunities that are usually not available to the general public.

An EMD can help investors better diversify their portfolios through different market cycles, which can, in the long term, allow portfolios to grow more consistently. We can sum up some of the benefits of working with an EMD:

  • Bound by regulation – EMDs must perform thorough due diligence on each investment product they sell. EMDs are regularly audited by the securities commissions to ensure compliance.
  • Broader Scope – EMDs are not just experts in the buying and selling of exempt market securities but also giving their clients more extensive opportunities in raising capital for different industries like real estate, oil/gas, mining, technology, manufacturing and more.
  • Proficient – Becoming an EMD is not an accessible path to take, and so they take into significant consideration all the rules required by the law, including being transparent, fair, and professional. After taking a series of examinations, they follow a strict code of conduct and proper client management. The firms foster a culture of compliance which adheres to a fiduciary duty to their clients before anything else.

With these advantages, EMDs offer Canadian investors with investment strategies that allow wealth protection and potential growth for private businesses. Your trusted EMD will provide you with limited recommendations and inform you of the possible risks and downsides of chosen investments.

Why do some EMD products seem riskier when compared to mutual funds?

One of the main differences between an EMD product and a mutual fund is its liquidity. With a mutual fund, you can sell and buy at will even when the market is down, but with an EMD product, you may be restricted from selling or buying.

In general terms, most investments are risky when they are not appropriately managed and studied. As investors, adequate research and due diligence are necessary requirements for growing a successful portfolio. And if there is a need to hire an EMD, carefully perform your due diligence before proceeding with an investment.

The main thing to consider is diversification. If your entire portfolio is invested in publicly traded securities (mutual funds, ETF’s, etc), then your entire portfolio is dependent on the market’s volatility. Investing in an EMD product or private capital can shield a portion of your portfolio away from that risk.

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