When investors think about participating in Canada’s capital markets, their focus often lands on the familiar terrain of public stock exchanges – the TSX, TSX-V, and others where shares of well-known companies are bought and sold daily. However, beyond these public arenas lies another significant, regulated segment of the financial landscape: the Canadian Exempt Market. This market provides unique avenues for businesses to raise capital and for investors to access opportunities not typically found on public exchanges. This article aims to define the exempt market, explain its crucial purpose, differentiate it from public markets, and highlight why investors might explore the possibilities it holds.

What is the Canadian Exempt Market?

The exempt market, sometimes referred to as the private capital market, is a part of Canada’s broader capital markets framework. Its defining characteristic is that securities (like shares, debt, or units in a fund) can be offered and sold without the company issuing them having to file a detailed disclosure document called a prospectus.

Instead of a prospectus, these offerings rely on specific exemptions from that requirement, as laid out in provincial and territorial securities regulations. It’s crucial to understand that “exempt” refers only to the prospectus requirement – it does not mean the market is unregulated. Companies raising capital and the firms facilitating these investments are subject to specific rules, registration requirements, and regulatory oversight. Investments in this market often involve private companies or specialized investment products that are not listed or traded on public stock exchanges.

Purpose of the Exempt Market

The exempt market serves two primary, vital functions within the Canadian economy:

  1. Facilitating Capital Formation: It provides a crucial pathway for businesses, particularly small-to-medium sized enterprises (SMEs), startups, and companies in specific sectors like real estate development or resource exploration, to raise necessary funds without undergoing the complex and costly process of becoming a publicly-listed company.
  2. Providing Investor Access: It allows certain investors (often those meeting specific eligibility criteria) to participate in investment opportunities that fall outside the traditional public market sphere, offering different risk and return profiles.

Exempt Market vs. Public Markets: Key Differences

Understanding the distinctions between the exempt and public markets is essential for any investor considering participation:

  • Regulatory Disclosure:

    • Public Markets: Companies must file a comprehensive prospectus before issuing securities and adhere to continuous, detailed public disclosure requirements.
    • Exempt Market: Issuers typically provide an Offering Memorandum (OM) or other permitted disclosure documents under specific exemptions. While regulated, the disclosure may be less extensive than a full prospectus.
  • Investor Eligibility:

    • Public Markets: Generally open to all members of the public.
    • Exempt Market: Often restricted to investors who meet certain criteria, such as ‘Accredited Investors’ (based on income or assets) or other specific exemptions, designed to ensure investors have the financial capacity or sophistication to understand and bear the associated risks.
  • Liquidity:

    • Public Markets: High liquidity; shares can typically be bought and sold quickly and easily during market hours.
    • Exempt Market: Low liquidity; investments are generally intended to be held for the medium to long term, and there is no established secondary market for easily selling them. Exiting an investment can be difficult and may take significant time.
  • Transparency & Information:

    • Public Markets: High level of transparency with readily available information on pricing, trading volumes, and company disclosures.
    • Exempt Market: Information may be less readily available, and valuations might be determined less frequently than in public markets. Investors rely heavily on the issuer’s reporting and their registered dealer’s due diligence.
  • Types of Investments:

    • Public Markets: Primarily publicly traded stocks, bonds, exchange-traded funds (ETFs).
    • Exempt Market: Wider range including private company equity or debt, limited partnerships, private real estate projects (e.g., REITs not listed publicly), mortgage investment corporations (MICs), resource flow-through shares, and specialized alternative funds.

Why Consider the Exempt Market?

Despite the differences, particularly concerning liquidity and information access, investors look to the exempt market for several compelling reasons:

  1. Access to Unique Opportunities: The exempt market provides a gateway to invest directly in private businesses or projects before they potentially go public (if ever), or in asset classes like private real estate or private debt funds that aren’t accessible via public exchanges.
  2. Portfolio Diversification: Because private market investments often behave differently from public stocks and bonds, adding exempt market securities can potentially enhance portfolio diversification, possibly reducing overall volatility by including assets with lower correlation to traditional markets.
  3. Potential for Enhanced Returns: Commensurate with the higher risks involved (including liquidity and business risk), some exempt market investments offer the potential for higher returns compared to conventional public market assets. This potential often comes with longer investment horizons and requires careful assessment.

To Wrap Up

The Canadian exempt market is a dynamic and regulated component of our nation’s financial system, offering distinct opportunities for both businesses seeking capital and investors seeking diversification and unique investments beyond the public exchanges. While it presents potential benefits, investors must recognize that these opportunities come with specific risks, most notably lower liquidity and potentially less frequent information flow compared to public markets.

Navigating this landscape requires thorough understanding, careful due diligence, and a clear assessment of one’s own financial goals, risk tolerance, and investment timeline. Working closely with a registered Dealing Representative at an Exempt Market Dealer (EMD) is crucial for accessing these opportunities, understanding the associated risks, and determining if such investments are suitable for your individual circumstances.

Are you looking for innovative ways to diversify your investment portfolio and tap into the potential of real estate?

Axcess Capital Advisors is excited to announce that our Chief Operating Officer, Peter Jarman, will be a featured speaker at Olympia Trust Company’s upcoming webinar, “Unlocking Real Estate Capital: The Power of RSPs and TFSAs.”

This insightful webinar will explore how you can leverage your registered savings plans to invest in real estate, opening up new avenues for wealth creation.

About the Webinar:

Real estate remains a cornerstone of many successful investment strategies. This webinar will delve into the advantages of incorporating real estate into your portfolio using your Registered Retirement Savings Plan (RSP) and Tax-Free Savings Account (TFSA). Peter, alongside other industry experts, will provide valuable insights into:

  • The benefits of using RSPs and TFSAs for real estate investments.
  • Strategies for identifying and evaluating real estate opportunities within these registered plans.
  • Understanding the regulatory landscape and compliance considerations.
  • Practical tips and real-world examples to help you get started.

Don’t miss this opportunity to learn how you can unlock the potential of real estate within your RSP and TFSA. Register for the webinar today and gain valuable insights from Peter and other industry experts. We look forward to seeing you there!

Webinar Details:

  • Topic: Unlocking Real Estate Capital: The Power of RSPs and TFSAs
  • Host: Olympia Trust Company
  • Date: March 25, 2025 10:00 AM (MST)
  • Click Here To Registration

InvestPlus REIT proudly announces the acquisition of 4 industrial buildings, pushing our portfolio to over 600,000 sq ft and $101M AUM. These properties, leased to a leading gas manifold manufacturer, are projected to generate an average of $3.6M accretiveness over 9 years, ensuring sustainable distributions and stronger unit value for our unitholders.

With financing secured from National Bank at a competitive 5.13% rate, this acquisition solidifies our commitment to stable, long-term growth.

Read more about this news. Click here.

Effective June 30th, 2021, Canadian Securities Administrators (“CSA”) have implemented new regulations called Client Focused Reforms (“CFR”) which apply to all registrants in the Canadian securities industry, including IIROC, MFDA, Exempt Market Dealers, advisors, portfolio managers and Dealing Representatives. These regulations apply to Axcess Capital Advisors Inc. (“we”, “us”, “our “, or “Axcess”) which is registered as an Investment Fund Manager (“IFM”) and Restricted Portfolio Manager in Alberta, and an Exempt Market Dealer (“EMD”) in Alberta, British Columbia, Manitoba, Ontario, and Saskatchewan.

The purpose of the Client Focused Reforms is to better align the interests of an advisor with the interests of clients. The CFRs are based on the fundamental concept that Dealing Representatives and Dealers should put client interests first when making investment recommendations. One key requirement of the CFRs relates to how Dealers deal with conflicts of interest. Dealers must implement policies, procedures, and controls to demonstrate that they have addressed material conflicts of interest in the best interests of YOU the client.

Pursuant to the new regulations, this Conflicts of Interest Disclosure is provided to you as a client of Axcess to ensure you understand existing and reasonably foreseeable material conflicts of interest that affect your interests as a client of Axcess.

Click link below to read full disclosure document

“Client Notice regarding Client Focused Reforms effective June 30, 2021”

Our firm is an Investment Fund Manager (IFM) and Restricted Portfolio Manager (RPM) registered in Alberta, and an Exempt Market Dealer (EMD) registered in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario.

With over 30 years of MIC and mortgage syndication experience, Axcess Capital Advsiors and its affiliate, Axcess Capital Managers, specialize in MIC management, MIC administration services and mortgage syndication in the province of Alberta.

 

EMD as a Service Platform

Axcess Capital Advisors Inc. (Axcess) has regulatory approval to provide Exempt Market Dealer as a Service (EMDaaS) to MIEs, MICs and other issuers in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario.

The EMDaaS platform allows issuers to register an in-house Dealing Representative with Axcess who will provide sales support to the issuer. All oversight on registerable activities and compliance supervision on the in-house Dealing Representative will be done by Axcess.

This allows issuers to raise capital from their current client database at a significantly lower cost while controlling their valuable client database. It also means the issuer does not have to rely on a third-party EMD for distribution or register as an EMD in order to raise capital.

A full due diligence review by Axcess will still be required.

Controlling your capital requirements while protecting your valued client database is as important to us as it is to you.