Most Canadians are familiar with buying stocks and mutual funds through a brokerage account. But there is a parallel universe of investment activity that takes place outside of public exchanges — a regulated space where private companies raise capital from qualified investors without going through the full public offering process. This is the exempt market.
What Is the Exempt Market?
The exempt market is a segment of the capital markets where securities can be issued and sold without a prospectus — the lengthy disclosure document that public companies must file when offering securities to the public. Instead of a prospectus, exempt market transactions rely on specific exemptions established under securities law.
In Canada, the primary regulatory instrument governing the exempt market is National Instrument 45-106 — Prospectus Exemptions (NI 45-106). This instrument, adopted by all Canadian securities regulators, sets out the conditions under which securities can be sold without a full prospectus. It creates a framework that balances the need to raise capital for private companies against the need to protect investors.
Why Does the Exempt Market Exist?
Creating a full prospectus is an expensive and time-consuming process. For large companies raising hundreds of millions of dollars in a public offering, that cost is justified. But for smaller, growing companies raising a few million dollars to fund their next stage of growth, the cost and complexity of a full prospectus offering would be prohibitive.
The exempt market provides a practical pathway for these companies to access capital from qualified investors — without the full burden of a prospectus — while still operating within a regulated framework that provides meaningful investor protections.
Key Exemptions Under NI 45-106
The Accredited Investor Exemption
The most commonly used exemption is the Accredited Investor exemption. Accredited investors are individuals or entities that meet specific financial thresholds — for example, individuals with a net income exceeding $200,000 per year (or $300,000 with a spouse) for the preceding two years, or individuals with net financial assets exceeding $1,000,000.
The rationale is that accredited investors are presumed to have the financial sophistication and resources to evaluate investment risks without the full protection of a prospectus.
The Minimum Amount Exemption
Under this exemption, investors who invest a minimum of $150,000 in a single transaction can participate in exempt market offerings, regardless of whether they meet the accredited investor threshold. The size of the investment is considered sufficient evidence that the investor can bear the risk.
The Offering Memorandum Exemption
The Offering Memorandum (OM) exemption allows companies to raise capital from a broader group of investors, including non-accredited investors, provided they receive and sign acknowledgment of an Offering Memorandum — a disclosure document that, while less extensive than a prospectus, provides meaningful information about the investment.
The Private Issuer Exemption
Private companies that meet specific criteria — including restrictions on the transfer of their securities and limits on the number of shareholders — can raise capital from friends, family, and close business associates under the Private Issuer exemption.
The Role of Exempt Market Dealers
Exempt Market Dealers (EMDs) are registered financial intermediaries authorized to trade in exempt market securities. They play a critical role in the exempt market ecosystem by connecting investors with issuers, conducting suitability assessments to ensure that investments are appropriate for each investor, and ensuring that all transactions comply with applicable securities law.
Equifaira Capital Corp. is a registered Exempt Market Dealer in British Columbia. We are subject to regulatory oversight by the British Columbia Securities Commission and are required to meet ongoing compliance obligations including know-your-client requirements, suitability assessments, and record-keeping standards.
Investing in the Exempt Market
Investing in the exempt market is not for everyone. These investments are typically illiquid, carry higher risk than most public market investments, and require a longer-term commitment. Investors should only allocate capital to exempt market investments that they can afford to hold for an extended period and potentially lose entirely.
That said, for qualified investors who understand the risks and have a long-term perspective, the exempt market provides access to a segment of the investment universe that has historically generated meaningful returns — and one that is simply not available through traditional brokerage channels.