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Disclaimer: The following information is intended only as general introductory information to address some common questions. It is not intended to be and must not be relied on as legal advice. Please refer to the specific provisions of Alberta securities laws. We encourage you to seek legal advice from legal counsel familiar with Alberta securities laws.
This term is defined in section 1 of the Securities Act (Alberta) and in the securities legislation of the other jurisdictions of Canada. Refer to those definitions.
Generally, a dealer refers to a person or company that is engaging in or holding themselves out as being engaged “in the business” of trading in securities or derivatives, whether as principal or agent, or acting as an underwriter.
The term “in the business” is not defined but the Companion Policy to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations provides helpful guidance on what it means to be “in the business”.
Dealers typically engage in bringing buyers and sellers of securities together. Issuers wishing to raise money through the sale of their securities will often hire dealers to help them find investors and ‘broker’ the sale.
“Dealer” is a category of registration (a form of licensing). A dealer must satisfy a number of requirement in order to be registered and must then comply with various ongoing obligations. Many of those requirements and obligations are set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
The term “distribution” is defined in section 1 of the Securities Act (Alberta) and in the securities legislation of the other jurisdictions of Canada. Refer to those definitions. The definition is important as the requirement to file a prospectus (or rely on a prospectus exemption) applies to persons or companies conducting a distribution of securities.
Generally, an issuer is considered to be distributing its securities if it is issuing them to raise money. The resale of securities issued under a prospectus is not generally considered to be a “distribution” but a person who is reselling securities that were acquired under a prospectus exemption will often be considered to be conducting a distribution and is subject to restrictions on the resale. In practice, this can mean that the securities bought under prospectus exemptions can only be resold under another prospectus exemption. See National Instrument 45-102 Resale of Securities.
The exempt market refers to the sale of securities under prospectus exemptions and the term is often used to include the parties participating in that market, both issuers and dealers.
The term is sometimes used to refer in particular to those issuers that raise money under prospectus exemptions on a recurring basis with no intention of ever becoming reporting issuers or “going public”. For example, this may be the case with certain investment funds, mortgage investment entities and real estate development projects.
Issuers that raise money under prospectus exemptions but that are not reporting issuers will not typically provide investors with comprehensive ongoing information about their business. Consequently, investors may not have ongoing information to assess the value of their investment.
Both exempt market dealers and investment dealers participate in the exempt market.
This term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. An exempt market dealer is a category of registered dealer that generally acts as a dealer by trading a security that is distributed under prospectus exemptions.
This term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. An investment dealer is a category of registered dealer that is generally permitted to sell any type of securities or derivatives. Investment dealers may sell securities sold by prospectus, under a prospectus exemption or that are being traded in a secondary market (e.g. on a stock exchange).
Investment dealers are required to be dealer members of the Investment Industry Regulatory Organization of Canada or IIROC. For more information, refer to IIROC’s website.
The term “investment fund” is defined in the Securities Act (Alberta) (the Act) and refers to a “mutual fund” or a “non-redeemable investment fund”. Both those terms are in turn defined in the Securities Act. In very general terms, they refer to issuers whose business it is to invest money provided by its security holders. Typically, an investment fund will be professionally managed, investing in a portfolio of securities according to a stated investment policy usually with expressed investment objectives and strategies.
A mutual fund generally provides investors with a right to redeem their securities on demand (or within a specified period of time) - i.e. a right to force the issuer to buy back the investor’s securities. The amount that an investor is repaid is typically determined based on the investor’s proportion of the total net asset value of the fund.
Despite its name, a non-redeemable investment fund may offer a right of redemption, but infrequently and not on demand (e.g. once per year), and this right is usually subject to certain conditions. The definition of a “non-redeemable investment fund” generally excludes issuers that invest with the view to seeking control of the businesses in which they invest or seeking to be involved in the management of the businesses in which they invest. Consequently, although they may call themselves “funds”, venture capital funds and private equity funds, because they will often invest with some expectation of control or involvement in management of the underlying businesses, will often not be “investment funds” under Alberta securities law.
For further guidance see:
Unless there are available exemptions, a business that is an “investment fund” will typically need:
This term is defined in section 1 of the Securities Act (Alberta) (the Act) and in the securities legislation of each of the jurisdictions of Canada. Refer to those definitions. Generally, an issuer refers to any person or company, that has issued or plans to issue a security.
The terms “person” and “company” are also defined in section 1 of the Act and they are both defined broadly (e.g. including individuals, companies, partnerships and even unincorporated organizations).
It is not necessary for your business to be incorporated for it to be an “issuer”.
The term “private issuer” is defined narrowly in National Instrument 45-106 Prospectus Exemptions and refers to a specific set of issuers that are permitted to use the private issuer prospectus exemption.
In common parlance people will refer to private companies and public companies. However, these terms are not used in securities legislation. Securities legislation uses the term “reporting issuer” which has some similarities to the concept of a “public company”. The term “private issuer” is much narrower than, and only a subset of the concept of “private company”. Many businesses may be issuers but are neither reporting issuers nor private issuers..
Why does this matter? If an issuer is not a “private issuer” it cannot use the private issuer prospectus exemption and must use a prospectus or rely on other prospectus exemptions to distribute its securities.
An issuer that is no longer a private issuer, even one with hundreds of security holders, is not necessarily a reporting issuer.
A private placement is the sale of securities under a prospectus exemption. However, the term is often used to refer to the sale of securities under particular prospectus exemptions, such as sales to institutions and wealthy investors under the accredited investor exemption.
Both reporting issuers and non-reporting can and do sell securities under prospectus exemptions or conduct “private placements”.
A prospectus is an offering document that is required to contain detailed disclosure describing an issuer’s business, its management, its plans and any risks associated with investment. It is required to contain “full, true and plain” disclosure of all material facts relating to the securities and is required to be certified in this regard by the CEO, CFO, at least two directors, and by any promoter or underwriter. The parties signing the prospectus can be held liable for any misrepresentation contained in it.
A prospectus must be filed with applicable securities regulators for review and comment and cannot be used to sell securities until all comments are addressed and a "receipt" for the final prospectus has been issued. A prospectus is typically used to offer and distribute securities to the general public but, in some instances, may be used to distribute securities to only a select group of investors or merely to obtain reporting issuer status.
For an issuer that is not an investment fund, National Instrument 41-101 General Prospectus Requirements sets out most of the details about the required contents of a prospectus and the documents that must be filed with it. An issuer that is already a reporting issuer can often use a shorter form of prospectus that allows it, rather than restating information, to incorporate disclosure that has already been publicly filed. For example, see National Instrument 44-101 Short Form Prospectus Distributions.
An issuer that files a prospectus with a securities regulator and obtains a receipt for it will become a reporting issuer.
A registered dealer is a firm that is registered with applicable securities regulators in one of the categories of registration for a dealer specified in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
The five different categories of registered dealer are:
Registered dealers must comply with the ongoing requirements of NI 31-103. Some of the requirements and obligations that apply to a registered dealer are as follows:
Registered dealers are also required to comply with the rules of any self-regulatory organization of which they are a member (e.g. the Investment Industry Regulatory Organization of Canada for investment dealers and the Mutual Fund Dealers Association of Canada for mutual fund dealers).
Registrant is defined in the Securities Act (Alberta) (the Act) as person or company registered or required to be registered under this Act or the regulations. Registrants include not just registered dealers but any person or company registered or required to be registered (e.g. as adviser, an individual registered representative of a dealer or adviser or an investment fund manager).
A registrant is subject to obligations relating to acting fairly, honestly and in good faith.
This term is defined in section 1 of the Securities Act (Alberta) and in the securities legislation of each of the jurisdictions of Canada. Refer to those definitions.
Generally, an issuer becomes a reporting issuer in a jurisdiction of Canada by filing a prospectus with the securities regulator in that jurisdiction and obtaining a "receipt" for that prospectus. An issuer may file a prospectus in some jurisdictions but not in others and so become a reporting issuer in only some jurisdictions of Canada.
An issuer can also become a reporting issuer in other ways, such as:
Although in some international jurisdictions, an issuer may become or may be required to become a reporting issuer when it has a certain number of security holders, this is not the case in Alberta.
The term security is very broadly defined and the definition is not exhaustive. It includes products commonly considered securities such as:
However, the definition of “security” includes some branches that are very broadly worded, for example:
The term “investment contract” is not defined in securities legislation in Alberta but it has been interpreted broadly by the courts (e.g. to contemplate risk capital or to include an investment of money in a common enterprise with the expectation of profit to come from the significant efforts of others).
Examples of some less common products that have been considered securities include:
The term trade is defined in section 1 of the Securities Act (Alberta) and in the securities legislation of each of the jurisdictions of Canada. Refer to those definitions.
The term “trade” is defined broadly. It generally refers to the sale of securities (not the purchase) but significantly it also includes any act, advertisement, solicitation, conduct or negotiation made directly or indirectly in furtherance of a trade.
The term "trade" is important for a number of reasons. The term is used in the definition of “distribution” for identifying circumstances when a prospectus or prospectus exemption is required. In addition, the requirement to be registered (a form of licensing) as a dealer applies to any person or company who is in the business of trading securities.