INTERNATIONAL DEALER EXEMPTION The international dealer exemption permits a qualifying non-Canadian dealer to engage in trades of foreign securities made to permitted clients in Canada. – One of the conditions of the exemption is that the person be registered under the securities legislation of its home jurisdiction in a category of registration that permits it to carry on the activities that it is proposing to carry on in the local Canadian jurisdiction. Many U.S. hedge funds, including those registered under the Advisers Act , are unable to satisfy this exemption because they are not in fact registered to carry on business as dealers in their home jurisdictions. – The process for relying on the international dealer exemption is straightforward and can be completed relatively quickly. As part of the process, international dealers are required to submit to the jurisdiction of the regulator in the applicable province or territory and to appoint an agent for service of process. – International dealers are also required to make certain disclosures to the permitted clients with whom they deal, including prescribed disclosure to the effect that they are not registered in the local jurisdiction and that there may be difficulty enforcing legal rights against them. EXEMPT MARKET DEALER Registration as an exempt market dealer would permit a fund or its manager to conduct marketing activities and to act as a dealer in respect of the interests of the fund that are being issued under an exemption from the prospectus requirement. Registration as an exempt market dealer involves an extensive application procedure for the entity, certain officers and shareholders and the individuals carrying on the registrable activities on behalf of the entity.
The process typically takes at least 8 to 12 weeks and possibly longer when exemptions are needed from the proficiency or other requirements. An exempt market dealer and its registered individuals are subject to minimum proficiency and professional qualification requirements; and an exempt market dealer is subject to ongoing financial and reporting requirements and ongoing conduct and compliance obligations. A fund or fund manager that registers as an exempt market dealer or that relies on the international dealer exemption will be subject to monthly anti-money laundering (AML) reporting obligations in Canada, as described below, and will be required to submit an annual filing in each province or territory where it is registered or has relied on the exemption. Each province or territory has a different fee regime that applies to participants in the securities market in that province or territory. In Ontario, a registered dealer and each person that is relying on the international dealer exemption is required to pay an annual participation fee that is based on gross revenues derived from capital markets in Ontario, subject to a minimum. NO REGISTRATION? NO PROBLEM! THE “HIRE A DEALER” ALTERNATIVE Some funds that are unable to rely on the international dealer exemption (and prefer not to register as an exempt market dealer) choose instead to engage a registered dealer in the local jurisdiction to facilitate the trade. The advantage of this approach is that it avoids the need to limit the offering to permitted clients. The disadvantage of this approach is that the registered dealer will charge a fee for its services, and all active solicitation of potential investors must be conducted by the registered dealer and not by fund and its manager.
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Marketing Private Funds in Canada
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