Dealer Registration Requirement
TRIPPING THE BUSINESS TRIGGER The requirement to register as a dealer in a province or territory depends on whether the fund or fund manager meets the “business trigger.” If a fund or its manager engages in or holds itself out as engaging in the business of trading securities in a province or territory of Canada, then it should register as a dealer in that province or territory. Trading is defined very broadly under Canadian securities laws and includes any sale or disposition of a security and any act, advertisement, solicitation, conduct or negotiation to facilitate a sale or other disposition of a security. The Canadian Securities Administrators (CSA) has stated that it will examine a particular activity to determine whether it is carried on for a business purpose. The CSA has identified several factors that provide guidance as to whether a market participant trips the business trigger, including (i) frequency of trading, (ii) holding oneself out as trading in securities, (iii) expecting to be compensated for trading, (iv) intermediating trades or acting as a market maker, and (v) soliciting trades. A private fund that issues its own securities to investors (or its manager) may have to register as a dealer if the fund frequently issues its securities to investors, including as a result of being an open- ended fund; and a manager may also have to register as a dealer if it frequently raises capital for closed- end funds. Accordingly, a manager of an open-ended fund, which is, practically speaking, always in the market, is generally required to register as a dealer or involve a registered dealer in its trades unless an exemption is available. The fact that an open-ended fund may deal infrequently with prospective investors in Canada does not affect the analysis of whether such fund or its manager is in the business of trading in securities.
Private equity funds, venture capital funds, infrastructure funds, certain private credit funds, real estate funds and some other pooled fund entities are often not required to register or avail themselves of an exemption from the dealer registration requirement when considering the above-noted factors. The analysis of whether a fund or its manager meets the business trigger requires a careful examination of its activities and must be done on a case-by-case basis. When the dealer registration requirement applies, foreign private funds typically register as an “exempt market dealer,” rely on the “international dealer” exemption or hire a Canadian dealer.
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Marketing Private Funds in Canada
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