What are Exempt Market Dealers (EMDs) & Why Should You Care?

There are many avenues available to companies and individuals looking to invest their money. One such avenue that many investors may never have heard of is the Exempt Market. The Exempt Market is a place where securities can be sold without a prospectus — unlike mutual funds or bonds — and where many alternative investment options exist. 

An Exempt Market Dealer (EMD) is someone who is registered to sell exempt market securities under provincial securities legislation. Although EMDs deal in securities that don’t require a prospectus, they do answer to a regulatory requirement at a national level. 

 

What are the Benefits of the Exempt Market?

 

The major benefits to investing with an EMD is the ability to further diversify your investment portfolio. As EMDs largely deal in alternative investment streams, investing with an exempt market dealer is a fantastic way to diversify your investments past the usual avenues that require a prospectus. 

EMDs also allow smaller companies the ability to raise capital without having to take the time to prepare a prospectus. This, in turn, allows investors to invest in innovative companies with new technologies before they become known and large enough to be publicly traded. 

Exempt Market Dealers can act as a dealer for exempt market securities as well as for securities with a prospectus such as mutual funds. One benefit of an EMD is that they’re registered and proficient in selling exempt market securities and offering advice. Often, an EMD specializes in a specific industry, such as real estate or technology, and can offer a broad range of investment strategies and options that fall outside the more restrictive norms.

 

What Are the Risks?

 

As with any investment, there are risks associated with exempt market securities and investments, and a significant one is the risk of loss. When it comes to the exempt market, there’s a chance you could lose your entire investment. There could be a lack of information regarding the investment depending on the exempt market dealer. Due to the fact that a prospectus isn’t required, some companies may have less information available for review. Although generally speaking, there’s a lot of flexibility when investing in exempt market securities, there’s the chance that your investment could end up locked in. You may not be able to sell when you want to, and you may not even be able to sell at all.

 

Why Invest with an Exempt Market Dealer?

 

Now that you’re aware of the risks and rewards of investing in exempt market securities, why would you invest with an EMD? The exempt market can seem like a big risk due to the perceived lack of information or prospectus. However, any exempt market dealer that’s offering securities or advice is registered, meaning they’re regulated and managed. Any registered EMD will have had to first earn a license to offer their services. In addition to this licensing and regulatory mandate, EMDs undergo audits, have a minimum requirement for operating capital. and must send statements to clients regarding their investments. 

If you’re interested in learning more about alternative investments outside of the publicly-traded market, get in touch with Jordan on our team today. At Cooper Pacific, we specialise in mortgage pooled investment strategies and are committed to helping you diversify your portfolio. When it comes to investing, there may be a perceived ceiling in the public market, but the sky’s the limit in the private or exempt markets.