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What is the exempt market?
The "exempt market" describes a section of Canada’s capital markets where securities can be sold without the protections associated with a prospectus. Examples of activity in the exempt market include:
- Canadian and foreign companies, both public and private, selling securities to institutional investors and qualified investors
- Canadian and foreign hedge funds and pooled funds selling securities to institutional investors and qualified investors
Generally, securities offered to the public in Ontario must be offered under a prospectus, which is a document that provides detailed information about the security and the company offering it. However, there are some exceptions to this rule that allow securities to be offered without a prospectus, called prospectus exemptions. These prospectus exemptions can help a company raise money without the time and expense of preparing a prospectus.
Investors who buy securities through prospectus exemptions generally do not have the benefit of ongoing information about the security that they are buying or the company selling it. As well, they often do not have the ability to easily resell the security.
Typically, individuals and firms that sell securities in the exempt market are registered as dealers. For more information about registration, see Who needs to register.
OSC exempt market review
In 2011, the Canadian Securities Administrators initiated a review of the exempt market regulatory regime focused on the accredited investor and minimum amount investment prospectus exemptions. The scope of this review was later broadened by the OSC and resulted in a number of new and amended prospectus exemptions being adopted in Ontario in 2015 and 2016.
For further information on the OSC exempt market review, see Exempt Market Publications
What do investors need to know about investing in the exempt market?
Exempt market securities offer investors more choice of products to help them achieve their financial goals, but they should be aware that there are many risks associated with investing in the exempt market.
The OSC Investor Office’s consumer website GetSmarterAboutMoney.ca explains what investors need to know about the exempt market and the risks associated with investing in exempt market securities. Visit GetSmarterAboutMoney.ca to learn more.
How do companies raise capital in the exempt market?
One of the key principles of Ontario securities law is that securities may not be distributed unless a prospectus is filed with and receipted by the OSC. A prospectus is a comprehensive disclosure document that sets out detailed information about the issuer and describes the securities being issued and the risks associated with purchasing those securities.
Companies can take advantage of certain prospectus exemptions to sell securities like debt, equity, asset-backed securities, investment funds and derivatives in the exempt market. (See What are the available prospectus exemptions?)
When securities are sold without a prospectus, certain protections do not apply, such as the right to sue for damages in the event of a misrepresentation. However, exempt distributions may be made on the basis of some form of offering document which will attract liability under section 130.1 of the Securities Act (Ontario) in the event of a misrepresentation.
Any person, company or online portal that is in the business of trading or advising in securities needs to be registered. For more information, see "Who needs to register?".
In many cases, a security sold under a prospectus exemption can only be resold if certain conditions are met. These resale conditions are designed to ensure that there is sufficient disclosure available in the marketplace to allow a subsequent purchaser to make an informed investment decision. For more information on resale restrictions, see National Instrument 45-102 Resale of Securities.
Reports of exempt distribution
Companies and underwriters must report certain exempt distributions to the OSC by completing and filing Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) and pay the applicable filing fee. Form 45-106F1 must be filed no later than 10 days after the distribution. Investment funds relying on certain prospectus exemptions have the option of filing Form 45-106F1 on an annual basis, within 30 days of the end of the calendar year.
Form 45-106F1 must be filed electronically for distributions under:
- section 73.3(2) of the Securities Act (Ontario) [Accredited investor]
- section 73.5(2) of the Securities Act (Ontario) [Government incentive security]
- certain prospectus exemptions in National Instrument 45-106 Prospectus Exemptions
- Multilateral Instrument 45-108 Crowdfunding
New report of exempt distribution (in force as of June 30, 2016)
A new report of exempt distribution, Form 45-106F1, came into force in all CSA jurisdictions, including Ontario, on June 30, 2016. See CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distributions for more information on the new report.
For guidance on completing and filing the new report, see CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions.
On July 5, 2016, the OSC delivered to the Minister of Finance for approval an amendment instrument (the Amendment Instrument) that would, in Ontario only, amend National Instrument 45-106 Prospectus Exemptions (NI 45-106). Specifically, the Amendment Instrument amends Form 45-106F1 Report of Exempt Distribution of NI 45-106 to exempt certain foreign issuers from the requirement to identify whether a purchaser is a registrant or an insider of the issuer. The Amendment Instrument and accompanying notice of publication were published in Chapter 5 of the OSC Bulletin and on the OSC website on July 7, 2016. The Amendment Instrument was approved by the Minister of Finance on July 14, 2016 and came into force on July 29, 2016. The other CSA jurisdictions have issued blanket orders to provide the same relief as the Amendment Instrument. A CSA Staff Notice referring to the blanket orders and Amendment Instrument was also published on July 7, 2016.
On September 29, 2016, the CSA re-issued CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution. This CSA Staff Notice includes revised guidance to alleviate certain of the concerns expressed by foreign dealers conducting offerings into Canada, as well as Canadian institutional investors, about the certification requirement in the new report of exempt distribution and other related issues. A copy of CSA Staff Notice 45-308 (Revised) highlighting the changes made in response to the comments is also available on the OSC website.
Click here to register for an in-person training session with OSC staff on completing and filing Form 45-106F1 on the OSC's Electronic Filing Portal. The dates and times of upcoming training sessions are listed below. Please note that space is limited and we will send you an email to confirm your registration.
No upcoming sessions
Exempt market data
Exempt distributions summary
Exempt distribution information has been summarized from Reports of Exempt Distribution (Form 45-106F1) that have been filed with the OSC under National Instrument 45-106 Prospectus Exemptions. The summaries are based on information contained in Reports where Ontario purchasers have been identified.
Note: The summaries posted here are provided for non-commercial, educational and informational purposes only. The summaries are based on information contained in Reports of Exempt Distributions (Form 45-106F1) that have been filed with the OSC through its Electronic Filing Portal. The OSC cannot guarantee that the information in these Reports is accurate, current, or complete, and therefore it cannot guarantee the accuracy, currency or completeness of the posted summaries.
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Statistics on Ontario exempt market activity
Exempt market publications
Listed below are publications related to the exempt market.
Reports of exempt distribution
- June 8, 2017
- September 29, 2016
- July 7, 2016
- April 7, 2016
- January 28, 2016
- November 5, 2015
- October 29, 2015
- September 24, 2015
- February 19, 2015
- February 19, 2015
- November 27, 2014
Background on the OSC exempt market review
- November 5, 2015
- March 20, 2014
- August 28, 2013
- December 14, 2012
- June 7, 2012
- November 10, 2011
Who needs to register?
Individuals, firms or online portals that are in the business of trading or advising in securities are required to register as a dealer or portfolio manager (also known as a “registrant”).
Although there is no requirement for companies to distribute securities through a registrant, in many cases this will be necessary to sell securities in the exempt market. For more information about factors that would indicate that registration as a dealer or adviser is required, click here.
For information about the requirement to get registered, see Dealers, Advisers and Investment Fund Managers - Who Needs to Register.
You can check the registration of the individual or firm you are dealing with at the Check Before You Invest page by clicking here.
For inquiries about registration, or to check the registration status of an individual or firm, please contact the OSC Contact Centre at 416-593-8314 (or toll free at 1-877-785-1555), or by email at email@example.com. You can also use the Canadian Securities Administrators’ National Registration Search to check the registration of an individual or firm.
What are the available prospectus exemptions?
The prospectus exemptions available to companies are primarily set out in National Instrument 45-106 Prospectus Exemptions. Generally speaking, each exemption is premised on a specific policy rationale that supports not requiring a prospectus in the circumstances.
An overview of the key capital raising prospectus exemptions in Ontario is provided in the Summary of Key Capital Raising Prospectus Exemptions in Ontario (as of January 28, 2016).
Rules - prospectus exemptions
- Unofficial consolidation of National Instrument 45-106 Prospectus Exemptions and its Companion Policy (effective July 29, 2016)
- OSC Rule 45-501 Ontario Prospectus and Registration Exemptions
- Multilateral Instrument 45-108 Crowdfunding
History of prospectus exemptions