What are the Alternative Markets?
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Traditionally securities such as stocks, options, or bonds, are offered and sold in the public markets through institutions such as banks and brokerages. In addition mutual funds,which also invest in the above are sold by these same institutions as well as through mutual fund dealers. Typically the issuer is a public company and is required to file a prospectus with the securities commissions before they can sell these product on the open market.
However there are many private companies who have projects that also required funding. Instead of using the public market dealers and going through the public offering route they remain private and by following certain rules and regulations can offer subscriptions privately to investors. In Canada these types of offering are known as an exempt market security or private placement.
Unlike traditional mutual funds, stocks and bonds, these products can be exempt from rules requiring a prospectus and include, but are not limited to, principle-protected notes, hedge funds, real estate investment trusts (REITs), limited partnerships and flow-through shares.
What are the Exempt Markets?
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
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. (see Ontario Securities Commission website – What-is-the-exempt-market )
What is an Exempt Market Dealer (EMD)?
Prior to September 2009, exempt market dealers did not exist and the business of selling private investments was practically “anything goes”. With National Instrument 31-103, the new legislation has changed the exempt market landscape, reforming the way exempt products are distributed to investors in order to protect investors and increase the responsibility of the investment dealers. In addition the individuals who worked for these dealers also were required to be registered.
In this way regulations were put into place to ensure the same rules concerning proficiency, conduct, capital and compliance requirements and making it clear that EMDs are subject to the same know-your-client (“KYC”) and suitability requirements as other dealer categories were also required to follow.
How does one Invest in the Exempt Markets?
In order to invest in the Exempt Markets, an investor will need to qualify according to the rules and regulations of the province or jurisdiction in which they reside. They may be classified as an Eligible Investor, Accredited Investor or even a Permitted Client. A review of income, financial assets and net assets will help determine which category applies.
Other factors will depend on the type of product, the type of offering and how much they wish to invest. An investor will need to contact a dealing representative to go through the above criteria and qualifications before making their decision on which products to target and how they wish to invest their funds.
Since each Exempt Market Dealer will go through the process of evaluating and selecting those exempt products they wish to represent to investors not all exempt products are available through all dealers. When selecting a representative ensure that they work with the types of products that best suit your investment goals and objectives.
Why Pick Raintree Financial Solutions?
Besides Raintree’s dedication to compliance and serving the client’s needs, they work hard to ensure they have the best Private Wealth Advisors in their network and focus on recommending suitable investment options.
Raintree Financial Solutions offers the following advantages:
- Raintree Financial Solutions utilizes ROOTS®, a customized and proprietary reporting, tracking, and customer relationship management system.
- Raintree Financial Solutions offers a variety of products.
To find out more about Raintree