Our look at categories of registration continues this week with exempt market dealers. An exempt market dealer is a firm or individual that sells or advises on exempt market products. An exempt market product can be sold without a prospectus and as a result offers less protection for investors.
There are a number of exempt products that can be sold by exempt market dealers, including debt, equity and asset-backed securities, investment funds and derivatives. Although they have prospectus exemptions, exempt products still have rules and regulations that apply to them regarding who can sell them and who can buy them.
Exempt market dealers are required to be in compliance with Nova Scotia securities laws that apply to other investment dealers. This includes having to abide by proficiency, conduct, capital and compliance requirements. They are also subject to the same Know Your Client (KYC) and suitability requirements as other advisers and investment dealers.
Investing in exempt market securities is riskier than standard investments and there are three risk factors that investors should know about before investing in any exempt market products:
1. Risk of Loss – Exempt market securities are a much riskier investment and there is a chance you could lose a large portion or even all of your investment.
2. Lack of information – Exempt market dealers are not required to provide investors with the same information as a public company or publicly traded fund.
3. Resale Restrictions – Selling an exempt market security can sometimes be very difficult. Some exempt market securities can be locked-in for a certain period of time, which may keep you from selling it when you want to. Exempt market securities are typically not publicly traded, so you may not be able to find a buyer very quickly, or in some instances, at all.