The capital markets in Canada are regulated by the securities regulatory authorities in each province and territory of Canada through securities legislation, regulations, rules and instruments. Securities regulators are responsible for the administration and enforcement of securities laws including the registration of securities dealers and advisers.
Where possible the regulatory authorities have developed harmonized rules across jurisdictions in specific areas affecting the conduct of public companies, distribution of securities, operation of securities exchange marketplaces and other aspects of the capital markets.
On September 28, 2009 National Instrument 31-103 Registration Requirements and Exemptions ("NI 31-103") was implemented to harmonize registration and compliance rules for the securities industry participants across Canada. NI 31-103 harmonized the registration, conduct and compliance requirements for dealers and advisers across Canada, and one of its most significant changes was the introduction of the "exempt market dealer" category of registration across Canada, subject to certain local exemptions.
An exempt market dealer is a comprehensive dealer registration category where firms must comply with the full regulatory requirements of securities legislation including:
- educational proficiency for its registered individuals and its chief compliance officer
- minimum capital and excess working capital
- annual audited financial statements
- maintenance of proper books and records
- proper compliance systems and internal control mechanisms
- disclosure of referral arrangements
- comprehensive policies and procedures manuals
- trade confirmations and regular client statements
- procedures for client complaint handling
- an independent dispute resolution service
- holding client assets in trust and separate from the firms assets
- maintaining adequate insurance coverage to protect the firm and its clients.
Exempt market dealers must follow the same "Know Your Client" procedures as other registered dealers which ensures that each client's personal, financial and investment profile is understood and confirmed prior to any trading activity. Exempt market dealers must also ensure that any exempt security is suitable for a particular client by considering the particular investment product as well as each individual client's investment goals and profile.