The exempt market dealer (EMD) community stands at a crossroads as Coordinated Blanket Order 31-930 approaches its scheduled expiry on December 20, 2025. This temporary exemption, which has allowed EMDs to participate in prospectus offerings as selling group members since June 20, 2024, represents one of the most significant expansions of EMD capabilities in recent Canadian securities history.
The Revolutionary Change
For nearly seven years following the December 2017 amendments to National Instrument 31-103, EMDs were completely shut out of prospectus offerings. This prohibition created an artificial barrier that prevented EMDs from supporting their clients through the full lifecycle of investment opportunities. When a private company that had raised capital through the exempt market decided to go public, EMDs had to step aside, unable to participate even in selling securities to their existing accredited investor clients.
Blanket Order 31-930 changed this dynamic fundamentally. By allowing EMDs to join selling groups in prospectus offerings, the order recognized the valuable relationships EMDs build with both issuers and investors in the exempt market. These relationships, often cultivated over years of private placements and exempt market transactions, no longer need to be severed at the critical juncture when a company accesses public markets.
The Conditions and Constraints
The blanket order's framework reflects a careful balance between expanding market access and maintaining investor protection. EMDs operating under the order must navigate specific conditions that ensure their activities remain within appropriate bounds. They can only sell to investors who would qualify for prospectus exemptions if the offering were conducted on an exempt basis, effectively limiting their role to serving accredited investors and other exempt purchasers they already know well.
The compensation restrictions, limiting EMDs to no more than 50% of the lowest compensation paid to any investment dealer in the selling group, acknowledge that investment dealers continue to play the predominant underwriting role. EMDs cannot act as underwriters and must operate strictly within the selling group structure, receiving only customary selling commissions. These limitations ensure that EMDs complement rather than compete with investment dealers in public offerings.
The Impact So Far
Nearly a year into the blanket order's implementation, its impact on capital markets has been notable though measured. EMDs report successfully participating in numerous prospectus offerings, particularly those involving small and mid-cap issuers transitioning from private to public markets. The ability to maintain continuity of service through this transition has proven valuable for both issuers seeking to maximize their investor reach and investors who rely on their EMD relationships for access to investment opportunities.
The anticipated benefits have materialized in several ways. Issuers, particularly in sectors like technology and resources where EMDs have deep expertise, have accessed broader distribution networks for their public offerings. EMDs have been able to offer their clients continued access to investment opportunities in companies they've followed from early stages. The exempt market's strength, with Ontario alone seeing over $175 billion raised in 2021, has provided a robust foundation for this expanded role.
The Uncertain Future
As we approach the halfway point of 2025, the securities regulatory community eagerly awaits signals about the blanket order's future. The 18-month temporary period was explicitly designed to allow regulators to assess the impact of expanded EMD participation and determine whether permanent amendments to NI 31-103 are warranted. The participating jurisdictions—British Columbia, Alberta, Saskatchewan, Ontario, Quebec, and Nova Scotia—must decide whether to extend the order, make it permanent through regulatory amendments, or allow it to expire.
Several factors suggest the framework may become permanent in some form. The Capital Markets Modernization Taskforce's 2021 recommendation specifically advocated for this expansion of EMD capabilities, and the blanket order represents a direct response to that recommendation. No significant market disruptions or investor protection concerns have emerged during the implementation period. The alignment with broader regulatory trends toward proportionate regulation and recognition of the exempt market's maturity supports continuation.
However, the path to permanence isn't guaranteed. Some investment dealer organizations have expressed concerns about competitive impacts, though these appear to be manageable given the order's restrictions. The administrative burden of monitoring compliance with the specific conditions has proven challenging for some smaller EMDs. Questions remain about whether the 50% compensation cap appropriately balances market dynamics.
Preparing for All Scenarios
EMDs and market participants must prepare for multiple potential outcomes. If the order expires without replacement, EMDs would return to their pre-2024 restrictions, unable to participate in any capacity in prospectus offerings. This scenario would require unwinding existing selling group relationships and communicating changes to clients who have become accustomed to continued service through public offerings.
More likely, regulators will either extend the blanket order while continuing their assessment or propose permanent amendments to NI 31-103. An extension would provide additional time for market assessment while maintaining the status quo. Permanent amendments might incorporate lessons learned during the temporary period, potentially adjusting compensation thresholds or clarifying operational requirements.
Strategic Considerations
For EMDs currently operating under the blanket order, strategic planning becomes critical as December approaches. Firms should document their experiences participating in prospectus offerings, including both successes and challenges, as this data will inform regulatory decision-making. Building strong relationships with investment dealers who value EMD participation in selling groups creates advocacy allies for continuation of the framework.
Investment in compliance infrastructure and staff training represents a sound strategy regardless of the regulatory outcome. The skills and systems developed for prospectus offering participation enhance overall operational capabilities. EMDs should also consider commenting on any proposed regulatory changes, as participant feedback will significantly influence final outcomes.
How I Can Help
Navigating the evolving EMD regulatory landscape requires strategic planning and deep understanding of both current requirements and potential future scenarios. I assist EMDs in structuring their participation in prospectus offerings to ensure full compliance with Blanket Order 31-930's specific conditions. My practice includes advising on selling group agreements, compensation arrangements, and operational procedures that satisfy regulatory requirements while maximizing business opportunities.
For investment dealers and issuers, I provide guidance on effectively incorporating EMDs into distribution strategies while maintaining clear roles and responsibilities. As the December 2025 deadline approaches, I help clients prepare for various regulatory outcomes, including contingency planning for potential expiry and positioning for possible permanent amendments.
Whether you're an EMD seeking to optimize your current participation in public offerings, an issuer considering EMD inclusion in your distribution strategy, or any market participant planning for the post-December 2025 landscape, I offer practical solutions based on deep expertise in exempt market regulation.
For assistance with Blanket Order 31-930 compliance or strategic planning for the evolving EMD regulatory framework, please contact:
Taylor M.A. Dignan
Email: td@tmadlaw.com
Phone: 604-928-1164
Office: 1 Dundas St. W., Suite 2500, Toronto, Ontario M5G 1Z3