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. The general rule under Ontario securities law is that any security that will be offered to the public must be offered under a prospectus.
The exempt market allows securities to be offered under what are called prospectus exemptions. Prospectus exemptions can help a company or fund raise money without the time and expense of preparing a prospectus. Prospectus exemptions are available for both Canadian and foreign companies and hedge or pooled funds.
Ontario’s Securities Act and National Instrument 45-106 Prospectus Exemptions (NI 45-106) form the regulatory basis for the exempt market.
Certain prospectus exemptions can be used to sell securities like debt, equity, asset-backed securities, investment funds, and derivatives in the exempt market.
Typically, individuals, firms, and online portals that sell securities on the exempt market need to register as dealers or portfolio managers (also known as “registrants”). Although there is no general requirement for companies or funds to distribute securities through a registrant, in many cases this will be necessary to sell securities in the exempt market.
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 — although some exempt distributions may be made on the basis of some form of offering document which will attract liability under section 130.1 of Ontario’s Securities Act.
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.
Ontario Securities Commission (OSC) staff prepared the Summary of Key Capital Raising Prospectus Exemptions in Ontario to provide an overview of exempt market offerings.
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 summary is based on information contained in Reports where Ontario purchasers have been identified.
Filing requirements for exempt distributions
Reporting requirements
Companies, funds, and underwriters must report certain exempt distributions to the OSC by:
Form 45-106F1 must be filed electronically for exempt distributions under:
- section 73.3(2) of Ontario’s Securities Act (Accredited investor)
- section 73.5(2) of Ontario’s Securities Act (Government incentive security)
- certain prospectus exemptions in NI 45-106
- Multilateral Instrument 45-108 Crowdfunding
- National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions
For most of the above exempt distributions, Form 45-106F1 must be filed no later than 10 days after the distribution. However, for a distribution made in reliance on the prospectus exemption in NI 45-110, Form 45-106F1 must be filed no later than 30 days after the distribution. Additionally, 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. It is important to verify the correct filing deadline for each exempt distribution.
Companies that distribute securities using multiple prospectus exemptions may wish to file a single Form 45-106F1. For example, a company may wish to file one Form 45-106F1 for exempt distributions made under prospectus exemptions set out in NI 45-106 and NI 45-110. Where there are different filing deadlines for reports of exempt distributions, the Form 45-106F1 must be filed on or before the earliest filing deadline (that is, no later than 10 days – not 30 days – after the distribution date). Note that a single Form 45-106F1 can be filed for distributions occurring on multiple dates only if such distributions occur within a 10-day period.
Please refer to Part 6 Reporting Requirements of NI 45-106 for other reportable exemptions (i.e. section 2.5 Family, friends and business associates and section 2.9 Offering memorandum).
Generally, companies relying on the Private Issuer exemption (section 73.4(2) of Ontario’s Securities Act) do not need to file a report of exempt distribution provided certain conditions are met. Refer to subsection 2.4(1) of NI 45-106 for the definition of “private issuer”.
When filing Form 45-106F1, accredited investors must select section 2.3 and the relevant subsection on Schedule 1 (as opposed to citing “Other” exemption and section 73.3(2)).
If you are relying on a prospectus exemption in OSC Rule 72-503 and are required to file Form 72-503F, file as normal via the OSC electronic filing portal.
Offering materials and ongoing disclosure documents
In addition to filing Form 45-106F1, companies that distribute securities using certain prospectus exemptions are required to provide offering materials or ongoing disclosure documents, or both, with the OSC.
Point of sale disclosure
- offering memorandum exemption (section 2.9 of NI 45-106)
- crowdfunding exemption (MI 45-108)
- government incentive security exemption (section 73.5 of Ontario’s Securities Act)
- offering memoranda that are voluntarily provided (section 5.4 of OSC Rule 45-501)
Ongoing disclosure
- offering memorandum exemption (section 2.9 of NI 45-106)
- crowdfunding exemption (MI 45-108)
Financial statements
Companies that distribute securities under the offering memorandum prospectus exemption (section 2.9 of NI 45-106) must, within 120 days after the end of each of its financial years, deliver annual audited financial statements to the OSC and make them reasonably available to each holder of a security acquired under the offering memorandum exemption. At the same time, a 45-106F16 Notice of Use of Proceeds must also be filed.
Related instruments and policies
Most prospectus exemptions available to companies and funds are outlined in National Instrument 45-106 Prospectus Exemptions. Generally speaking, each exemption is premised on a specific policy rationale in different circumstances. For other rules and regulations, refer to:
- OSC Rule 45-501 Ontario Prospectus and Registration Exemptions
- Proposed National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions
- Multilateral Instrument 45-108 Crowdfunding
- History of 45-106 Prospectus Exemptions
- History of 45-501 Ontario Prospectus and Registration Exemptions
- History of 45-108 Crowdfunding
Related publications
- December 10, 2020 - OSC Staff Notice 45-717 Ontario’s Exempt Market
- February 7, 2019 - CSA Staff Notice 45-325 Filing Requirement and Fee Payable for Exempt Distributions involving Fully Managed Accounts
- November 29, 2018 - OSC Staff notice 45-716 2018 Ontario Exempt Market Report
- October 4, 2018 - CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions
- July 19, 2018 - CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions and Change to Companion Policy 45-106CP Prospectus Exemptions relating to Reports of Exempt Distribution
- July 19, 2018 - CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions
- June 15, 2017 - OSC Staff Notice 45-715 2017 Ontario Exempt Market Report
- June 8, 2017 - CSA Multilateral Notice and Request for Comment - Proposed Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution
- September 29, 2016 - CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions
- July 7, 2016 - CSA Staff Notice 45-320 Exemptions for Certain Foreign Issuers from the Requirement to Identify Purchasers as Registrants or Insiders in Reports of Exempt Distribution
- April 7, 2016 - CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution
- January 28, 2016 - Summary of Key Capital Raising Prospectus Exemptions in Ontario
- November 5, 2015 - CSA Notice of Publication of Multilateral Instrument 45-108 Crowdfunding
- October 29, 2015 - Multilateral CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions Relating to the Offering Memorandum Exemption
- September 24, 2015 - CSA Notice of Amendments Relating to Rights Offerings to National Instrument 45-106 Prospectus Exemptions, National Instrument 41-101 General Prospectus Requirements, National Instrument 44-101 Short Form Prospectus Distributions and National Instrument 45-102 Resale of Securities and Repeal of National Instrument 45-101 Rights Offerings
- February 19, 2015 - Notice of Amendments to National Instrument 45-106 Prospectus and Registration Exemptions Relating to the Accredited Investor and Minimum Amount Investment Prospectus Exemptions
- April 30, 2015 - Notice of Amendments to National Instrument 45-106 Prospectus and Registration Exemptions Relating to the Family, Friends and Business Associates Exemption
- November 27, 2014 - Notice of Amendments to Ontario Securities Commission Rule 45-501 Ontario Prospectus and Registration Exemptions relating to the Existing Security Holder Prospectus Exemption
- November 5, 2015 - Backgrounder – Exempt Market Review (Updated)
- March 20, 2014 - OSC Notice and Request for Comment – Introduction of Proposed Prospectus Exemptions and Proposed Reports of Exempt Distribution in Ontario
- August 28, 2013 - OSC Notice 45-712 Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising
- December 14, 2012 - OSC Staff Consultation Paper 45-710 Considerations for New Capital Raising Prospectus Exemptions
- June 7, 2012 - OSC Staff Notice 45-707 OSC Broadening Scope of Review of Prospectus Exemptions
- November 10, 2011 - CSA Consultation Note 45-401 Review of Minimum Amount and Accredited Investor Exemptions