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. 

Form 45-106F1 must be filed no later than 10 days after the distribution. 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.

Form 45-106F1 must be filed electronically for exempt distributions under:

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

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