Page 221 - A Canuck's Guide to Financial Literacy 2020

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Exempt Securities

Exempt securities are issued by companies who are exempt from regulatory requirements
to file a prospectus. A prospectus is a disclosure document that describes the company, its
business and the security offered. Exempt market securities are often high risk as there are
no secondary markets where you can sell the securities and are often illiquid. These types
of securities are often sold by Exempt Market Dealers.

Prospectus

When a company offers securities to the public, it has to prepare a prospectus. A
prospectus is a disclosure document that includes specific details about the company, its
business and the security that is being offered. The prospectus must provide full, true, and
plain disclosure of all material facts relating to the securities issued or proposed to be
distributed. If securities are to be sold within different provinces, a prospectus must be filed
with each province in accordance with securities law in that province.

▪ Long Form Prospectus

Long form prospectus is often filed when a company is looking to go public via
an initial public offering (IPO). A long form prospectus is the most detailed as it
contains company operation details, financial information, risk factors, and how
funds raised are to be used.

▪ Short Form Prospectus

Short form prospectuses are often issued by public companies listed in Canada
who have already filed a long form prospectus. Certain information may be
omitted or referenced. Short form prospectus is often called the “red herring”
because red ink found on the front page indicates information such as the price
and size of the offering, is subject to change.

▪ Shelf Prospectus

A shelf prospectus is often filed when the company does not intend to sell
securities at the present time. Many companies often file a shelf prospectus if
they wish to get the process started beforehand and qualify to offer securities to
the public ahead of time. When they’re ready, they’re able to quickly access
funds when needed or when market conditions improve.

Exempt Market Dealers

Exempt securities are distributed by Exempt Market Dealers (EMD). These are firms who
are licensed to distribute securities that are exempt from prospectus requirements
mentioned above. These exempt market dealers are registered in their respective provinces
that they conduct business in and must follow the rules and regulations of that province.

Although Exempt Market Dealers have prospectus exemption, they still have regulations
that they must follow such as capital, conduct and compliance requirements. In addition,