By Phil du Heaume
Too many articles written about our industry begin with a variation of the same tired statement: “In 2009 the regulatory landscape changed in the exempt market with the creation of the Exempt Market Dealer category of registration.” We have heard it before, but repetition makes it no less true. Things have changed, and I believe we have finally reached the point where most of the organizations that survived the hardships of learning and growing within the new regulatory framework – Issuers, Dealers and Advisors alike – will agree that things changed for the better.
That does not mean it is time to sit back and celebrate; there is still a long way to
go. The Companion Policy to NI 31-103 says that “registrants act as gatekeepers of the integrity of the capital markets.” The last five years may have been a period of learning and adapting, but the next five have to be a time of nurturance and growth. It is time for industry registrants to move beyond the letter of the law and start living our principles-based regime by embracing our role as gatekeepers.
Exempt market dealers are not subject to the rules of a self-regulatory organization (SRO), but that does not mean that we cannot hold each other accountable and work together for the betterment of investors and a healthy private capital market. NEMA sprouted from this ideal, and although much of its past has been spent advocating for the rights of industry in the face of encroaching regulation; its future lies in the ability to demonstrate that its membership can be trusted in their roles as gatekeepers.
We hope that the first of many steps in this direction will come from a proposed NEMA committee that will take shape in September: the Committee on Inter-Dealer Cooperation (CODC). Since much of the regulation governing exempt market dealers (and to a lesser extent, private capital issuers) is principles-based, we see markedly different practices arising between dealerships. For the most part, these differences are an important piece of the landscape because they encourage innovation and give investors something they do not always have in other industries: options.
Nonetheless, differences can create inefficiencies when registered dealers interact
with one another in the marketplace through their issuers or through dealing representatives moving between firms. These inefficiencies vary in significance, but can result in higher costs of business, barriers to marketplace entry, and in rare (but serious) circumstances the risk of harm to investors. It is these inefficiencies that the CODC will seek to address.
The committee will be responsible for tabling industry best-practice guidelines for matters that impact the relationships between registered dealers and issuers dealing with multiple registered dealers. The CODC’s general mandate will be to encourage standardized methodologies for certain principle-based processes so as to facilitate marketplace efficiencies that protect the integrity of the capital markets. It will act as a meeting of committed gatekeepers without the bias of competition. The prioritization of objectives of the CODC will be firstly to mitigate any risks of harm to investors and secondly to increase the credibility and efficiency of the marketplace.
If you are reading this article as a NEMA member and would like to participate in this important initiative, I encourage you to reach out to NEMA Vice-President, Cora Pettipas and inform her of your support of the CODC. We have told the nation that we believe in the role that exempt market dealers play in protecting investors and creating efficient markets. Now it is time to prove it.
We need your support.