Tapping into the Exempt Market in La Belle Province
By: Erica Freeman
Eight months ago, the retail based exempt market in Quebec was rarely thought about or even mentioned. It was a topic that would cause most financially seasoned individuals to shrug their shoulders when mentioned, but after further discussion would agree that they had heard of it but had never invested in it or offered its products. Even those in the Exempt market space weren’t that familiar with the retail side of the industry and needed to be informed of exactly how it functioned. It was at that moment, I was determined to educate all financial advisers and issuers across Quebec and demonstrate the potential business opportunity that has become a huge success in the Western provinces. The majority of Quebecers do not even know what the exempt market signifies, let alone are aware that there is another avenue for investing in a product in their own backyard. The retail exempt market space is an open door for exempt market dealers, dealing representatives and issuers in Quebec and one that should not be ignored.
History and governing authority of Exempt Market in Quebec
The exempt market in Quebec is for the most part institutionally based and deals primarily in the mining industry. There are 338 firms registered to sell exempt market products in Quebec according to the CSA National database. Approximately 8 of these firms sell exempt only products in Quebec. The majority of the Exempt Market Dealers are solely operated or have a few partners. Dealer Representatives are few and far between in Quebec and the majority of dealers act as their own representatives for their deals and structures. This is certainly a big difference from our Western provinces where most of the larger EMD’s have over a hundred representatives with several products on their shelves and who primarily deal with the retail market. One must ask why the difference is so vast especially since Quebec has very much the same laws and regulations as the West.
As with the rest of Canada, Quebec’s exempt market is governed by National Instrument 31-103 (Registration Requirements and Exemptions), and it relies on the National Instrument 45-106 (Prospectus and Registration Exemptions). The rules are enforced by the Quebec Securities Act under the civil code. Quebec’s provincial regulator is the Authorité des Marche Financiers (AMF). Exempt Market Dealers and Representatives must register with the AMF before commencing business in Quebec. The one major difference to note is that all OM’s (when the OM exemption is being utilized by an Issuer who wants to sell products to the Quebec market) must be translated in French, the official language of Quebec pursuant to Section 2.9 of National Instrument 45-106.
There is a huge misconception within the industry that the cost of translation is very costly and that all translation must be done by a law firm. This has been an impediment to most issuers who want to sell their products into the Quebec market and has resulted in a lack of retail exempt product from the Western issuers and so forth. There are less expensive means to get this translated that should be explored by issuers across Canada as Quebec EMD’s would like the opportunity to have more products from other provinces.
Quebec is very well known for their Mining industry. Industrial metal and mineral producers are constantly seeking capital and resources to keep up with the demand of their clients and are always looking for ways to expand and further develop their businesses.
The majority of issuers who I have had the opportunity to converse with are excited for the retail exempt market space opportunity, especially in the development of new real estate projects such as condos, hotels, or the renovation of existing buildings in the Montreal area. The past few years this industry has shown great growth in Quebec and with ongoing development and expansion this industry will continue to flourish. In a recent article published in the Montreal Gazette, “Montreal’s changing skyline” elaborates on just that. “Now we’re seeing an upswing in new constructions and developments. It reflects the city’s current situation - one where both private and public resources are in play to add new buildings, primarily residential constructions, to the Montreal skyline.”
Issuers with a viable business plan and a great idea are looking for other means of raising capital. Traditionally speaking issuers do not have that many resources to seek capital, with the exempt retail space on the horizon in Quebec, issuers will soon hopefully be able to explore these possibilities and see their projects come to fruition.
It all starts with Education
With the success of the retail based exempt market space in other provinces, Quebec is at the infantile stages of something potentially enormous for this industry. Like in any successful business, the first part is to educate the representatives/dealers/issuers and the public. We cannot invest in or sell a product if we do not comprehend it. One by one the financial sector must explain why this industry is so important to the public and the success of private businesses in Quebec. With all the great resources and tools available here in Quebec the public is looking for change and diversification. The retail exempt market can be that change. Many other types of advisors are recognising this transformation and looking into obtaining their Dealer Rep license for the exempt market in Quebec. This is a domino effect that is now starting to take place and word of mouth is starting to spread rapidly. Even some of the institutional EMD’s in Quebec are seeing the benefits of the Retail exempt market space and exploring the possibilities.