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 Canadian 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 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.
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Yes, the exempt market is regulated.

There are several instruments and regulations that govern the participants and capital in the exempt market.

Canadian provinces set the regulations for their respective jurisdictions. All of the provincial and territorial security regulators are part of the Canadian Securities Administrators. The Security Administrators recognize Self-Regulatory Organizations (SRO), such as the Mutual Fund Dealer Association (MFDA) and Investment Industry Regulatory Organization of Canada (IIROC) - now combined into the New Self-Regulatory Organization (New SRO), as having the power to enforce industry regulations.

The Exempt Market is not governed by a designated SRO, it is guided by two main National Instruments (NI). NI’s are legislations adopted by all thirteen of Canada’s provinces and territories. The first is NI 31-103. This instrument defines the participants of the exempt market and the qualifications they must meet.

The second is NI 45-106. In this instrument, the requirements and eligibility to invest in exempt securities is established - the specific prospectus exemptions are identified in this document.