Finders no longer keepers: Canadian Northwest Registration Exemption to be revoked

28 August 2018

The securities regulatory authorities of British Columbia, Manitoba, Nunavut, the Northwest Territories and Yukon have announced that, effective April 30, 2019, they are revoking their local orders that provided an exemption, referred to as the "Northwest Exemption"1, which currently permits unregistered 'finders' to trade in securities distributed in certain private placements. Alberta, another jurisdiction with the Northwest Exemption, is consulting on whether to revoke its local order while Saskatchewan is also considering the same question. These changes are intended to harmonize the rules across Canada.



The Current Regime

Currently, a person engaged in the business of trading securities in Canada that are distributed via a private placement is required to register as a dealer or an exempt market dealer, unless an exemption from registration is available.

The Northwest Exemption currently provides relief from the registration requirement for trades in securities distributed in certain private placements, the most common being distributions to accredited investors. It is currently available only in the three Canadian territories and the provinces west of Ontario. Today, when investors in those jurisdictions participate in a private placement through a ‘finder’ relying on the Northwest Exemption, they do not receive advice from a registrant, including advice about whether the investment is suitable for them in their circumstances.

The Change and its Implications

Traditional sources of capital for junior issuers, particularly in the mining and technology sectors, are difficult to source and traditional brokerage firms and exempt market dealers have focused their fundraising efforts on senior issuers. The result has been that the use of non-registrants has increased in importance in recent years, and has allowed many junior public and private companies to access additional accredited investors, who helped fund their projects and increase value for shareholders. The revocation of the Northwest Exemption will particularly disadvantage local issuers that rely on ‘finders’ to source capital from accredited investors.

The Northwest Exemption is to expire on April 30, 2019 which will allow for those currently taking advantage of this exemption to either wind-up or seek registration. A transitionary mechanism has also been provided, allowing those currently relying on this exemption that submit a registration application to continue operating in reliance on the exemption, even after its expiry, until their application is either granted or rejected.

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(1) BC Instrument 32-513 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions; Manitoba Blanket Order 31-505 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions; Nunavut Blanket Order 32-501 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions; NWT Blanket Order 32-501 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions; and Yukon Superintendent Order 2010/009 Registration Exemption for Trades in Connection with Certain Prospectus-Exempt Distributions.


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