The Securities Commission has granted an exemption from the dealer registration and prospectus requirements to a registered dealer, allowing the distribution of over-the-counter (OTC) foreign exchange contracts to investors in Canada. This decision is based on the understanding that the prospectus regime is not tailored for OTC foreign exchange contracts and that investors will receive and acknowledge a plain language risk disclosure document. The exemption is specifically for trades to business associates who use these contracts to hedge commercial risks.
The key conditions of the exemption include:
1. The dealer must be registered as an investment dealer and a member of the Investment Industry Regulatory Organization of Canada (IIROC).
2. Trades must be with persons entering into OTC foreign exchange contracts for commercial hedging purposes.
3. All transactions must comply with IIROC rules and any applicable securities laws.
4. Clients must receive a risk disclosure document before their first transaction and must acknowledge that they have read and understood it.
5. The dealer must inform the principal regulator of any material changes affecting its business or any disciplinary actions related to its OTC foreign exchange activities.
The exemption is conditional upon the dealer’s continued registration and IIROC membership, and it is set to expire four years from the date of the decision, or earlier if certain conditions are met, such as regulatory changes or disciplinary actions against the dealer.
The decision is grounded in the Securities Act, R.S.O. 1990, c. S.5, as amended, specifically sections 53 and 74, and is consistent with the guidelines provided in various instruments and notices, including National Policy 11-203, Multilateral Instrument 11-102, and OSC Staff Notice 91-702.
The existing relief previously granted to the dealer has been revoked, and the new exemption reflects an extension of the prior relief with the same terms and conditions for an additional four-year period.