The Securities Commission granted an investment dealer (the Filer) exemptive relief from the prospectus requirement for the distribution of contracts for difference (CFDs) and over-the-counter (OTC) foreign exchange contracts to investors in Ontario and British Columbia. The Filer, a member of the Investment Industry Regulatory Organization of Canada (IIROC), is permitted to offer CFDs under certain terms and conditions, including the use of a clear and plain language risk disclosure document instead of a prospectus.
The risk disclosure document contains information similar to that required for recognized options under OSC Rule 91-502 and the regime for OTC derivatives contemplated by the unadopted OSC Rule 91-504, as well as the Quebec Derivatives Act. The relief aligns with OSC Staff Notice 91-702 and includes a four-year sunset clause.
The Filer’s trading platform allows clients to trade CFDs on an execution-only basis, with real-time reporting and automated risk management systems. The Filer is the counterparty to its clients’ CFD trades and manages risk by placing identical CFDs back-to-back with an affiliate.
The Filer must comply with IIROC Rules and IIROC Acceptable Practices, maintain a certain level of capital, and provide a Risk Disclosure Document and obtain client acknowledgment before the first CFD transaction. The Filer’s officers and directors must provide personal information to the Principal Regulator, and the Filer must report any material changes or disciplinary actions related to CFD activities.
The relief is conditional on the Filer’s registration as an investment dealer, membership in IIROC, and compliance with IIROC Rules and Acceptable Practices. The relief will expire after four years or upon the occurrence of certain specified events, such as relevant legislative changes or regulatory actions that affect the Filer’s ability to offer CFDs.