Summary of the Securities Commission Decision:
The Securities Commission granted exemptive relief to a Canadian investment dealer (the Canadian Filer) and its affiliates from the prospectus requirement for the distribution of over-the-counter (OTC) contracts for difference (CFDs) and foreign exchange contracts to investors, subject to specific terms and conditions. The Canadian Filer is registered as an investment dealer and a member of the Investment Industry Regulatory Organization of Canada (IIROC), and it complies with IIROC rules and acceptable practices applicable to OTC offerings.
The relief allows the Canadian Filer to offer OTC Contracts to investors using a clear and plain language risk disclosure document instead of a prospectus. This document contains similar disclosures to those required for recognized options under OSC Rule 91-502 and the regime for OTC derivatives contemplated by the non-adopted Proposed OSC Rule 91-504, as well as the Quebec Derivatives Act.
The Canadian Filer’s affiliates also received relief from the prospectus requirement for the distribution of OTC Contracts to the Canadian Filer in connection with offsetting transactions. The Canadian Filer acts as both market intermediary and principal or counterparty to OTC transactions with clients. It manages risk by placing identical offsetting OTC trades with a Canadian Filer Affiliate.
The relief is consistent with the guidelines in OSC Staff Notice 91-702 and is subject to a four-year sunset clause. The relief is conditional upon the Canadian Filer’s registration as an investment dealer, membership with IIROC, and compliance with IIROC rules and acceptable practices, as well as the terms of a non-resident undertaking.
The decision is based on the understanding that the Canadian Filer will not offer CFDs linked to cryptocurrencies or other novel asset classes without IIROC’s consent, and that OTC Contracts will only be available for underlying instruments traded in well-regulated markets.
The relief is granted under the Securities Act, R.S.O. 1990, c. S.5, as amended, sections 53 and 74(1), and is informed by OSC Rule 91-502, OSC Rule 91-503, and the non-adopted Proposed OSC Rule 91-504.
Relevant Laws and Regulations:
– Securities Act, R.S.O. 1990, c. S.5, as amended, ss. 53 and 74(1)
– OSC Rule 91-502 Trades in Recognized Options
– OSC Rule 91-503 Trades in Commodity Futures Contracts and Commodity Futures Options Entered into on Commodity Futures Exchanges Situate Outside of Ontario
– Proposed OSC Rule 91-504 OTC Derivatives (not adopted)
– Quebec Derivatives Act
– IIROC Rules and Acceptable Practices
– National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions
The decision was made on October 5, 2022, by the Ontario Securities Commission as the principal regulator.