The Securities Commission has granted an exemption to a Canadian dealer from the prospectus requirement for the distribution of over-the-counter (OTC) foreign exchange contracts to investors in certain jurisdictions, subject to specific terms and conditions and a four-year sunset clause. The dealer is registered as an investment dealer across all provinces and is a member of the Investment Industry Regulatory Organization of Canada (IIROC).
The exemption allows the dealer to distribute OTC foreign exchange contracts by providing investors with a clear and plain language risk disclosure document instead of a prospectus. This document is substantially similar to the risk disclosure required for recognized options under OSC Rule 91-502 and aligns with the regulatory approach in Quebec under the Quebec Derivatives Act.
The relief is contingent upon the dealer’s continued registration as an investment dealer, membership in IIROC, and adherence to IIROC rules and acceptable practices. The dealer must also provide the risk disclosure document to clients before their first transaction and obtain written acknowledgment of their understanding of the risks.
The decision is based on the recognition that the prospectus requirement may not be well-suited for certain derivative products and that alternative requirements, such as risk disclosure, may be more appropriate. The exemption aims to harmonize the regulatory approach across jurisdictions and is consistent with the guidelines in OSC Staff Notice 91-702.
The exemption is underpinned by the Securities Act, R.S.O. 1990, c. S.5, as amended, specifically sections 53 and 74(1), and is informed by OSC Rules 91-502 and 91-503, as well as the proposed but not adopted OSC Rule 91-504 OTC Derivatives. The decision was made on August 4, 2022, by the Ontario Securities Commission, serving as the principal regulator for this application.