On February 10, 2016, the amendments to the Securities Act (Saskatchewan) (the SSA) that incorporate a framework for derivatives regulation were proclaimed into force.
Derivatives, not exchange contracts or futures contracts
In introducing the concept of a "derivative" and deleting references to "exchange contracts" and "futures contracts", Saskatchewan adopts similar amendments previously made in respect of the Securities Act (Alberta). The previous situation in Saskatchewan was that the definition of securities included "futures contracts" which in turn were defined widely enough to cover many over-the-counter derivatives transactions. This resulted in securities dealer registration and prospectus requirements potentially applying to over-the-counter derivatives. To deal with this, the Saskatchewan Financial Services Commission issued General Order 91-907 Over-The-Counter Derivatives (General Order 91-907) in November 2009 exempting certain derivatives (those between qualified parties, certain commodity derivatives) from the registration and prospectus requirements. Now derivatives are dealt with as a separate category of instrument (the term "derivative" is explicitly excluded from the definition of a "security") as they are in Ontario and Alberta.
Registration and Prospectus Exemptions
The amendments have two important results with respect to the fundamental securities law prospectus and registration requirements. First, the amendments remove derivatives from the ambit of the prospectus requirement. The result is that a trade in derivatives in Saskatchewan no longer requires reliance on a prospectus exemption or the prospectus exemption in General Order 91-907.
Second, the amendments create a dealer registration requirement for any person or company engaging in or holding itself out as engaging in the business of trading in derivatives in Saskatchewan. Until a model registration rule for derivatives is adopted, there will be no registration categories specifically for derivatives dealers and a dealer in derivatives will presumably have to be registered as a securities dealer. We understand from the Financial and Consumer Affairs Authority of Saskatchewan that General Order 91-907 will be amended to allow the registration exemption to continue to apply to trades in derivatives between qualified parties and certain commodity transactions as well.
Disclosure Document
The amendments also add a new requirement that a disclosure document that complies with the requirements of the regulations must be accepted and filed with the Financial and Consumer Affairs Authority of Saskatchewan as a prerequisite to trading a derivative. Presumably this requirement will not be effective until disclosure document regulations are enacted. No provinces with this requirement have yet enacted regulations. These regulations will be developed on a coordinated basis through the Canadian Securities Administrators (CSA). Helpfully, the SSA provides that the failure to file the disclosure document will not render a derivatives trade void or unenforceable.
Market Conduct
The market conduct rules in the SSA will now explicitly apply to derivatives. For example, the prohibition on making misleading and untrue statements now applies if such statements would reasonably be expected to have a significant effect on the market price or value of a derivative. In addition, the Financial and Consumer Affairs Authority of Saskatchewan is now vested with additional powers in respect of altering or setting aside a derivatives transaction in the case of non-compliance with the law, a decision of the Financial and Consumer Affairs Authority of Saskatchewan or a written undertaking by a person or company. The Financial and Consumer Affairs Authority of Saskatchewan also has new powers to order a cease trade with respect to derivatives transactions where doing so is in the public interest.
Market Infrastructure
The amendments now also confer jurisdiction on the Financial and Consumer Affairs Authority of Saskatchewan to recognize derivatives exchanges, clearing houses and trade repositories.
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