We have recently obtained separate exemptions for clients
relating to the offering of derivatives to Canadian investors. As
described below, one exemption permits each of the applicants and
non-individual permitted client counterparties to enter into
over-the-counter (OTC) derivative transactions, without having to
comply with dealer registration and prospectus requirements. The
other exemption is the first "passport" exemption which
permits "contracts for difference" (CFDs), including
foreign exchange (forex) contracts to be distributed to retail
investors (without a prospectus) in almost all provinces and
territories. The latter exemption is also significantly different
than the single province exemptions previously granted for CFDs,
because it involves a Canadian dealer utilizing the online platform
of an arm's length global solutions provider.
Institutional OTC Derivative Transactions
In response to the uncertainty and fragmentation associated with
the regulation of OTC derivative transactions in Canada, Deutsche
Bank AG (Bank) and DB Commodities Canada Ltd. (DBCC), a
wholly-owned subsidiary of the Bank, sought and obtained a passport
decision of the Ontario Securities Commission (OSC) dated October
11, 2011 (OTC Derivative Decision), that permits each of them and
other non-individual "permitted clients," as that term is
defined in National Instrument 31-103 Registration
Requirements, Exemptions and Ongoing Obligations, to enter
into OTC derivative transactions without having to comply with the
dealer registration and prospectus requirements of the securities
legislation of Manitoba, Ontario, New Brunswick, Nova Scotia,
Prince Edward Island, Newfoundland and Labrador, Northwest
Territories, Yukon and Nunavut.
The OTC Derivative Decision is intended to complement comparable
exemptions that are currently available in British Columbia,
Alberta, Saskatchewan, Québec and New Brunswick, and it
thereby serves to provide the Bank and DBCC with a uniform
framework for the conduct of exempt OTC derivative transactions
throughout Canada, pending the adoption of legislation or a rule
that specifically governs such transactions.
CFDs (including forex contracts) Now Available to Retail
Investors Almost Cross Country
On October 14, 2011, the OSC granted relief under the Canadian
Securities Administrators' "passport" system on
behalf of each of the provinces and territories of Canada (other
than Alberta and Québec), to Friedberg Mercantile Group Ltd.
(Friedberg) that will permit Friedberg's execution only
division to distribute CFDs (including forex contracts) to
investors in each of those Canadian jurisdictions without a
This exemptive relief allows Friedberg to utilize the trading
platform of any leading global provider of private and white label
CFD trading solutions (Solutions Provider), and to manage the risk
in its client positions by simultaneously placing the identical CFD
on a back-to-back basis with the Solutions Provider or any
affiliate, so long as they are either an "acceptable
counterparty" or a "regulated entity" (as those
terms are defined in IIROC's Joint Regulatory Financial
Questionnaire form). This exemptive relief provides
considerably more operational flexibility to independent Canadian
dealers than was provided in previous relief.
Although quite different in many respects, we believe that these
two exemptions not only reflect the continuing desire of the
Canadian Securities Administrators to take a harmonized approach to
the regulation of derivatives, but also a willingness to consider
providing exemptive relief in appropriate policy circumstances.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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