On January 2, 2014, Alberta Securities Commission ("ASC") staff published Staff Notice 91-704 Over-the-Counter Derivatives Transactions ("ASC Staff Notice 91-704") summarizing the current regulatory framework governing over-the-counter ("OTC") derivatives trades in Alberta. A copy of ASC Staff Notice 91-704 can be found here.
As previously mentioned in Dentons article of November 28, 2013 titled Canada's first set of harmonized derivatives rules (trade reporting) published by three provinces: Ontario, Quebec and Manitoba, the ten (10) provinces and three (3) territories in Canada are all separately responsible for securities regulation in their respective provinces under the Canadian constitution. Each province has its own securities regulator, which administers the province's securities act and, correspondingly, promulgates its own set of rules and regulations. Accountability for securities regulation extends from the securities regulator to the Minister responsible for securities regulation and, ultimately, the legislature, in each province. As a result, ASC Staff have published this ASC Staff Notice 91-704 to inform Alberta derivatives market participants and other interested stakeholders that the Legislative Assembly of Alberta is still considering but has not passed the necessary amendments to the Securities Act (Alberta) (the "Act") "to revise the statutory framework for the regulation of over-the-counter derivatives trading in Alberta and to harmonize all derivatives related provisions in the Act with other Canadian jurisdictions".
ASC Staff provided the legislative status of the current bill to amend the Act (Bill 42 Securities Amendment Act, 2013) and summarized the ASC's current regulatory framework governing OTC derivatives trades in Alberta. Please see the highlights of the summary below:
- The ASC currently regulates OTC derivatives transactions in Alberta under the existing provisions of the Act and by virtue of the authority given to its Executive Director under Section 8(2) of the ASC Rules (General) which allows the ASC's Executive Director among other things to require any class of registrants, as a condition of registration, to report all trades in the OTC market to an agency recognized by the ASC in accordance with the requirements of the agency.
- In addition, the ASC regulates OTC derivatives transactions in Alberta through ASC Blanket Order 91-505 Over-the-counter Derivatives Transactions ("ASC Blanket Order 91-505"). ASC Blanket Order 91-505 provides an exemption for the legislated definition of a futures contract under the Act that captures an OTC derivative transaction in Alberta as a trade in a security. The implication of this legislated definition means that every OTC derivative transaction entered into by an Alberta derivatives market participant would be subject to both the Act dealer registration and prospectus requirements but for the ASC Blanket Order 91-505.
- ASC Blanket Order 91-505 provides for exemptions from the prospectus and dealer registration requirements for OTC derivative transactions between sophisticated counterparties who meet the definition of a 'qualified party' as defined in ASC Blanket Order 91-505. ASC Staff have clarified in ASC Staff Notice 91-704 that "a 'qualified party' for the purposes of the Order includes a person or company that sells, buys, trades, produces, markets, brokers or otherwise uses in its business a commodity and as a consequence enters into an over-the-counter trade in a futures contract". In addition, ASC Blanket Order 91-704 provides an exemption from the dealer registration requirement for an over-the-counter trade in a commodity futures contract which is intended to be physically settled by the counterparties.
- Lastly, ASC Blanket Order 91-505 provides the ASC's Executive Director with the power to require persons who rely on the exemption from the dealer registration requirement in the ASC Blanket Order 91-505 to comply with the ASC's prescribed requirements respecting the trading, clearing and reporting of over-the-counter derivative transactions. The ASC's Executive Director as previously mentioned was already granted similar powers under Section 8(2) of the ASC Rules (General). However, ASDC Staff stated in this Staff Notice that the Executive Director had not imposed any such requirements on OTC derivative transactions in Alberta as at this time.
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