Canada: MSC Issues Blanket Order Exempting Certain Derivative-Like Securities From Prospectus And Registration Requirements And OTC Derivatives From Registration Requirements

On October 21, 2015 the Manitoba Securities Commission (MSC)  issued a Blanket Order 91-501 Over-the-Counter Trades in Derivatives  (the Blanket Order) to exempt over-the-counter trades in derivatives or derivative-like securities from the registration requirements of the Manitoba Securities Act (the Manitoba Act) if each party is a “qualified party” or the trade is in a physical commodity contract.


The Manitoba Act requires that a person be registered in accordance with the regulations in order to trade in a security or derivative. However, as yet no derivatives dealer registration categories have been established by regulation. Until the regulations are developed, the new Blanket Order will provide exemptive relief from the registration requirement for over-the-counter trades in both derivatives and derivative-like securities. An over-the-counter trade is essentially a trade that is not over a securities or futures exchange. A derivative-like security is defined as:

a security as defined in the Act that also is an option, swap, futures contract or other financial or commodity contract or instrument whose market price, value, delivery obligations, payment obligations or settlement obligations are derived from, referenced to or based on an underlying interest (including a value, price, variable, index, event, probability or thing)

A derivative-like security would include derivatives that fall within the investment contract category or some other category of securities under the Manitoba Act.

There are two parts to the registration exemption. First, if the derivative is a “physical commodity contract” the dealer registration requirement will not apply to those that enter into these transactions with Manitoba counterparties.   A physical commodity contract is:

a derivative or derivative-like security that is not an exchange contract and that both

(a) contains an obligation to make or take future delivery of a commodity, other than cash or a currency, and

(b) at the time it is traded, is intended by the counterparties to be settled by physical delivery of the commodity or by delivery of evidence of legal title to the commodity;.

Second, the registration requirement will not apply to an over-the-counter trade in a derivative or a derivative-like security if each counterparty is a “qualified party”.  Qualified parties include:

  • Banks (including foreign banks) and other credit institutions
  • A business corporation if it had total assets, as shown on its last audited balance sheet, in excess of CAD$25 million (or its equivalent in another currency) (including persons or funds (not individuals) with at least CAD$25 million in assets on their most recent financial statements)
  • A pension fund/plan that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial or territorial pension commission and a wholly owned subsidiary
  • Governments, crown corporations and municipalities
  • Managed accounts
  • Investment funds if each investor is a qualified party, or the fund is managed by a registered investment fund manager, or the fund is advised by a registered advisor
  • Commercial users
  • Sophisticated users

The sophisticated user category requires that the party has executed trades in derivatives and derivatives like securities (not including trades with affiliates) (A) with a total gross notional principal amount of at least  CAD$1 billion, (B) any of the trades was outstanding on any day within 15 months prior to the trade; and (C) in that 15 month period had on any day gross marked-to-market positions of at least CAD$100 million in one or more trades.


The Blanket Order will also exempt distributions of derivative-like securities from the prospectus requirements of the Manitoba Act.  Derivative-like securities would be subject to the prospectus requirements of the Manitoba Act on the basis of their characterization as securities.  The prospectus requirement in the Manitoba Act applies only to securities and so would not apply to derivatives that are not “derivative-like securities”.

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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