Cleared OTC Derivatives added in 91-503, replacing
On April 11, 2008, the Alberta Securities Commission (ASC)
issued Blanket Order 91-503, "Over-The-Counter Derivatives
Transactions and Commodity Contracts". BO 91-503 replaced
the previous Blanket Order 91-502 with effect from March 31,
The ASC found that the use of clearing agencies has become
increasingly more prevalent with respect to the clearing of OTC
derivative transactions since BO 91-502 was issued in August
2000. The fact that BO 91-502 could not be relied upon to
provide an exemption to the prospectus and registration
requirements of Alberta's Securities Act for OTC
derivative transactions cleared through the facilities of a
clearing agency was therefore an increasing problem for the
industry. ("Clearing agency" is defined in the
Securities Act as an entity that acts as an intermediary in
paying funds or delivering securities (or both), that provides
centralized facilities through which trades in securities or
exchange contracts are cleared, or that provides centralized
facilities as a depository of securities).
The ASC's response, BO 91-503, extends the
definition of "OTC derivative" (and therefore, the
exemption to the prospectus and registration requirements of
the Securities Act) to include an option, forward contract,
contract for differences or other instrument of a type commonly
considered to be a derivative, or any combination of any of
them, if the agreement is cleared through an acceptable
clearing corporation. "Acceptable clearing
corporation" is in turn defined as a clearing agency that
(i) operates a central system for the clearing of derivatives
transactions; (ii) is subject to enabling legislation and
oversight by a central or regional government authority in an
"eligible country of operation" (i.e. a country that
is a member of the Basle Accord and a country that has adopted
the banking and supervisory rules set out in the Basle Accord)
that provides for compliance and power of enforcement over its
members or participants; and (iii) is named in a schedule from
time to time published for the purpose of BO 91-503 with the
approval of the ASC's Executive Director.
BO 91-503 provides for the same exemption from the
prospectus and registration requirements of the Securities Act
as did BO 91-502: OTC derivatives transactions and commodity
contracts are not futures contracts, as defined in the
Securities Act, provided the transactions are made between
"Qualified Parties" who each act as principal or as
an agent/trustee for accounts that are fully managed by it. The
list of Qualified Parties in the Appendix to BO 91-503 is the
same as that in BO 91-502, comprising mainly sophisticated,
In BO 91-503 (as was the case with BO 91-502), the
definition of "OTC derivative" requires that such
agreements not be part of a fungible class of agreements that
are standardized as to their material economic terms. As such,
OTC derivatives that are standardized and are to be cleared by
an acceptable clearing corporation do not appear to be exempt
from the prospectus and registration requirements of the
Securities Act by virtue of BO 91-503. To this extent, further
exemptive relief from the ASC may be necessary.
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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