On December 4, 2009, the British Columbia Securities Commission adopted a companion policy to its November 24, 1999 Blanket Order 91-502 Short Term Foreign Exchange Transactions (the "blanket order").
The blanket order, made under the BC Securities Act (the "Act"), provides that:
"For the purposes of the Act and the regulations, a contract or other obligation to purchase or sell the currency of any jurisdiction, where the terms of the transaction require settlement not later than three business days after the entering into of the transaction, is not a futures contract, provided that the contract or obligation is not otherwise a security under the Act."
The new companion policy emphasizes the limitation in the blanket order that the contract or obligation not otherwise be a security under the Act. In order to determine that a contract or obligation falls within the scope of the blanket order, it is necessary to consider whether it would fall within any branch of the definition of security, other than as a futures contract.
The companion policy also includes reference to three BCSC decisions that foreign exchange contracts offered to investors were securities under the investment contract branch of the definition of security.
While the characterization of a foreign exchange contract or obligation will depend on its specific terms, the key policy rationale between considering it a futures contract, and thus within the scope of the blanket order, or an investment contract, and thus subject to the prospectus and registration requirements, appears to be whether it is sold to investors for purposes such as trading or speculation.
The companion policy makes it clear that the intent of the blanket order was to "provide relief from the registration and prospectus requirements for businesses managing currency risk in their business operations" and not for other investors. In this respect, the position set out in the companion policy appears to be consistent with the views recently expressed by staff of the Ontario Securities Commission in OSC Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors in Ontario1 that such contracts, when offered to investors, engage the purposes of the Ontario Securities Act and are considered to be securities (as investment contracts).
The companion policy is available on the BCSC's website here.
Footnote
1. See our October Securities & Capital Markets Alert, available here.
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