On January 7, the New Brunswick
(http://www.nbsc-cvmnb.ca/nbsc/LanguageRH.do?type=english) (NBSC) publishedNBSC Notice
) to respond to certain frequently asked
questions onNBSC Local Rule
(the Rule). As discussed in ourprevious
dated December 14, 2009, the Rule imposes
registration and risk disclosure requirements in respect of trades
in "derivatives" as defined in the Rule, other than
trades among qualified parties.
The notice clarifies that a qualified party that engages in a
derivatives transaction is responsible for determining whether the
other party is also a qualified party. To do so, it may rely on
factual statements made by the other party provided that it does
not have reasonable grounds to believe that the statements are
false. The qualified party is also responsible for determining
whether the exemptions under the Rule are applicable based on the
facts supplied by the other party and should retain all
documentation relating to its determination.
The notice is somewhat ambiguous in response to the question of
whether the Rule applies to principal protected notes (PPNs) and
refers readers to CSA Staff Notices 46-303(
. In characterizing PPNs as investment products
that offer an investor potential returns "based on the
performance of an underlying investment", it appears that NBSC
staff is suggesting that they would fall within the definition of
"derivative" under the Rule. However, the notice does
clarify that the Rule does not apply to spot foreign exchange
contracts and that the registration exemptions contained in the
Rule may be relied on by insurance companies, loan and trust
companies, investment dealers, portfolio managers, investment fund
managers (and certain persons authorized to act as such or carry
out similar functions), and certain registered individuals (all as
referred to in paragraphs (d), (f). (j) and (k) of the definition
of "qualified party") when acting as agent or trustee for
a fully-managed account.
The notice also provides a six-month transition period for
financial sector participants having to implement new
derivatives-related compliance measures, giving them until March
28, 2010 to phase in compliance obligations arising from the
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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