Effective December 31, 2012, the Alberta Securities Commission (ASC) revoked Blanket Order 91-503 (BOR 91-503) and replaced it with Blanket Order 91-505 (BOR 91-505).
BOR 91-503 provided that certain over-the-counter (OTC) derivative transactions and commodity contracts (as described therein) made between qualified parties (as defined therein) acting as principal were exempted from the definition of "futures contract" and as a result not a security under the Securities Act (Alberta) (ASA) (unless caught under another prong of the definition of "securities"). As a consequence, such transactions were excluded from regulation under the ASA.
BOR 91-505 replaces that broad exemption from the ASA in BOR 91-503 with an exemption limited to the prospectus and registration requirements. BOR 91-505 provides a prospectus exemption for distributions of a futures contract to a qualified party as defined therein. It also provides an exemption from the dealer registration requirement for OTC trades in (1) futures contracts where each party to the trade is a qualified party, and (2) physical commodity contracts (as defined therein). However, the exemption in respect of the dealer registration requirements is subject to a condition that the person comply with such requirements, among the following, as the Executive Director of the Alberta Securities Commission (ASC) may impose on the trade:
- to report the trade to an agency recognized by the ASC;
- to effect the trade, or class of trades, on or through the facilities of an exchange recognized by the ASC or exempted by the ASC from the requirement to be recognized as an exchange;
- to clear the trade, or class of trades, on or through the facilities of a clearing agency specified, or a clearing agency within a class of clearing agencies specified, by the Executive Director of the ASC; or
- to maintain at least a prescribed minimum excess working capital in respect of a trade, or class of trades, not cleared on or through the facilities of a clearing agency specified, or a clearing agency within a class of clearing agencies specified, by the Executive Director of the ASC.
As of the date of this bulletin, it does not appear that the Executive Director has imposed any such requirements in respect of the dealer registration exemption. Unfortunately BOR 91-505 and its accompanying announcement do not clarify how this condition is meant to apply, leaving parties trading in those securities to decide for themselves whether the dealer registration exemption is available, but is not subject to any of the described requirements, or that there is no dealer registration exemption available and the ASA applies. While we expect that the correct interpretation is that the dealer exemption is not subject to any of the described requirements, it is not clear. Hopefully the ASC will issue additional guidance in this regard. In any event, it will be necessary for those relying on that interpretation to monitor the decisions of the ASC regularly to satisfy themselves that the requirements have not changed.
The described requirements listed above reflect the Canadian Securities Administrators' (CSA) ongoing consultation process on OTC derivative regulation that looks to impose many of these requirements on certain OTC derivative transactions. Hence, for those relying on BOR 91-505 for both the prospectus and registration requirements, to effect trades in futures contracts with qualified parties it will be important to monitor the CSA process as it may impact the requirements under the exemption.
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