Mark E. McElheran and Philip J. Henderson
In response to numerous inquiries, the Ontario Securities Commission (OSC) issued a notice on October 27 outlining OSC Staff's view on the applicability of securities laws to offerings of Contracts for Difference (CFDs), foreign exchange contracts (FX contracts) and similar OTC derivative products. While the notice focused on CFDs, the guidance is intended to apply generally to FX contracts and OTC derivatives as well. Further, it is OSC Staff's intention that the interim guidance provided will remain effective until such time that a harmonized approach to the regulation of OTC derivatives is developed by the Canadian Securities Administrators and/or Ontario introduces derivatives legislation.
According to the notice, OSC Staff consider CFDs to be securities and, as such, CFD providers offering such products to Ontario investors must comply with Ontario's registration and prospectus requirements absent statutory exemptions or exemptive relief. In reaching its conclusion, OSC Staff considered the Supreme Court of Canada decision in Pacific Coast Coin Exchange v. Ontario (Securities Commission), [1978] 2 S.C.R. 112 and the subsequent jurisprudence. In particular, OSC Staff referred to the parallels between the facts of Pacific Coast "and the current trend towards offerings of CFDs to investors through the internet."
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