OSC Staff provide guidance for Contracts for Difference and Forex Contracts

TORONTO , Oct. 27 /CNW/ - Staff of the Ontario Securities Commission (OSC) today issued Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors in Ontario, which outlines Staff's view on the applicability of securities law and other regulatory requirements to offerings of Contracts for Difference (CFDs), foreign exchange (forex) contracts and other similar products in Ontario.

A CFD is a product that allows an investor to obtain economic exposure to an asset, such as a share, index, currency or commodity, without acquiring ownership of the asset. Similarly, a forex contract is a product that allows investors to obtain economic exposure to different currencies without acquiring ownership of the currencies.

CFDs and forex contracts are increasingly being offered to investors directly through the internet. As a result of their increasing availability, OSC Staff conducted a review of these products in consultation with Staff from other members of the Canadian Securities Administrators (CSA) and Staff of the Investment Industry Regulatory Organization of Canada (IIROC).

"We are issuing this guidance to respond to enquiries from issuers and dealers about the applicability of Ontario securities law to these products," said Margo Paul , Director of Corporate Finance at the OSC. "We also want to highlight some of the investor protection concerns we have with these products, particularly where they are being offered to investors by offshore entities through the internet and without the protections of a registered dealer."

OSC Staff have concluded that these products, when offered to investors in Ontario, constitute "securities" for the purposes of Ontario securities law. The Notice makes clear that the guidance in the Notice is focused on offerings of these products to investors and is not intended to address direct or intermediated trading in these products between institutions.

As a result of this conclusion, Staff are of the view that, unless exemptive relief is granted, these products are subject to securities law and other regulatory requirements, including registration and prospectus requirements.

Issuers, dealers and other market participants are reminded there may be important differences in the regulatory treatment of CFDs, forex contracts and similar products across the CSA. Sellers should therefore review the specific requirements of securities legislation (and, where applicable, commodity futures legislation and derivatives legislation) before offering CFDs to investors.

Staff Notice 91-702 Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors in Ontario is available in the Securities Law & Instruments section of the OSC website, www.osc.gov.on.ca.

For further information: For Media Inquiries: Wendy Dey, Director, Communications & Public Affairs, [phone]; Carolyn Shaw-Rimmington, Assistant Manager, Public Affairs, [phone]; For Investor Inquiries: OSC Contact Centre, [phone], 1-877-785-1555 (Toll Free)