The Ontario Securities Commission (OSC) has granted an exemption to allow contracts for difference (CFDs) to be sold without a prospectus, subject to certain conditions.

In the October 10 OSC Bulletin, the OSC reports it has granted an exemption to CFD firm, CMC Markets UK plc and its Canadian dealer affiliate, CMC Markets Canada Inc., providing relief from prospectus requirements for CFDs and foreign exchange contracts. Instead, they will provide investors with a plain language risk disclosure document that is substantially similar to the risk disclosure required for recognized options.

The relief is subject to various terms and conditions, including that trades are executed through CMC Canada, which must remain registered with the Investment Industry Regulatory Organization of Canada (IIROC), and subject to its oversight. The relief expires in four years.

The decision notes that the relief will substantially harmonize the position of the regulators in the other provinces with how those products are offered to investors in Quebec under derivatives legislation there. It also notes that the OSC “has previously recognized that the prospectus requirement may not be well suited for the distribution of certain derivative products to investors… and that alternative requirements, including requirements based on clear and plain language risk disclosure, may be better suited for certain derivatives.”

And, it says that the firms believe that requiring compliance with the prospectus requirement to enter into CFDs with retail clients “would not be appropriate since the disclosure of a great deal of the information required under a prospectus and under the reporting issuer regime is not material to a client seeking to enter into a CFD transaction.”

“The information to be given to such a client should principally focus on enhancing the client’s appreciation of product risk including counterparty risk,” it says, adding that CFD positions are generally opened and closed on the same day.