The Ontario Securities Commission (OSC) has given permission for an online broker to offer contracts for difference (CFDs) and other over-the-counter (OTC) foreign exchange contracts by providing upfront risk disclosure, rather than a prospectus.
According to Thursday OSC Bulletin, the OSC has approved an application from Questrade Inc., granting relief from prospectus requirements in connection with the distribution of CFDs and OTC foreign exchange contracts, subject to various terms and conditions.
The conditions include that the transactions comply with the rules of the Investment Industry Regulatory Organization of Canada (IIROC); that clients be provided with risk disclosure before entering into a transaction, and that they acknowledge receiving and reading that disclosure; among other things.
The decision indicates that the firm believes requiring a prospectus in order to trade OTC contracts 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 an OTC transaction.”
Instead, it maintains that the information to be given to this sort of client “should principally focus on enhancing the client’s appreciation of product risk including counterparty risk”; adding that most OTC positions are opened and closed on the same day, and are marked to market and cash settled daily.
The relief does not apply in Alberta, the decision notes, indicating that the Alberta Securities Commission (ASC) has concerns about relying on a passport system decision to allow a prospectus exemption for OTC contracts. So, the firm will make a separate application for relief in Alberta, if it wants to offer OTC contracts to clients there without a prospectus.