On October 17, 2022, Ontario Securities Commission (OSC) Rule 32-506 (Commodity Futures Act) Exemptions for international dealers, advisers and sub-advisers (OSC Rule 32-506) and Amended OSC Rule 91-502 Recognized options trading (OSC Rule 91-502, all instruments) came into force.

Instruments, published on August 11, 2022codify regularly granted exemptions from the registration requirements under the Commodity Futures Act (CFA) for international businesses that deal only with institutional clients in respect of commodity futures contracts and commodity futures options that trade on foreign exchanges. Also included are exemptions for international firms and their representatives from the options proficiency requirements of OSC Rule 91-502.

On April 15, 2021, the OSC implemented interim class orders provide substantially the same relief as is provided now that the instruments are in force. International companies that relied on the Interim Orders, which expired on the effective date of the instruments, are not required to take further action due to the entry into force of the instruments.

Exemption of international dealers

OSC Rule 32-506 provides a deposit-based “international dealer” exemption, similar to the international dealer exemption under NI 31-103. Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). Under this exemption, CFA broker registration requirements would not apply with respect to a transaction in a contract with or on behalf of a “CFA Authorized Client”, subject to the following conditions:

  • The transaction involves a foreign contract on a non-Canadian exchange;
  • The person or company:
    • has its head office or principal place of business in a specified foreign jurisdiction and has no office or place of business in Ontario;
    • is engaged in contract trading in the specified jurisdiction; and
    • is registered, licensed or otherwise authorized under the securities, commodity futures or derivatives laws of the designated foreign jurisdiction in which its head office or principal place of business is located in a category that allows it to carry on business in such jurisdiction as registration as a dealer under the CFL would enable it to carry on business in Ontario;
  • The person or company provides certain written information prescribed to the client authorized by the CFA; and
  • The person or company has submitted a completed Form 32-506F1 Submission to Court and Appointment of Agent for Service (Form 32-506F1).

Use of the international dealer exemption also exempts a person from the CFA’s adviser registration requirement if the person is providing advice to a CFA-authorized client in connection with an activity or transaction under the international dealer exemption, other than in respect of an CFA managed account. authorized customer.

International Advisor Exemption

OSC Rule 32-506 also provides a deposit-based “international adviser” exemption, similar to the international adviser exemption under NI 31-103. Under this exemption, CFA adviser registration requirements would not apply to advice provided to a non-registered CFA authorized client regarding the trading of foreign contracts, subject to the following conditions:

  • The person or firm provides advice to the non-registered CFA authorized client only on the negotiation of foreign contracts and does not provide advice on the negotiation of Canadian contracts, unless such advice is incidental to the provision of advice on foreign contracts;
  • The person or company:
    • has its registered office or principal place of business in a specific foreign territory;
    • engages in the business of advising others in relation to contracts in the specified foreign jurisdiction; and
    • is registered in a category of registration, or operates under an exemption from registration, or is otherwise licensed or authorized under applicable securities, commodity futures legislation or derivatives from the specified foreign jurisdiction to carry on business in the specified foreign jurisdiction that registration under the CFA as an adviser in the category of director of commodity trading would enable it to carry on business in Ontario;
  • At the end of the person’s or company’s last completed fiscal year, not more than 10% of the total consolidated gross income of the person or company, its affiliates and its affiliated partnerships, excluding the gross income of an affiliate or an affiliated partnership of the person or company, if the affiliate or affiliated partnership is registered under securities legislation, contract legislation commodity futures or derivatives legislation of a jurisdiction of Canada, arises from the investment management activities of the person or company, its affiliates and its affiliated partnerships in Canada (including the activities related to securities and commodity futures);
  • Prior to advising a non-registered CFA-authorized client with respect to a foreign contract, the person or company provides the non-registered CFA-authorized client with certain prescribed information; and
  • The person or company has provided the OSC with a completed Form 32-506A1.

International Sub-Advisor Exemption

OSC Rule 32-506 also provides a statutory exemption for persons or companies acting as a sub-adviser to a lead adviser under conditions similar to the international sub-adviser exemption under NI 31-103, subject to certain conditions.

Contrast with NI 31-103

We previously written on the proposed version of the Instruments published in December 2020 and view the Instruments as a positive and welcome development. As noted in our previous blog post, unlike the equivalent exemptions available to international dealers and advisers in NI 31-103, the exemptions under the Instruments impose certain limitations that may restrict their availability to certain international market participants. In particular, the requirement that an international broker have “no office or place of business in Ontario” impacts international market participants who may need flexibility to place highly skilled professional employees on a temporary basis. or permanent in Ontario for various professional or personal reasons.

The requirement for a corporation to have a head office or principal place of business in a “specified foreign jurisdiction” whose regulatory regime the OSC has had occasion to review is also new.

Although the OSC has indicated that it will consider requests for discretionary exemptions from these conditions on a case-by-case basis, an approach more closely aligned with the existing NI 31-103 conditions would have been preferable to provide more flexibility and reduce complexities. for international market players.

As with reliance on the NI 31-103 exemptions, the OSC must be notified by December 1 of each year of a company’s reliance on the CFA exemptions. Businesses must also comply with filing and fee payment requirements.

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