On February 28, the Alberta Securities Commission proposed the repeal of Blanket Order 91-503, which currently exempts most over-the-counter derivatives from the definition of "futures contract" under the Alberta Securities Act and, thus, exempts such OTC derivatives from regulation as "securities".

The ASC would replace Blanket Order 91-503 with Rule 91-505 Over-the-Counter-Derivatives, which is intended to restore the ASC's authority to regulate OTC derivatives transactions as futures contract transactions under the Act. The proposed Rule 91-505, however, would recognize the fact that such transactions are generally confined to large institutional entities and exempt distributions of a futures contract from the prospectus requirement under the Act.

However, an exemption from the dealer registration requirement would only apply to OTC physical commodity contracts. The Rule defines OTC physical commodity contract to mean a futures contract that (i) is not an exchange contract; (ii) contains an obligation to make or take future delivery of a commodity other than cash or a currency; and (iii) does not allow for cash settlement in place of physical delivery.

Unless addressed in the context of further harmonization of dealer registration requirements or otherwise, as it currently stands, the proposal replaces the broader dealer registration exemption with a narrow exemption limited to OTC physical commodity contracts. As such, under the proposal, there would no longer be an exemption for qualified parties.

The ASC is accepting comments on its proposal until April 29, 2011. For more information, see ASC Staff Notice 91-702 Over-the-Counter Derivatives.