In a recently released staff notice, staff of the Ontario Securities Commission (OSC) have provided guidance on the availability of certain exemptions from the dealer registration requirement under the Commodity Futures Act (CFA) that we believe is contrary to the prevailing interpretation among market participants. As we reported in September, under OSC Staff Notice 33-744 – Availability of registration exemptions to foreign dealers in connection with trades in options and futures contracts under the Commodity Futures Act (Ontario) (the Notice), OSC staff take the view that an unregistered dealer may not rely on the “hedger” exemption and also take a very narrow view of the availability of the “unsolicited trade” exemption under the CFA.

In the Notice, OSC staff state their view that the hedger exemption is not available to an unregistered non-Canadian dealer that wishes to trade with a hedger. In our view, the longstanding and accepted interpretation of the hedger exemption has been that the exemption may be relied on by an unregistered non-Canadian dealer. The Notice represents a surprising and very restrictive interpretation of the availability of the “hedger” exemption commonly relied on by unregistered non-Canadian dealers when trading futures with Ontario resident “hedgers”, and runs counter to over thirty years of accepted legal interpretation and industry practice.

The Notice also contains guidance on the use of the “unsolicited trade” exemption under the CFA, in respect of which the OSC staff state their view that the unsolicited trade exemption under the CFA was intended to apply to occasional, isolated trades by customers in Ontario that are not solicited by or on behalf of a non-Canadian dealer. OSC staff do not believe that the exemption is available to permit the operation of unsolicited order-execution-only accounts by unregistered non-Canadian dealers with customers in Ontario. Currently, a trade in an exchange contract resulting from an unsolicited order placed with an individual who is not a resident of, and does not carry on business in, Alberta, British Columbia or New Brunswick, is exempt from the dealer registration requirements. However, this exemption, available under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations is scheduled to be repealed with the implementation of a wide range of changes to NI 31-103 that are expected to come into force on January 11, 2015.