“Under the derivative reporting rules, if an instrument is both a security and a derivative, transactions involving it still need to be reported. If it’s not a derivative, then transactions do not need to be reported, but if it’s nevertheless a security, then all the rules regarding prospectuses and registration apply. Which leaves us precisely where we started.”
In Ontario securities legislation, the definition of “derivative” is deliberately drafted to be extremely broad, to capture basically everything, and then specified categories of instruments can be excluded by regulation.
Under the OSC’s Rule 91-506, a contract or instrument is not a derivative if it provides for delivery of a commodity other than cash or currency that,
(i) is intended by the counterparties, at the time of execution of the transaction, to be settled by delivery of the commodity, and
(ii) does not allow for cash settlement in place of delivery except where all or part of the delivery is rendered impossible or commercially unreasonable by an intervening event or occurrence not reasonably within the control of the counterparties, their affiliates, or their agents;
This is interpreted by regulators as follows:
We take the position that commodities include goods such as agricultural products, forest products, products of the sea…
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