NIN 98/73 - New Form of Risk Disclosure Required for Trading in and Advising on Exchange Contracts [NIN - Rescinded]

Effective December 31, 1998, the Executive Director specifies Form 66, attached to this notice, as the form of written statement required under section 35 of the Securities Rules when opening an account for a client relating to exchange contracts.

Section 35 of the Securities Rules requires a dealer or adviser, before opening a client’s account, to provide the client with a written statement, in the required form, for that type of registrant and account. The current forms, namely Form 64 - Risk Disclosure Document (Exchange Contracts) and Form 65 - Managed Accounts Disclosure Statement (Exchange Contracts), are currently specified as the required forms.

Form 66 is required to be provided to a client prior to opening the client's account (a) in the case of brokers, investment dealers and exchange contracts dealers, where the proposed account will be used to trade in exchange contracts, and (b) in the case of portfolio managers and investment counsel, where the proposed account will be used to advise on exchange contracts.

Transitional

The Executive Director will accept Forms 64 and 65, as appropriate, as the required form under section 35 of the Securities Rules, provided the form is provided to clients prior to June 30, 1999. Effective June 30, 1999, the Executive Director rescinds Forms 64 and 65.

New Risk Disclosure Uniform With Other Jurisdictions

In April, 1997, the Ontario Securities Commission ("OSC") published Rule 91-502 "Trades in Recognized Options", which requires certain dealers and advisers that trade in or advise on certain options to provide their clients with a prescribed risk disclosure statement. OSC Rule 91-502 prescribes a new form of risk disclosure statement after January 1, 1999 that is the same as Form 66 specified in this Notice. According to the OSC Notice of Rule published in January, 1997, the new risk disclosure statement was developed jointly by the Securities Investment Board in the United Kingdom and the Commodity Futures Trading Commission in the United States and is a standardized risk disclosure document that can be used, without change, in different countries and jurisdictions.

As certain of the options falling within OSC Rule 91-502 are also exchange contracts under the Securities Act, dealers and advisers with clients in British Columbia and other countries and jurisdictions may be required to provide a different form of risk disclosure depending on where the trade occurs or where the advice is given in respect of exchange contracts. It is desirable in these circumstances that the same form of risk disclosure be used in British Columbia as in the United Kingdom, the United States and Ontario, and new Form 66 will achieve that goal.

Revocation of Blanket Order #92/3

Prior to the repeal of the Commodity Contract Act and the entering into force of the amendments to the Securities Act relating to "exchange contracts", a trade by a dealer registered under the Securities Act in certain index options (defined as "Recognized Options" in BOR#92/3) was subject to the prospectus requirement. BOR#92/3 grants, among other things, an exemption from the prospectus requirement for a trade by a registered dealer in a Recognized Option provided that, among other things, the client of the registered dealer is provided with a prescribed form of risk disclosure statement.

Since the amendments to the Securities Act relating to "exchange contracts" came into force on January 1, 1996, it would appear that persons trading a "Recognized Option" do not need to rely on the prospectus exemption granted by BOR#92/3. That is, as a "Recognized Option" is also an "exchange contract", a "Recognized Option" is excluded from the definition of security and therefore is not subject to the prospectus requirement. To this extent, BOR#92/3 no longer appears to serve a purpose and therefore the Executive Director intends to revoke it.

Because the Executive Director is not aware of who may be using BOR#92/3 or of any circumstances where the relief in that blanket order may still be required, the Executive Director will not revoke BOR#92/3 prior to June 30, 1999.

Request for Comment

Interested persons are encouraged, by March 30, 1999, to direct written comments to

Brenda J. Benham
Director
Policy and Legislation
British Columbia Securities Commission
200 - 865 Hornby Street
Vancouver, BC V6Z 2H4
(604) 899-6635
(800) 373-6393 (in B.C.)
email: bbenham@bcsc.bc.ca

Comment letters submitted in response to Requests for Comment are placed in the public file, and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed in the public file, freedom of information legislation may require the Commission to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.

DATED at Vancouver, British Columbia, on December 30, 1998

Brenda J. Benham
Director