What is a trade? – Securities Regulation

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      1. What is a trade? ^ Statutory Definition

In order for general rule (Section 53(1) and 25 about being registered) to apply for a prospectus, there has to be a trade in a security, so what is a trade?

OSA, section 1(1): A “trade” includes “any sale or disposition (NOT A PURCHASE) of a security for valuable consideration”AND includes “any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of” any of the activities described in the definition.

Policy: Overall, trade is broadly interpreted to promote the “greater good” -prevent ppl from contracting/opting-out of securities regulation

“trade” or “trading” includes (NOT EXHAUSTIVE):

(a) any sale or disposition of a security for valuable consideration, whether the terms of payment be on margin, instalment or otherwise, but does not include a purchase of a security or, except as provided in clause (d) a transfer, pledge or

VALUABLE CONSIDERATION

  • A trade is a sale of a security for a consideration

o E.g. orange tracts – sold security for money, it’s a trade. PC – silver – Sold investment contracts for money.

  • Incl margin trading & covers primary and secondary markets. (Note that gifts would probably not be trades, because there is no valuable consideration)

EXCLUDED is the PURCHASE of a security.

encumbrance of securities for the purpose of giving collateral for a debt made in good faith,
  • Why? Again, doing all this to see if you have to issue prospectus. Not doing it so that purchaser files prospectus before giving you the cash. So of course purchase can’t be a trade, only determining if it’s a trade is to find out if seller has to prep prospectus, purchaser is being protected/giving cash.
  • At least with respect to the distributions of securities, it is the vendor that is the object of regulation and it is the purchaser that the legislation is intended to protect.
  • Using securities as collateral is excluded because the SA was never meant to restrict the ability of security holders to use their equity as loan collateral
(b) any participation as a trader in any transaction in a security through the facilities of any exchange or quotation and trade reporting system 3.2.2.1 TRADES ON BEHALF OF OTHERS

  • Such persons are required to register. A “trade” is defined to include participation as a trader in a transaction in a securities.. .on the floor or through the facilities of an exchange

*Exam Example:

  • X offers to sell to Y and Z, but only Z buys. There are 3 trades! The offer to Y, the offer to Z, and the sale to Z
  • “Trade” is a key term in determining the application of the securities act. Remember: prospectus requirement is activated when there is a trade in a security which constitutes a distribution.
(e) any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of any of the foregoing; (“operation”) PRE-SALE ACTIVITIES: TRADE INCLUDES ANY ACT, ADVERTISEMENT OR SOLICITATION IN FURTHERANCE OF THE FOREGOING (OF A “TRADE”)

  • Isn’t only when you sell it, but when you TRY to sell securities
  • May involve pre-sale activities, which can involve pressure tactics/subtle misrepresentations. Risk that this will influence buyers who rely on pre-sale activities/pressure.
  • POLICY: Securities Act Is PROACTIVE legislation, NOT REACTIVE

o SA is proactive, is saying we want to stop bad things from happening before they happen b/c protection of investing public/maintaining confidence in the markets is so fundamental to our system that we want to avoid it happening at all costs

o If you try to sell securities you must create a prospectus, you can’t wait until you actually sell them. This is consistent with the purposive approach of the courts.

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