Principal Protected Notes Regulations
Principal Protected Notes Regulations
P.C. 2008-979 2008-05-29
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to sections 459.4Footnote a and 576.2Footnote b of the Bank ActFootnote c, section 385.28Footnote d of the Cooperative Credit Associations ActFootnote e and section 444.3Footnote f of the Trust and Loan Companies ActFootnote g, hereby makes the annexed Principal Protected Notes Regulations.
1. The following definitions apply in these Regulations.
« institution »
« intérêt »
“interest”, in relation to a principal protected note, includes any return payable under the note by an institution in respect of the principal.
“principal protected note”
« billet à capital protégé »
“principal protected note” means a financial instrument that is issued in Canada by an institution to an investor and that
(a) provides for one or more payments to be made by the institution that is determined, in whole or in part, by reference to an index or reference point, including
(i) the market price of a security, commodity, investment fund or other financial instrument, and
(ii) the exchange rate between any two currencies; and
(b) provides that the principal amount that the institution is obligated to repay at or before the note’s maturity is equal to or more than the total paid by the investor for the note.
A principal protected note does not include a financial instrument that specifies that the interest or return on the instrument is solely determined on the basis of a fixed rate of interest or return or a variable rate of interest or return that is calculated from the institution’s prime lending rate or bankers’ acceptance rate.
- SOR/2011-98, s. 10.
MANNER OF DISCLOSURE
Marginal note:Clear and simple language
2. Any disclosure that is required to be made by an institution under these Regulations must be made in language that is clear and simple and in a manner that is not misleading.
DISCLOSURE BEFORE ISSUANCE
Marginal note:Information that must be disclosed
3. Subject to sections 4 to 6, an institution must provide — at least two days before entering into an agreement to issue a principal protected note to an investor — a synopsis of the following information to the investor orally, by means of a person who is knowledgeable about the terms and conditions of the note, and in writing:
(a) the term of the note, and how and when the principal is to be repaid and the interest, if any, is to be paid;
(b) any charges and their impact on the interest payable;
(c) how interest is accrued, and any limitations in respect of the interest payable;
(d) any risks associated with the note, including, if applicable, the risk that no interest may accrue;
(e) the distinction between principal protected notes and fixed-rate investments with respect to the levels of risk and return;
(f) the circumstances in which a principal protected note could be an appropriate investment;
(g) if the note relates to a deposit that is not eligible for deposit insurance coverage by the Canada Deposit Insurance Corporation, the fact that it is not eligible;
(h) whether the note may be redeemed before its maturity and, if so, that redemption before maturity may result in the investor receiving less than the principal amount;
(i) the terms and conditions of any secondary market offered by the institution;
(j) whether the investor may cancel their purchase of the note and, if so, how the purchase may be cancelled;
(k) whether the note provides that the institution may amend the note and, if so, in what circumstances;
(l) whether the manner in which the note is structured or administered may place the institution in a conflict of interest;
(m) any other information that could reasonably be expected to affect an investor’s decision to purchase the note; and
(n) that the information referred to in section 8 is available on request and that the information referred to in section 9 is available on request after the note is issued.
- Date modified: