Ontario’s Divisional Court has upheld a decision of the new Capital Markets Tribunal, finding an over-the-counter financial instrument to meet the definition of “investment contract” pursuant to the Securities Act.


The appellants conducted business trading in Contracts for Difference (CFDs), a financial instrument offered through online trading platforms “over the counter” rather than on an exchange basis. With CFDs, investors purchase interest in assets without taking ownership or delivery of the underlying asset, which may be commodities, currency or equities.  The value of the CFD is tracked against the value of the underlying asset, and investors make or lose money based on the difference between the value of the opening and closing trades.  In this case, the investors traded in CFDs on two online platforms, Oanda and Vantage, which acted as principals and counterparties to the CFD trades. These trades were pursuant to the appellants’ recommendations, and the appellants had trading authority, monitored the accounts, and received portions of the profits.

During the relevant period, the investors in the CFDs lost approximately $1.9 million. A decision of the Capital Markets Tribunal found the CFDs to be unregistered securities because they were “investment contracts”.  The Tribunal imposed sanctions on the appellants, which included:

  • restrictions on the appellants’ ability to participate in capital markets;
  • disgorgement of over $430,000 in profits;
  • an administrative penalty of $250,000; and
  • costs of $200,000.

Appeal dismissed: No error in finding CFDs to be “investment contracts”

On appeal, the Divisional Court considered the question of whether CFDs were securities to be one of mixed fact and law and accordingly to be subject to a standard of determining whether the Tribunal fell into palpable or overriding error.  The Divisional Court found that the Tribunal’s findings that the CFDs are “investment contracts” and therefore securities were amply supported by the record and betrayed no palpable or overriding error.  

Specifically, the Divisional Court found that the facts amply supported an investment contract relationship among the investors, the appellants, and the trading platforms. Here the Tribunal properly found that there was a common enterprise, given that a scheme existed for the benefit of the supplier of capital (the investor) and of those who solicit the capital (the promoter, or the appellants here). The appellants and the investors entered into an agreement whereby the investors opened and funded online accounts, which the appellants had access to for the purposes of trading and monitoring CFD holdings, and on which they earned 50% of monthly net realized profits. Within this arrangement, the Tribunal found that the investors were dependent on the CFD providers to provide opportunities to trade in these over-the-counter, often highly-leveraged investments. The investors’ role was limited to the advancement of money while the appellants had managerial control over the success of the promoter, thereby creating a “community”.


The Divisional Court applied a four-part test, holding that an investment contract will be found where all of the following are present:

  • an investment of money;
  • with a view to profit;
  • in a common enterprise where its success or failure is interwoven with, and dependent on, the efforts of persons other than the investors; and
  • the efforts made by those others significantly affect the success or failure of the enterprise.

The Divisional Court approved of the flexible approach the Tribunal adopted in finding a common enterprise here. The Tribunal properly bore in mind that the Securities Act is remedial legislation, with one of its primary purposes being the protection of investors, and with a very broad definition of “security”, which includes “(n) any investment contract”. The Act uses general terms “evidencing an intention for breadth”. While the legislation contains many exemptions, the Divisional Court is clear that the flexibility carries over into the definition of each term.

Accordingly, the Divisional Court rejected the appellants’ reliance on a more rigid precedent on the analysis of “common enterprise”, set out in a 1985 British Columbia Court of Appeal case involving the delivery of precious metals purchased on margin. The Divisional Court disagreed with the approach taken in that case and, in any event, found it distinguishable on its facts, which involved the ability to sell the precious metals to others, including on international markets. Here, the agreement was with the appellants, with no rights to assign.