The Canadian Securities Administrators has published for comment a proposed instrument that would establish an investor protection regime for over-the-counter derivatives markets.

It says proposed National Instrument 93-101 Derivatives: Business Conduct, along with a proposed companion policy, would help establish rules that would be consistent with international standards and foreign requirements. CSA wants to create a uniform approach to derivatives business conduct regulation in Canada.

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The proposed instrument sets out fundamental obligations for OTC derivatives dealers and advisers. These include:

  • a fair dealing model suitable for derivatives markets that contains obligations to identify and respond to conflicts of interest;
  • know-your-derivatives party obligations; and
  • compliance and record-keeping requirements.

For derivatives dealers and advisers working with non-institutional counterparties, the proposed instrument introduces further measures such as a derivatives-specific suitability standard, the requirement to identify derivatives party-specific needs, and disclosure regarding leverage.

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CSA notes a significant proportion of OTC derivatives trading is cross-border. As such, the proposed instrument includes exemptions for foreign derivatives dealers and advisers that are subject to and comply with comparable laws of certain foreign jurisdictions.

CSA is also in the process of developing a registration regime for derivatives dealers and advisers, and it CSA anticipates publishing proposed NI 93-102 Derivatives: Registration shortly.

An extended comment period of 150 days is in effect for the proposed business conduct regime to provide stakeholders an opportunity to consider it in conjunction with the proposed registration regime.

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