Canada: New Ontario Derivatives Legislation

Last Updated: December 20 2010
Most Read Contributor in Canada, November 2017

Article by Marsha P. Gerhart , Julie Mansi , Carol Derk , Stephen J. Redican , Neil Guthrie and David R. Surat

The Ontario government has enacted amendments to the Securities Act (OSA) that provide a legislative framework for the regulation of derivatives, credit rating organizations and alternative trading systems.

The amendments are buried in Schedule 18 of Bill 135, the Helping Ontario Families and Managing Responsibly Act, 2010, which received royal assent following third reading in the Ontario legislature on December 8, 2010. A number of the derivatives-related amendments will come into force on proclamation (as discussed below), while the balance of the amendments came into force upon royal assent.

The amendments are independent of the recent consultation paper published by the Canadian Securities Administrators (CSA) (of which the Ontario Securities Commission is a member) on November 2, 2010 concerning over-the-counter (OTC) derivatives regulation in Canada. Please see the Borden Ladner Gervais LLP Financial Services Client Update Over-the-counter (OTC) Derivatives Market in Canada: On the Road to Reform and Regulation, available here, for a discussion of the CSA's consultation paper and the discussion paper published October 26, 2010 by the Canadian OTC Derivatives Working Group.


The amendments set out a broad definition of "derivative", while preserving the current regime for the regulation of commodity futures contracts and commodity futures options under the Commodity Futures Act. Keeping a separate system for commodity futures is not entirely desirable, but incorporating a modernized legislative scheme for them in the OSA must have seemed too daunting a task.

The Ontario Securities Commission (the Commission) is empowered to determine by order that a particular contract or instrument is or is not a derivative, while the rules will permit a similar determination in respect of a contract or instrument in a class of instruments or contracts. The new rule-making powers will come into effect on proclamation. A financial product deemed to be a derivative by either process will be a "designated derivative". The Commission also has the power to make an order that a particular derivative is not a designated derivative. The Commission will have the authority, subject to proclamation, to deem products in a prescribed class of derivatives to be securities for certain regulatory purposes. These provisions will provide the flexibility to treat financial products on a case-by-case basis and to tailor their regulatory treatment accordingly. This could be used to arrive at results that are consistent with the treatment of particular products under the Québec Derivatives Act.

Trading and Market Conduct

The market conduct rules for trading in securities found in Part XIII of the OSA have been extended to trades in derivatives. Subject to proclamation, a new Part XV.1 will be added to the OSA, imposing requirements for the trading of designated derivatives. Trading in a designated derivative will be prohibited except in circumstances where a disclosure document filed with and accepted by the Director under the OSA has been provided in accordance with the regulations, subject to the possibility of exemptions. The focus of these provisions is presumably on trading by retail investors, who require disclosure of both product features and counter-party risk.

The prospectus requirements of Part XV of the OSA and related regulations will not apply to designated derivatives, derivatives with standardized terms that are traded on an exchange or derivatives traded in any other marketplace, if certain conditions (to be set out in the regulations) are satisfied.

The Commission's supervisory powers have been extended to exchanges on which derivatives are traded and new powers have been conferred in respect of the regulation of trade repositories.

Prohibitions and Enforcement

The prohibitions on insider trading and tipping, misrepresentations in disclosure documents and fraud and market manipulation have been amended to include derivatives. Civil liability for insider trading and tipping under the OSA applies to "related derivatives" (defined as derivatives with a market price, value, delivery obligation, payment obligation or settlement obligation materially derived from, referenced to or based on that of a security), which addresses a potential regulatory gap in the current legislation. The investigation and enforcement provisions of Parts VI and VII of the OSA are amended to apply to derivatives and will be amended to apply to disclosure documents for derivatives. The Commission's authority to issue sanctions in the public interest will also specifically address derivatives.

Registration Requirements for Dealers and Advisers

Under the amendments to the OSA, the registration requirement will be extended to anyone in the business of trading in derivatives or in the business of advising with respect to the buying or selling derivatives. These amendments basically impose the same registration regime on anyone in the business of dealing in or advising on derivatives that currently exists for anyone in the business of dealing in or advising on securities. While the requirement to be registered is set out in the OSA, most of the conditions of registration – e.g. proficiency, capital, insurance, compliance and other ongoing business conduct requirements – are found in National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) or in the rules of a self-regulatory organization. However, at this time, no amendments to NI 31-103 or new regulations specific to derivatives registration have been proposed, so it is unclear how a registration requirement for derivatives activities will be practically implemented. Will new categories and conditions of registration designed specifically for derivatives activities be introduced or will those in the business of trading or advising in derivatives be required to register in an existing dealer or adviser category as set out in NI 31-103? There is also is no indication at this time of whether any derivatives activities would be exempt from the registration requirements. The effectiveness of the registration-related amendments have generally been delayed until a date to be proclaimed.

In the absence of categories and conditions of registration designed specifically for derivatives activities, existing dealer categories would have to be used, the most likely being the investment dealer category (which requires membership in the Investment Industry Regulatory Organization of Canada). However, even with that category, a technical amendment to NI 31-103 would be needed to include dealing in derivatives. Similarly, anyone in the business of advising on the buying and selling of derivatives would likely be required to register as a portfolio manager (provided a technical amendment was made to NI 31-103 to that category to include advising in derivatives). But query whether existing dealer and adviser categories are appropriate for all derivatives activities. For example, do the capital and insurance requirements for a traditional investment dealer adequately address derivative market risks? It may be that the "restricted dealer" and "restricted adviser" categories introduced when NI 31-103 was implemented could be considered as an alternative to the investment dealer or portfolio manager categories, since the intention of the restricted categories is to accommodate business models that don't quite fit the more traditional dealer and adviser categories.


Rule-making power has been granted with respect to listing and trading derivatives (including clearing and settlement, trade reporting and quotation and requirements for clearing through a clearing agency). Additional authority to make rules regarding the following will be effective on proclamation: prescribing requirements for classes or derivatives; disclosure documents; record-keeping, reporting and transparency; margin, collateral and capital requirements; clearing and settlement; and position limits. Rules could also preclude the trading of one or more classes of derivatives in Ontario.

Other Amendments

Other Bill 135 amendments set out a regime for the designation and regulation of credit rating organizations in a new Part IX of the OSA and for the recognition and regulation of alternative trading systems.

The definition of "reporting issuer" for the purposes of the insider trading provisions has been extended to those issuers with a real and substantial connection to Ontario and that trade on the TSX Venture Exchange.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions