Canada: CSA Publishes Model Rules On Trade Repositories, Derivatives Data Reporting And The Determination Of Derivatives

On December 6, 2012 the OTC Derivatives Committee of the Canadian Securities Administrators (the Committee) published for interim guidance and comment CSA Staff Consultation Paper 91-301. This is a noteworthy step in the efforts by provincial securities regulators to fulfill Canada's G-20 commitments to regulate OTC derivatives.

The paper sets out two model provincial rules and accompanying model explanatory guidance pertaining to, firstly, trade repositories and derivatives data reporting (the TR Rule) and, secondly, the determination of products which will be treated as derivatives for purposes of the TR Rule (the Scope Rule). The Committee sets out the implementation process, stating that once comments on the model rules have been considered, they may be modified and then each Canadian jurisdiction will need to publish for comment its own rules, explanatory guidance and appendices with appropriate local modifications. The Committee recognizes that this may result in some differences in the final rules from jurisdiction to jurisdiction, but their stated intention is that the substance of the rules be the same across all jurisdictions and that market participants in derivatives products receive the same treatment throughout Canada.

The TR Rule and Scope Rule are drafted on the basis of the Ontario Securities Act which contains framework provisions for the regulation of the derivatives market, including the activities of trade repositories. The implementation process is complicated by the fact that not all existing securities legislation currently provides an appropriate framework to implement such rules. In the case of Alberta and British Columbia, New Brunswick, Nova Scotia and Saskatchewan, existing securities legislation will need to be amended. In Manitoba and Ontario, only OTC derivatives will be subject to those province's rules, since exchange-traded contracts are currently subject to their respective Commodity Futures Acts. In Quebec, certain provisions of the Scope Rule would not be applicable as they are already covered by the Quebec Derivatives Act. In addition, since the rules will be implemented on a jurisdiction-by-jurisdiction basis, the timing of their coming into force in various jurisdictions may vary.

The TR Rule reflects proposals contained in CSA's Consultation Paper 91-402Derivatives: Trade Repositories which was released on June 23, 2011. The TR Rule covers two areas:  (1) the requirements trade repositories must meet to be designated or recognized by provincial regulators as acceptable entities to which market participants may report their trades, and (2) the reporting obligations of derivatives market participants themselves. The Committee envisages that exemptions from certain requirements may be available for foreign trade repositories that are subject to comparable regulatory regimes in other jurisdictions. In keeping with the objective of harmonizing such legislation with regimes elsewhere, the TR Rule broadly follows the approach taken by the CFTC in Part 49 of its regulations relating to swap data repositories and the international standards set out in Principles for financial market infrastructures published by CPSS and IOSCO.

The TR Rule sets out detailed requirements for an entity to qualify as a designated or recognized trade repository. These focus on, among other things, governance, risk management procedures and record-keeping. In the case of foreign trade repositories, the requirements include providing access to their books and records to Canadian regulators and submitting to the jurisdiction of the Canadian courts. The TR Rule stipulates who is required to report and sets out in its appendix detailed requirements regarding what information is to be reported.

The Scope Rule provides a gloss on the broad definition of "derivative" in the Ontario Securities Act and aims to narrow the range of products that are to be treated as derivatives subject to derivatives data reporting obligations under the TR Rule.  The Scope Rule will initially apply for purposes of the TR Rule but, in order to provide flexibility, it may be amended as necessary to apply to other model rules as they are promulgated. The Committee notes that the interpretative guidance provided in the Scope Rule is not intended to alter the guidance provided in existing instruments, for example OSC Staff Notice 91-702 relating to contracts for differences offered in the retail markets.

The Scope Rule sets out several sub-rules to determine whether a product is a "derivative" for purposes of the TR Rule. The first sub-rule lists a variety of derivatives (excluded derivatives) which are to be excluded from the definition of "derivative" appearing in applicable legislation, including transactions which are: 

  1. regulated by gaming control legislation;  
  2. insurance or annuity contract issued by licensed insurers in Canada;  
  3. spot market contracts or instruments for the purchase and sale of currencies or physical commodities which, subject to limited exceptions, involve physical settlement only; and  
  4. evidences of deposit issued by banks, cooperatives, credit unions, caisse populaires or loan and trust corporations.

The explanatory guidance also states that the Committee consider that there are other instruments, such as contracts or instruments which, while not expressly excluded, should not be considered "derivatives" if they are entered into for consumer, business or non-profit purposes that do not include investment, speculation or hedging.

The second sub-rule provides that all investment contracts and over-the-counter options (to the extent that they are not excluded derivatives referred to above) that are derivatives and that are otherwise securities solely by reason of falling under the relevant securities act definitions of "investment contract" or "option", are prescribed not to be securities. The explanatory guidance indicates that OTC foreign exchange contracts and contracts for differences would fall into this category. Physically-settled OTC options over securities would also be covered provided they are not compensation or financing options referred to below:

The third sub-rule provides that all contracts or instruments (other than any contract or instrument to which the first and second sub-rules above apply) that are securities and are otherwise derivatives are prescribed not to be derivatives for purposes of the TR Rule. This is intended to cover structured notes, ABS, exchange-traded notes and warrants which are to be treated as securities, even if they contain an embedded derivative.

Finally, all contracts or instruments that would otherwise be derivatives (other than any contract or instrument to which any of the above sub-rules apply) are prescribed not to be a derivative if such contract or instrument is used by an issuer or an affiliate of an issuer solely to compensate an employee or service provider or as a financing instrument, and its underlying interest is a share or stock of that issuer or its affiliate.

While those familiar with the nuances of the distribution of legislative powers in Canada will understand why this multi-step approach to implementing a pan-Canadian regulatory regime is being taken, it will no doubt strike observers from the derivatives world outside of Canada as surprisingly complicated and cumbersome. Moreover, the potential for variances between the applicable rules in jurisdictions within Canada, although a boon to lawyers practicing in this area, will likely result in some continued inefficiency in the market (although perhaps less than that caused by the existing patchwork regulatory regime).

The introduction to CP 91-301 indicates that the model rules approach will address existing regulation in other areas (such as the regulation of financial institutions). It remains to be seen how these provincial rules will be integrated into the existing federal regime governing the derivatives activities of Canadian banks, which represent the vast majority of the market.

CP 91-301 will be open for comment until February 4, 2013. The Committee notes that it is looking for specific feedback on section 40(2) of the TR Rule which exempts from reporting requirement transactions in relation to physical commodities if the local counterparty is not a dealer or adviser and has less than $500,000 aggregate notional value, without netting, of outstanding transactions at the time of the transaction, including the additional notional value related to the transaction in question.

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
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