Canada: Categories Of Registration And Business Triggers Under CSA's Proposed Derivatives Registration Regime

As we discussed last month, the Canadian Securities Administrators Derivatives Committee recently published Consultation Paper 91-407 Derivatives: Registration, which contains regulatory proposals specific to the implementation of a registration regime for derivatives market participants in Canada. Under the Paper's proposals, the imposition of "derivative-appropriate" registration requirements would be based on the type of activity conducted by derivative market participants regardless of the nature of the underlying asset.

The Committee developed the proposals in light of Canada's G20 commitments to improve the regulation and oversight of OTC derivatives markets and with consideration of derivatives registration regimes in the U.S. and Europe. While the Committee also considered the existing securities regulatory framework, the proposed business triggers for derivatives registration and the requirements applicable to registrants would be substantially different than those applicable in the securities context, given the differences in the purpose of trading, the existence of risk-amplifying leverage in most categories of derivatives and the complexity of derivatives contracts.

Ultimately, the Paper discusses minimum requirements for each category of registration, namely those of (i) derivatives dealers; (ii) derivatives advisers; and (iii) large derivative participants.

Categories of registration

Derivatives Dealer

Persons carrying on the business of trading in derivatives or holding themselves out to be carrying on that business would be required to register as a derivatives dealer in each province and territory in which they conducted such business.

While the Ontario Securities Act contains a list of activities that are considered a "trade", the Paper clarifies that certain activities such as the termination, material amendment, assignment, novation or disposition of a derivatives contract will also be considered a derivatives trade. Therefore, after inception, a derivatives trade will be considered to occur whenever there is a material change to the terms of the derivatives contract.

Further, a number of factors, largely derived from securities case law and regulatory decisions, would be considered when determining if a person is in the business of trading derivatives. The non-exhaustive list of factors that may suggest a business purpose or activity would include (i) the provision of services relating to the intermediation of trades between counterparties to derivative contracts; (ii) acting as a market maker by taking both a long and a short position in a derivative or category of derivatives; (iii) trading with the intention of being remunerated or compensated; (iv) contacting anyone to solicit derivatives trades; (v) providing clearing services to third parties; and (vi) engaging in activities similar to a derivatives dealer.

Under the factors provided, as with the analogous securities dealing registration requirements, dealing in derivatives does not have to be an entity's primary business to be captured by the triggers proposed by the Committee.

Derivatives Adviser

Persons that carry on the business of advising others in relation to derivatives, or who hold themselves out to be in that business in any Canadian jurisdiction, would be required to register as a derivatives adviser. A person would be considered to be "advising" in relation to derivatives whenever they provide another person with any advice or direction relating to trading derivatives, including providing advice in relation to (i) the management of a portfolio of derivatives; (ii) the use of derivatives as an investment strategy or part of an investment strategy; and (iii) hedging strategies.

In determining whether a person was "in the business" of providing derivatives advice, a number of factors would be relevant, including whether the person was (i) directly or indirectly providing advice about derivatives trading activity with repetition, regularity or continuity; (ii) being, or expecting to be, remunerated or compensated; (iii) contacting anyone to solicit business relating to advising in derivatives trades; and (iv) engaging in activities similar to a derivatives adviser, including promoting a trading strategy or offering software that provided a client with guidance relating to the purchase of derivatives.

Large Derivatives Participant (LDPs)

According to the Paper, entities holding a "substantial position" in a derivative or category of derivatives, and whose exposure to derivatives markets results in counterparty exposure that could pose a serious risk to financial markets, should also be subject to registration. Registration under the LDP category would not be based on a business trigger. While the Paper does not provide one, the Committee recommended that consultation proceed to establish a threshold for this category of registrant.

Individual Representatives

The Committee also recommended that the new regime include the registration of individuals (i) where they are the ultimate designated person (such as the president or CEO), chief compliance officer or chief risk officer of a registrant; (ii) as a representative of a derivatives adviser where they provide clients with advice relating to derivatives, whether or not the client is a qualified party; and (iii) as a representative of a derivatives dealer where they provide services relating to trading to clients, whether or not the client is a qualified party.

Exemptions from requirement to register

The Paper proposes a number of exemptions from the registration requirement.

Dealers Providing Advice

A person registered as a derivatives dealer would be exempt from the obligation to register as a derivatives adviser where (i) the obligation to register as a derivatives adviser resulted solely from the provision of advice in relation to a derivatives trade; (ii) the advice was not in relation to an account over which that the derivatives dealer has discretionary trading authority; (iii) the derivatives dealer did not charge a fee for the provision of the advice; and (iv) the derivatives dealer had complied with all of the registration requirements applicable to a derivatives adviser.


The Paper proposes that government entities not be subject to an obligation to register. Further, crown corporations whose obligations were fully guaranteed by the applicable government would be exempted from registration as an LDP or as a derivatives dealer where their trading activity was restricted to trading as a counterparty with qualified persons. However, a crown corporation would not be exempt from a requirement to register where it (i) triggered registration as a derivatives adviser by advising entities that were not governments or crown corporations; (ii) triggered registration as a derivatives dealer and intermediated trades on behalf of clients that were not governments or crown corporations; or (iii) triggered registration as a derivatives dealer and trades with counterparties that were non-qualified parties.

Clearing Agencies

The Paper recommends that recognized clearing agencies (or those exempt from recognition) not be subject to a requirement to register as a derivatives dealer, derivatives adviser or a LDP where the obligation to register resulted solely from carrying on the ordinary business of a clearing agency. (There is already or will be a separate registration regime for clearers.)

Transactions with Affiliated Entities

The Committee recommends that the registration requirements not apply to persons based on dealing or advising activities solely with affiliates.

Uniform definition of derivative across CSA jurisdictions is needed

The Paper does not define what would constitute a "derivative" for the purposes of registration and, at present, no single, harmonized definition of derivatives products exists across CSA members. Legislation in many Canadian jurisdictions contemplates that an instrument meeting the general definition of derivative may be treated as a derivative, a security, or excluded in whole or in part from regulation. Moreover, some jurisdictions include derivatives in the definition of security, while other jurisdictions maintain a separate definition altogether.

In CSA Consultation Paper 91-301 relating to reporting to trade repositories, the Committee introduced the "Scope Rule" to resolve conflicts that arise when a contract or instrument meets both the definition of "derivative" and "security" under applicable provincial legislation. The Scope Rule purports to classify which contracts or instruments are to be regulated as derivatives, securities or outside the scope of both derivatives and securities legislation altogether. In this respect, Consultation Paper 91-301 can provide some insight as to which types of instruments the Committee may recommend to be considered derivatives for the purposes of triggering registration as a derivatives dealer or adviser. In any event, the Committee will need to induce a high degree of regulatory coordination, both within Canada and between Canadian and global authorities, to ensure that a uniform and consistent definition is applied under the new registration regime. The CSA received a number of comments on certain issues with that definition in the context of the proposed trade reporting rule.

Absence of de minimus exemption

Unlike under Dodd-Frank, there is no proposed exemption for a person that engages in a de minimus level of swap transactions.  The amount of business an entity engages in will be factored into the determination of whether the entity is carrying on business as a dealer.

Potential for compliance with two registration regimes

Persons dealing in or advising on derivatives that have securities as their underlying asset will be subject to registration under both the proposed derivatives regime and the existing securities regime. The Committee states that all types of derivatives should be subject to a consistent regime regardless of whether or not such derivatives have securities as their underlying asset. The Paper thus recommends that steps be taken in order to streamline the registration process to ensure that such persons can be registered and regulated in an efficient manner.

Investment funds to be regulated by the securities registration regime

According to the Committee, investment fund managers should continue to be registered under the securities registration regime regardless of the nature of the investment fund or the assets held by the fund. However, an advisor to a fund who triggers the obligations outlined above would be subject to the derivatives advisor registration requirements, in addition to the securities registration regime, if such an adviser provided advice in relation to both derivatives and securities.

Third party regulators to carry out regulatory functions

The Paper proposes that the CSA rely on third-party regulators to carry out some or all of the regulatory functions of the new registration regime. The Committee has stated that these regulators could include foreign regulators and regulators responsible for regulating financial institutions (i.e. OFSI) and self-regulatory organizations (i.e. IIROC).

Specifically, under the Consultation Paper, foreign derivatives dealers and advisers subject to an equivalent registration regime in their home jurisdiction could be exempted from certain registration requirements, such as with respect to financial and solvency obligations, compliance and risk management systems and entity-level record keeping. In such cases, however, registration in the applicable Canadian jurisdictions would still be required.

Although substituted compliance or equivalence may resolve conflicts and duplication, it may not be the most appropriate solution in every case. As the OTC Derivatives Regulator Group recently noted, close consultation by the CSA with the relevant authorities in other jurisdictions will be necessary to ensure the efficacy of substituted compliance. The details regarding how substituted compliance will work in practice is expected to be discussed in future meetings of international regulators.

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.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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