Canada: Canadian Securities Administrators Unveil Proposed Derivatives Registration Regime

The Canadian Securities Administrators Derivatives Committee (the CSA) published Consultation Paper 91-407 – Derivatives: Registration (the Paper) on April 18, 2013. The Paper outlines a proposed registration and compliance regime that will apply to derivatives dealers, derivatives advisers and certain major participants in Canadian derivatives markets and will impose Canadian registration obligations on many Canadian and foreign derivatives market participants that previously were not required to register with securities regulatory authorities. With limited exceptions, all companies engaging in the business of trading in or advising on derivatives in Canada would be required under the proposal to be registered as derivatives dealers or derivatives advisers and to comply with specific registration requirements including proficiency, financial reporting, capital, insurance, record-keeping and honest dealing requirements and additional business conduct requirements that would apply when dealing with "non-qualified persons". Large derivatives participants (LDPs) with derivatives positions in excess of prescribed thresholds that could pose a serious risk to Canadian financial markets or to the financial stability of Canada or any provinces or territories (provinces) would also be subject to the registration obligations described in the Paper.

The Paper is the latest in a series of consultation papers published by the CSA that propose a harmonized set of provincial rules to regulate over-the-counter derivatives markets. Other consultation papers in this series discuss the implementation of rules to fulfill Canada's G20 obligations in respect of OTC derivatives, including in respect of mandatory trading on swap execution facilities, central clearing and trade reporting. Currently, most Canadian derivatives market activities are free from direct regulation by securities regulatory authorities, and registration is generally not required for most derivatives market participants due to the current scope of securities laws and existing provincial registration exemptions that are available for derivatives trading among broad classes of market participants. The Paper proposes to replace this existing patchwork exemption regime with new harmonized derivatives dealer and derivatives adviser registration categories that would apply in all provinces and that are similar to the existing harmonized provincial securities dealer and securities adviser registration requirements that apply across Canada.

Registration and Compliance Obligations for Derivatives Dealers

The Paper proposes that persons carrying on the business of trading in derivatives (or holding themselves out to be carrying on that business) should be required to register as derivatives dealers in each Canadian province where they conduct derivatives trading business, unless an exemption is available.

The Paper lists a variety of derivatives activities that may result in a person being considered to be carrying on the business of trading in derivatives and therefore required to register as a derivatives dealer if no exemption is available (referred to as the "business trigger" test) including: (i) intermediating or brokering trades between counterparties; (ii) acting as a derivatives market maker; (iii) trading with the intention of being remunerated or compensated; (iv) directly or indirectly contacting anyone to solicit derivatives trades or offer trading services; (v) providing clearing services to third parties; and (vi) engaging in activities similar to a derivatives dealer. The Paper states that this list is not complete, that the existence of any one of these factors on its own is not determinative as to whether the person is in the business of trading in derivatives and that instead a holistic analysis should be applied. The Paper also notes that, under the proposed business trigger test, a variety of companies that do not carry out derivatives dealing activities as their primary business may become subject to the derivatives dealer registration requirements.

The Paper recommends that registered derivatives dealers and all other derivatives registrants be subject to certain common registration requirements and obligations (the Common Registration Obligations), including: (a) a requirement to establish minimum proficiency standards for all individuals involved in trading in or advising on derivatives for the registrant; (b) financial requirements, including minimum capital, insurance and periodic financial reporting requirements; (c) margin posting requirements in respect of uncleared trades; (d) record-keeping requirements; (e) establishment of adequate compliance and risk management systems; (f) appointment of individual executives as the registrant's "ultimate designated person" (UDP), chief compliance officer and chief risk officer, who will each be required to be individually registered; and (g) the obligation to act honestly and in good faith when trading in or advising on derivatives.

In addition, derivatives dealers will be required to obtain sufficient information regarding clients and counterparties to allow the derivatives dealer to act as a gatekeeper with the objective of ensuring market integrity and assessing counterparty risks (Gatekeeper Obligations) and, when trading with persons that are not "Qualified Parties" (Non-Qualified Parties), dealers will also be subject to know-your-client, suitability, conflict of interest and fair dealing obligations.

Finally, when a derivatives dealer is acting on behalf of clients, the Paper proposes that the dealer will be required to deliver to the client (a) pre-trade reports providing information on the terms and costs of trades; (b) post-trade reports describing the principal economic terms of executed trades; (c) trade confirmations that satisfy requirements to be specified in a future model rule; and (d) periodic account statements describing outstanding positions, including current market values and information regarding posted collateral. These reports, trade confirmations and account statements would also be required to be furnished by derivatives dealers to any counterparties that are Non-Qualified Parties if Canadian securities regulators decide to permit trading between derivatives dealers and Non-Qualified Parties that are not being advised by registered derivatives advisers, as discussed below.

Trading with Non-Qualified Parties

The Paper proposes to address the conflict of interest that arises when a derivatives dealer enters into a transaction with a Non-Qualified Party that is also relying on the derivatives dealer for direction or advice in relation to the trade. Two alternatives are proposed to address this conflict of interest situation. Under the first alternative, derivatives dealers would be prohibited from entering into trades with Non-Qualified Parties unless the Non-Qualified Party is receiving advice from an independent registered derivatives adviser. Under the second alternative, the derivatives dealer would be required to inform the Non-Qualified Party that there is a conflict of interest, provide details of the conflict in writing, advise the Non-Qualified Party that it has the right to obtain independent advice before entering into the transaction and, if advice is not sought, then the Non-Qualified Party would have to sign an acknowledgement indicating that it was electing not to obtain independent advice.

The Paper does not propose a final definition for the term "Qualified Parties" but indicates that to qualify as a Qualified Party a person should be either (a) a securities or derivatives registrant or (b) a sophisticated market participant with experience and knowledge in trading derivatives that has adequate resources to perform all of its obligations pursuant to the derivatives trade and to absorb losses from derivatives trades without undue hardship.

Registration and Compliance Obligations for Derivatives Advisers

The Paper proposes that persons carrying on the business of advising others in relation to derivatives (or holding themselves out to be carrying on that business) should be required to register as derivatives advisers in each Canadian province where they conduct such business, unless an exemption is available.

The Paper indicates that a person would be considered to be "advising" in relation to derivatives where they provide another person with any advice or direction relating, either directly or indirectly, to trading derivatives, including the provision of advice in relation to hedging strategies, the management of a portfolio of derivatives, or the use of derivatives as all or part of an investment strategy. The Paper also lists the following specific factors that may indicate that a person is carrying on the business of providing derivatives advice: (i) frequent or regular provision of advice in relation to derivatives transactions or in relation to the ongoing management of a portfolio of derivatives; (ii) receiving (or expecting to receive) any form of compensation for providing advice about derivatives; (iii) directly or indirectly contacting anyone to solicit business related to advising on derivatives trades, and (iv) engaging in activities similar to a derivatives adviser. The Paper notes that the frequent or regular provision of derivatives advice does not have to be a person's sole or even primary endeavour in order for such person to be considered to be in the business of advising in derivatives.

The Paper proposes that registered derivatives advisers should be subject to the Common Registration Obligations and Gatekeeper Obligations described above and, when advising Non-Qualified Parties, advisers will also be subject to the know-your-client, suitability, conflict of interest and fair dealing business conduct requirements.

Treatment of Foreign Dealers and Advisers Registered Outside of Canada

The Paper proposes that foreign entities that are engaged in the business of trading in or advising on derivatives in Canada and are also subject to regulation in their home jurisdiction will still be subject to the obligation to register under and comply with the proposed Canadian registration requirements.

However, where an equivalent regime exists in the foreign entity's home jurisdiction that applies to the foreign registrant, then exemptions may be provided from certain Canadian requirements, including financial requirements and requirements relating to compliance and risk management systems and entity-level record-keeping.

Registration and Compliance Obligations for Large Derivatives Participants

The Paper proposes to require any market participant that is not registered as a derivatives dealer to register as an LDP if: (a) the entity is a Canadian resident entity that maintains a substantial position in a derivative or a category of derivatives; or a foreign resident entity that holds a substantial position in a derivative or a category of derivatives with Canadian resident counterparties (regardless of whether such positions are held for hedging purposes or for speculative purposes); and (b) the entity's exposure in Canadian derivatives markets results in counterparty exposure that could pose a serious risk to Canadian financial markets or to the financial stability of Canada or a province.

The Paper recommends that additional work should be undertaken, including analysis of derivatives trade repository data, before establishing the exact thresholds that will be used for this LDP registration requirement. LDPs would be subject to the Common Registration Obligations and also to obligations with respect to holding counterparty collateral. Foreign LDPs are expected to be exempted from specific registration requirements where they are subject to equivalent regulatory requirements in their home jurisdictions.

Exemptions from Registration Requirements

The Paper proposes that the following market participants should be exempt from regulation under the provincial registration regime:

  • Canadian banks and other persons regulated by Canadian authorities other than the CSA may be exempted from provincial registration obligations if the other Canadian regulatory regime provides for equivalent supervision and regulatory requirements. The Paper indicates that further analysis of existing regulatory regimes imposed by other Canadian regulatory authorities will be required before determining whether such exemptions should be provided but it would be surprising in light of past discussions in this area if federally chartered banks were not fully exempt from provincial registration requirements as long as they only trade with or provide advice to Qualified Parties.
  • Canadian federal, provincial, territorial and municipal governments will be exempt from the registration regime and federal and provincial Crown corporations whose obligations are fully guaranteed by the applicable government should be exempt from the requirement to register as an LDP or as a derivatives dealer where the entity's trading activity is restricted to trading as a counterparty with persons that are Qualified Parties.
  • Derivatives clearing agencies recognized (or exempted) under the applicable provincial clearing agency regime will not be subject to a requirement to register as a derivatives dealer or adviser or as an LDP if the obligation to register results solely from carrying on its ordinary business as a clearing agency.
  • Persons subject to registration solely as a result of trading with or on behalf of affiliates or providing derivatives advice to affiliates will be exempted from the registration regime.
  • Registered derivatives dealers will not be required to also register as derivatives advisers if advice only relates to derivatives trades to which the dealer is a party and the dealer does not have discretionary trading authority over the counterparty's account, does not charge a fee for advice, and has complied with relevant registration requirements that apply to derivatives advisers.

Comment Period

The CSA have requested comments on the proposed regulatory regime during a 60-day comment period, with comments being due by June 17, 2013. The Paper includes 23 specific questions regarding the proposals, which commenters are invited to address in their responses.

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.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.