Canada: Regulation Of Derivatives Trading Under The Proposed Canadian Cooperative Capital Markets Regulatory System

The federal government and the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island and Saskatchewan (Participating Provinces) have signed a memorandum of agreement in respect of a proposed cooperative capital markets regulatory system (Cooperative System). As part of this Cooperative System, existing provincial securities and derivatives legislation will be replaced in the Participating Provinces with uniform provincial capital markets legislation, and complementary federal legislation will address matters within federal jurisdiction including the management of systemic risk in Canada's financial system. For general background on these developments, please see our September 2014 Blakes Bulletin: Cooperative Capital Markets Regulatory System Agreement and Draft Legislation Released.

Consultation drafts of the uniform Provincial Capital Markets Act (PCMA) and the federal Capital Markets Stability Act (CMSA) were released for public comment in September 2014 (Consultation Drafts). The PCMA and CMSA will implement the Cooperative System, grant broad regulatory authority to a single jointly appointed Capital Markets Regulatory Authority (Authority) and overhaul existing securities laws in the Participating Provinces.

Given the scope of the proposed changes, Blakes is publishing a series of bulletins discussing aspects of the proposed Cooperative System. This bulletin discusses the proposed regulation of derivatives trading under the PCMA.

Current Derivatives Regulatory Regime And Impact Of PCMA

Under existing provincial securities laws, over-the-counter (OTC) derivatives markets have traditionally not been subject to significant regulation as compared to securities markets. However, there has been significant movement towards full regulation of OTC derivatives markets in Canada since the G20's 2009 Pittsburgh summit. At that summit, the G20 leaders made broad regulatory reform commitments and issued a declaration that OTC derivatives should be required to be traded on electronic trading platforms and centrally cleared where appropriate, reported to trade repositories and subject to capital and collateral requirements.

Over the past five years, the Derivatives Committee of the Canadian Securities Administrators (CSA), with contributions from federal institutions and market participants, has worked to develop a uniform national approach to implement the G20 commitments in Canada and to develop a nationally uniform registration regime for derivatives dealers and advisors that would parallel the existing national securities registration regime. Meanwhile, several provincial securities statutes have been updated to reflect these developments and permit a parallel treatment of securities and derivatives overseen by provincial securities regulators.

Adoption of the PCMA would in effect continue this process in the Participating Provinces by eliminating residual differences between their provincial rules and ensuring that these provinces are able to move forward in lock-step once resolution is reached on the specific rules that have been discussed to date by the CSA Derivatives Committee.

The PCMA will replace the existing Securities Acts of each of the Participating Provinces and, it appears, the somewhat archaic Ontario Commodity Futures Act, which currently provides a parallel regulatory regime for exchange-traded futures and options trading.

The PCMA does not provide a prescriptive codification of derivatives rules. Instead, it provides the Authority and the Authority's chief regulator (Chief Regulator) with a great deal of latitude to use their rulemaking, investigative and supervisory authorities to achieve the PCMA's purposes, which are to provide protection to investors from unfair, improper or fraudulent practices; foster fair, efficient and competitive capital markets in which the public has confidence; and contribute to the stability and integrity of the Canadian financial system. However, this relatively unrestrained rulemaking and supervisory latitude is seen by a number of commentators as possibly leading to regulatory overreach by an unelected body that is sheltered from democratic influence.

The potential scope of the Authority's powers under the PCMA is illustrated by the absence of any statutory carve-outs from the broad definition of the term derivatives in the draft PCMA. The proposed definition of derivatives, which closely tracks the broad definition under provincial and federal statutes, includes any "financial or commodity contract or instrument, whose market price, value, delivery obligations, payment obligations or settlement obligations are derived from, referenced to or based on an underlying interest." Commentary provided with the Consultation Drafts (Commentary) notes that "certain instruments, including commodity contracts entered into for purely commercial physical delivery purposes or contracts that are otherwise regulated (e.g., electricity contracts in some provinces), are not intended to be regulated under the PCMA." Accordingly, we can expect that rules similar to the "Scope Rule," which applies to the Ontario derivatives trade reporting rule, will be developed. However, the Authority itself will have the authority to shape such scope rules as it sees fit in order to carry out the purposes of the PCMA, and the PCMA does not provide any provisions that specifically indicate an intention to limit its scope.

Set out below is a summary of the key aspects of the derivatives regulatory platform provided in the draft PCMA and our expectations concerning key rules that will be issued by the Authority using this platform.

Derivatives Trade Reporting, Central Clearing And Collateral Requirements

In line with the provincial Securities Acts, the PCMA does not itself set out any obligations of parties to derivatives transactions to report trades to trade repositories, centrally clear trades or post collateral for uncleared trades in prescribed amounts. Instead, such rules are expected to ultimately be made directly by the Authority pursuant to its specific rulemaking powers under the PCMA.

The PCMA does not specify that the Authority should issue such rules and does not provide any guidance or limitations on such rules if they are issued. Instead, the PCMA is expected to simply state that the Authority may make regulations for carrying out the purposes of the PCMA, including (presumably without limitation) the specific types of regulations that are to be listed, including regulations in respect of trading in derivatives, including recordkeeping, reporting and transparency requirements and requirements in respect of margin, collateral, capital, clearing and settlement.

Any rules developed through the CSA Derivatives Committee process would be expected to be adopted once the PCMA comes into force and the Authority will presumably continue to work on those rules that remain under development. Currently, the only relevant rule that has been finalized is the trade reporting rule that is now in force in Ontario, Manitoba and Quebec. It remains to be seen whether the coordinated CSA Derivatives Committee process will continue to be supported and effective in working towards uniform national rules notwithstanding the presumed divide between the Participating Provinces and those provinces that have elected not to join the Cooperative System.

Derivatives Dealer And Adviser Registration Requirements

The PCMA provides that all dealers and advisers must be registered with the Authority in accordance with regulations that have not yet been published in draft. The term "dealer" is defined to mean a person who (a) engages in, or holds itself out as engaging in, the business of trading in securities or derivatives as principal or agent or (b) acts as a securities underwriter (as defined in the PCMA). "Adviser" means a person engaging in, or holding itself out as engaging in, the business of advising others with respect to investing in, purchasing or selling securities or trading derivatives. These registration obligations and the related definitions are consistent with those applicable under the Securities Acts of a number of provinces, including British Columbia. However, the draft PCMA does not include the broad exemptions from derivatives dealer registration obligations that are currently available in such provinces for transactions between qualified parties, including most institutional sell-side and buy-side market participants. These registration obligations and definitions are also consistent with the registration obligations and related definitions that would apply under the existing Ontario Securities Act if amendments that have been passed were proclaimed in force. The expectation has been that the existing derivatives blanket orders will be withdrawn and the Ontario amendments will be proclaimed into force once a national derivatives registration regime is adopted, and accordingly the PCMA's approach is consistent with the existing CSA approach.

Very few obligations are imposed on derivatives dealers and advisers in the draft PCMA itself other than the registration obligation and rules of general application that apply to all persons involved in trading derivatives. Instead, the Authority will make regulations under the PCMA that will set out registration application requirements, fee schedules, the ongoing obligations of registrants, conditions of registration, likely including proficiency, capital, insurance and compliance requirements, and other ongoing business conduct requirements as discussed in our November 2014 Blakes Bulletin: New Proposed Provincial Capital Markets Legislation: What It Means for Registrants and Other Market Participants.

For securities dealers and advisers, the registration categories and related obligations are expected to initially be based on the uniform regime set out in an existing national instrument. There is currently no registration regime applicable for derivatives market participants but a Consultation Paper on derivatives dealer and adviser registration requirements was issued by the CSA Derivatives Committee in April 2013, which is described in our May 2013 Blakes Bulletin: Canadian Securities Administrators Unveil Proposed Derivatives Registration Regime.

The CSA Derivatives Committee is expected in the next few months to issue a consultation draft of a derivatives registration rule that will likely be adopted as the initial derivatives dealer and adviser registration rule under the PCMA.

It is expected that this draft rule will provide an exemption from Canadian registration requirements for non-Canadian dealers and advisers that are subject to derivatives registration obligations in certain qualifying home jurisdictions upon satisfaction of prescribed conditions (similar to exemptions provided to international securities dealers and advisers from securities registration rules).

Canadian banks were also previously expected to be exempted from provincial registration obligations in light of the existing regulation of banks by the federal banking regulator, the exclusivity of federal jurisdiction over the business of banking, and the inclusion in some provincial Securities Acts of blanket registration exemptions for Canadian banks. However, the PCMA does not itself include any such exemption for Canadian banks and the CMSA provides that the federal Minister of Finance, after consultation with the Council of Ministers (which includes ministers of the Participating Provinces), may make an order assigning to the Authority the administration of any federal Bank Act provisions or regulations. The Commentary indicates that such an order "will facilitate the integration and coordination of derivatives regulations with the Authority when it becomes operational." It is not yet clear whether registration obligations are intended to apply to Canadian banks in accordance with such an order or if the intention is just to impose on some or all Canadian banks the same trade reporting, clearing and collateral requirements that would apply if such Canadian banks were registered as dealers and also grant the Authority jurisdiction to oversee compliance with such requirements.

The Authority may issue exemptions from registration requirements to individual applicants and classes of persons if not prejudicial to the public interest to do so.

The current draft of the PCMA includes an obligation on all registrants to deal fairly, honestly and in good faith with their clients. This reflects the existing standard of conduct for securities dealers and advisers in Canada but will be a new type of obligation for derivatives market participants once they are required to register. All registrants are also required to identify, disclose and manage conflicts of interest in accordance with the regulations, but this requirement will presumably be of less relevance to derivatives dealers than to securities dealers.

Market Conduct Rules And Other Pcma Rules Of General Application

The PCMA includes market conduct rules that are generally applicable to both securities and derivatives trading, and are similar to those set out in provincial Securities Acts including:

  • A prohibition on making materially false or misleading statements that would reasonably be expected to have a significant effect on the market price or value of a security, derivative or the underlying interest of a derivative
  • A prohibition on directly or indirectly engaging in any act or course of conduct relating to securities or derivatives that (a) results in "an unjust deprivation or a risk of an unjust deprivation of a person's money or other property or of the value of the person's property; or (b) the person knows or reasonably ought to know perpetrates a fraud on any person"
  • A prohibition on engaging in an unfair practice in relation to a trade, including (a) putting unreasonable pressure on another person to trade in a derivative; (b) entering into a transaction with another person "who is unable or does not have the capacity to reasonably protect his or her own interest because of physical or mental disability, ignorance, illiteracy, age or other inability to understand the character, nature or language of any matter relating to a decision to purchase, hold or sell a security or to trade in a derivative;" and (c) engaging in any other prescribed practice
  • A prohibition on directly or indirectly engaging in any conduct that improperly influences the determination of a benchmark or contributes to the production of a false or misleading determination of the benchmark
  • A prohibition on false or misleading statements about something that a reasonable investor would consider important in deciding whether to maintain a relationship with the counterparty.

Whistleblower protections are also included in the PCMA for employees who provide information to the Authority or a law enforcement agency respecting an act of the employer or its officers or employees that the employee believes is contrary to capital markets law.

The PCMA also makes it an offence to do or omit to do anything for the purpose of aiding, abetting or counselling a contravention of capital markets law or to conspire with any person to contravene capital markets law.

Prescribed Disclosure Documents For 'Designated Derivatives' And Tailored Obligations For Other Classes Of Derivatives

There are no requirements imposed in the PCMA to provide a prospectus or other disclosure document in respect of derivatives transactions generally, but the PCMA does provide that for trading in "designated derivatives" a disclosure document in prescribed form must be filed with the Chief Regulator and, if required by the rules, a receipt must be obtained from the Chief Regulator (similar to a receipt for a prospectus, which suggests a review and comment process).

The Authority may, if it considers it to be in the public interest, make an order designating particular derivatives or classes of derivatives to be "designated derivatives."

The Commentary indicates that it "is anticipated that designated derivatives will include derivatives that raise investor protection concerns, but for which traditional securities regulatory requirements are not appropriate. The regulations will prescribe varying levels of disclosure depending on the specific circumstances, including the nature of the product and the identity of the parties."

Any class of derivatives may also be designated by the Authority to be securities if the Authority considers this to be in the public interest, which would result, among other things, in prospectus obligations applying to such derivatives (subject to any applicable exemptions).

Furthermore, classes of derivatives may be made subject to any prescribed provisions of the PCMA or related regulations. The Commentary indicates that this will allow "applicable requirements to be tailored to the class of derivative and to address other relevant factors such as the type of counterparty and the method of transacting." It will also still be open to the Authority to achieve this objective by granting exemptions which set out a customized disclosure and compliance regime for particular derivatives or activities such as those exemptions that currently permit the offering by certain investment dealers of platform-traded Contracts for Differences.

Designation Of Certain Classes Of Derivatives As Systemically Important

As we will discuss in a separate bulletin, under the CMSA the Authority may designate a class of derivatives as systemically important and regulate them nationally if, in the Authority's opinion, the class of derivatives could pose a systemic risk related to capital markets.

Regulation Of Clearing Agencies, Marketplaces, Trade Repositories And Other Market Infrastructures

Entities that wish to perform a core market infrastructure function that is under the oversight of the Authority must apply to be "recognized" by the Authority. This includes clearing agencies and exchanges (which term is not defined in the PCMA but would likely include traditional futures exchanges but not most other derivatives trading platforms). The Authority may grant such recognition if it is considered to be in the public interest, and the Authority may also impose conditions, restrictions or requirements on such recognition at any time upon giving the relevant entity an opportunity to make representations. The Chief Regulator may also make decisions regarding the manner in which a recognized entity carries on business and regarding derivatives trading on a recognized exchange, subject to certain rights of appeal to the Authority's adjudicative tribunal.

Similarly, marketplaces (other than exchanges), trade repositories and certain other providers of specific services within the capital markets may apply to the Authority for a designation order under the PCMA. There are no requirements to obtain designation orders in order to carry on the relevant businesses but related regulations will require other market participants to deal with service providers that have received designation orders. For example, derivatives counterparties are required to report trades to designated trade repositories, and accordingly derivatives trade repositories in practice need to obtain designation orders in order to effectively provide the desired reporting service to Canadian market participants. As with recognition orders, the Authority may grant such recognition if it is considered to be in the public interest, and the Authority may also impose conditions, restrictions or requirements on such recognition at any time upon giving the relevant entity an opportunity to make representations. The Commentary notes that, similarly to recognition orders, the Authority will impose a number of requirements on designated entities through their designation orders and the regulations.

General Regulatory Authority Over Market Participants

Recognized entities and designated entities as well as registered and exempted dealers and advisers all fall within the definition of "market participants" in the PCMA. Market participants are subject to general regulatory oversight, and business and conduct review by the Chief Regulator and its designees, who will have rights to enter a market participant's business premises to complete such reviews. Market participants that are the subject of business and conduct reviews will be required to pay the Authority such fees as may be prescribed.

In connection with the administration or enforcement of capital markets laws and the regulation of capital markets, and to permit the Chief Regulator to assist regulators in other jurisdictions with such matters, the Chief Regulator may also order a market participant to provide the Authority with any specified information, record or thing in the market participant's possession.

The Authority may also require market participants or any other persons to provide it with such records and information as the Authority requests for the purposes of monitoring activity in capital markets, detecting, identifying or mitigating systemic risks related to capital markets, or conducting policy analysis related to the Authority's mandate and the purposes of the PCMA. The Chief Regulator also has this authority in respect of all persons under the CMSA.

These regulatory powers are also discussed in our November 2014 Blakes Bulletin: New Proposed Provincial Capital Markets Legislation: What It Means for Registrants and Other Market Participants.

Also, as we will discuss in a separate bulletin, systemically important capital markets participants, trading facilities and clearing houses are also subject to regulation by the Authority under the CMSA.

Deadline For Comment

Comments on the Consultation Drafts may be submitted until December 8, 2014.

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
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
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.