Canada: CSA Propose Amended National “Soft Dollar” Legislation

The Canadian Securities Administrators (the CSA) have published for comment a revised proposed National Instrument 23-102 Use of Client Brokerage Commissions as Payment for Order Execution Services or Research (Proposed Instrument) and a corresponding proposed Companion Policy 23-102 CP (Proposed Policy). The Proposed Instrument and Proposed Policy (collectively, the Proposal) update an earlier proposal published in July 2006 (the 2006 Proposal).

The Proposed Instrument (announced on January 11, 2008) includes several substantive changes from the 2006 Proposal. In particular, the CSA has addressed concerns raised with the 2006 Proposal (see our Osler Update on the 2006 Proposal) by:

  • narrowing the scope of the Proposed Instrument's application;
  • clarifying the definitions of "order execution services" and "research services";
  • clarifying the obligations of advisers; and
  • increasing the narrative scope, while decreasing the quantitative scope, of the required disclosure of soft dollar arrangements.

These changes are likely to address many of the concerns raised about the 2006 Proposal.


Soft dollar arrangements are a continuing area of concern for Canadian regulators because of the potential conflict of interest between dealers and advisers and their clients. The CSA is concerned that they may result in higher brokerage commission fees being paid by clients with questionable resulting benefits. In the last two years, both the U.S. Securities and Exchange Commission and the U.K. Financial Services Authority have implemented soft dollar measures. Ontario and Québec have had soft dollar policy statements since 1986; however, if enacted, the Proposal will for the first time create explicit restrictions on the use of soft dollar arrangements while providing specific guidance to advisers.

Scope of Application

The Proposed Instrument has a narrower application than the 2006 Proposal. The Proposed Instrument applies to any trade in securities for an investment fund, a fully managed account, or any other account or portfolio over which an adviser exercises investment discretion on behalf of third party beneficiaries, where brokerage commissions are charger by a dealer. The 2006 Proposal would have applied to trades in OTC markets and trades executed on a principal basis. In these instances, the lack of pricing transparency makes it is difficult to separate the purchase price of the security from any additional premiums or fees.

The Proposed Policy provides additional clarification regarding the application limits of the Proposed Instrument. Section 2.1(1) of the Proposed Policy defines "client brokerage commissions" as including any commission or similar transaction-based fee charged for a trade where the consideration paid for the security is clearly separate and identifiable. With respect to trades such as principal trades where a mark-up is charged, advisers would not be subject to the Proposal but will be subject to their general fiduciary obligations to their clients.

Definitions of "Order Execution Services" and "Research Services"

The definition of order execution services (for which soft dollars are permitted to be used) remains unchanged; however, additional clarification has been included regarding the temporal standard used to interpret the definition. The temporal standard set out in Section 3.2 of the Proposed Policy would include goods and services provided or used between the point when the adviser makes an investment decision and the point when the resulting transaction is completed.

Substantive changes have been made to the proposed definition of research services (for which soft dollars are permitted to be used) and the associated guidance, shifting the focus away from characteristics-based eligibility to the adviser's use of the research.

The Proposed Policy has also been amended to include a wider range of goods and services which will be permitted under soft dollar arrangements. The non-exhaustive list of examples now includes such items as raw market data, proxy services, publications marketed towards a narrow audience (e.g., trade magazines), seminar and conference fees, databases and software. Some of the examples include "mixed-use" items, for which only that portion that benefits clients may be paid for with client brokerage commissions.

Obligations on Advisers

The Proposal includes further clarification of the obligations of advisers to ensure that soft dollar arrangements benefit their clients. Under the Proposed Policy, the adviser should be able to demonstrate how the order execution and research services purchased with client brokerage commissions are used to provide appropriate assistance to the adviser in making investment decisions or in effecting transactions.

It is not, however, necessary for advisers to establish a direct connection between each specific good or service received and a particular client. Subsection 4.1(3) of the Proposed Policy acknowledges that a specific good or service may benefit more than one client and may not always directly benefit each particular client whose brokerage commissions were used as payment. It is, however, incumbent on advisers to have policies and procedures in place to ensure that all clients whose brokerage commissions were used as payment benefited from the use of order execution or research services.

The Proposed Instrument also addresses concerns over the difficulty of ensuring that the amount of value received is reasonable in relation to the client brokerage commissions paid. Subsection 3.1(2) of the Proposed Instrument has been amended to propose that the adviser must ensure that a good faith determination has been made with respect to the reasonableness of value received from soft dollar arrangements.

Disclosure Requirements

The client disclosure requirements were amended to strike a better balance between the costs of additional disclosure and the benefits to clients of increased transparency and accountability, while aiming for greater consistency with U.S. disclosure requirements.

The definition of "client" for purposes of disclosure has been clarified. Typically the "client" will be the party with whom the contractual arrangement to provide advisory services exists. However, where the adviser is also the trustee and/or the manager of an investment fund, or is an affiliate of the trustee and/or manager, the disclosure may need to be made to the investment fund's independent review committee.

The proposed narrative scope of soft dollar disclosure has been increased to provide more information to clients. In addition to the narrative disclosure requirements in the 2006 Proposal, advisers will also be required to identify the names of dealers and third parties that provided goods and services other than order execution, and the types of goods and services provided.

Additional narrative requirements include descriptions of:

  • the process for, and factors considered in, selecting dealers;
  • procedures to ensure that clients receive reasonable benefits from soft dollar arrangements; and
  • the methods for determining overall reasonableness of the commission paid for the value received.

The proposed quantitative scope has been decreased to require disclosure on an aggregated basis of the total client brokerage commissions paid during the period and a reasonable estimate of the portion paid for goods and services other than order execution (to the extent ascertainable). Proposed guidance provides advisers with flexibility to determine the appropriate level of aggregation based on their business structure and client needs.

Comment Before April 10, 2008

A copy of the CSA's Request for Comments, including the Proposed Instrument and the Proposed Policy can be found here. Interested parties may make written submissions with respect to the Proposals before April 10, 2008.

Please contact us if you have any questions regarding soft dollar arrangements in Canada, either currently, or under the CSA's proposed regulatory framework.

John Black is a partner in the Business Law Department in the firm's Toronto office. Mark DesLauriers is a partner in the firm's Toronto office where he practises in the area of corporate and securities law. Ron Kugan is an associate in the Business Law Department of the firm's Toronto office.

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

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

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

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

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

    Use of

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


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

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


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

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

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

    Information Collection and Use

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

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

    Mondaq News Alerts

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


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

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

    Log Files

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


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

    Surveys & Contests

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


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


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

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


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

    Correcting/Updating Personal Information

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

    Notification of Changes

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

    How to contact Mondaq

    You can contact us with comments or queries at

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

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