Canada: Proposed CSA Derivatives Registration Rule Part 1 – Who Must Register

Last Updated: June 5 2018
Article by Shahen A. Mirakian

On April 19, 2018, the Canadian Securities Administrators (the "CSA") published new draft rules governing the registration of derivatives market participants. The proposed rules are open for a 150-day comment period, which is set to expire on September 17, 2018. The new rules are found in:

  • Proposed National Instrument 93-102 Derivatives: Registration (the "Instrument"); and
  • Proposed Companion Policy 93-102 Derivatives: Registration (the "CP"), and together with the Instrument, "Proposed Instrument".1

The Proposed Instrument, together with Proposed National Instrument 93-101 Derivatives: Business Conduct and Proposed Companion Policy 93-101 Derivatives Business Conduct ("NI 93-101") published for comment in April 20172, are intended to implement a comprehensive regime for the regulation of persons or companies that are in the business of trading in or advising on derivatives.  The CSA intends to republish NI 93-101 during the comment period for the Proposed Instrument for a second set of comments to allow interested parties to comment on the entire regulatory regime. 

We are preparing two publications outlining the various requirements included in the Proposed Instrument: this bulletin focuses on who needs to register and a separate bulletin will address initial and ongoing registration requirements, including registration of individuals.

Who Must Register as a Derivatives Adviser or Derivatives Dealer

The Proposed Instrument creates four new registration categories for persons or companies active in the derivatives market:

  • Derivatives dealer;
  • Restricted derivatives dealer;
  • Derivatives adviser; and
  • Restricted derivatives adviser.

Restricted derivatives dealer and restricted derivatives advisers are persons or companies who are required to be registered as a derivatives dealer or a derivatives adviser, as the case may be, but restrictions are placed on their ability to act in the market as a condition of their registration.  For instance, a restricted derivatives dealer could be limited to only dealing in certain types of derivatives (for example, only forwards) or derivatives with certain underlyings (for example, only foreign exchange and currency derivatives).  All references to derivatives dealers in this bulletin will include restricted derivatives dealers and all references to derivatives advisers will include restricted derivatives advisers.

The requirements for registration under the legislation are being in the business of trading in derivatives for derivatives dealers and being in the business of advising others about the buying or selling of derivatives for derivatives advisers (or in either case, holding themselves out as being in the business of trading or advising, as the case may be).  In certain jurisdictions, the legislated registration requirement does not include a business trigger for dealers, but the Proposed Instrument includes an explicit dealer registration exemption for parties not in the business of trading in order to create a uniform registration requirement across Canada.

In addition to the business trigger, registration as a derivatives dealer is required for any person or company who:

  • transacts with, for, or on behalf of a non-eligible derivatives party;
  • solicits or initiates contact with a non-eligible derivatives party to encourage that person or company to transact in a derivative or to offer a service relating to a transaction; or
  • on behalf of another person or company, other than an affiliated entity, facilitates the clearing of one or more derivatives through a clearing agency or a clearing house.

The term "eligible derivatives party" was originally used in NI 93-101 and will be identical in that instrument and the Proposed Instrument.  An explanation of the term is included below.

There are no additional registration triggers for derivatives advisers.

The Proposed Instrument does not include a requirement for parties with substantial aggregate derivatives exposure to register (as was discussed in CSA Consultation Paper 91-407 Derivatives: Registration).  The CSA has said that it will be conducting additional analysis of these market participants and a future version of the Proposed Instrument may include registration requirements for them.

It should be noted that the definition of derivatives used in the Proposed Instrument is from the various derivatives product determination rules in Canadian jurisdictions and does not include exchange-traded derivatives.  Registration for dealers and advisers active in exchange-traded derivatives will be governed by commodity futures legislation (for commodity futures in Ontario and Manitoba), derivatives legislation (Quebec) and securities legislation (in all other Canadian jurisdictions and for listed options in Ontario and Manitoba).

The Proposed Instrument will not apply to certain governments, central banks, certain Crown corporations, certain international organizations and qualifying clearing agencies.

One other notable group of derivatives market participants who will not be covered by the Proposed Instrument are federally-regulated financial institutions ("FRFIs") in Ontario, who by virtue of the securities legislation in Ontario (which reflects the terms of the Hockin-Kwinter intergovernmental agreement between the governments of Ontario and Canada), are exempt from Ontario registration requirements.  In practice, this lack of inclusion will not have a major effect because FRFIs will be subject to registration requirements in all other Canadian jurisdictions.  It remains to be seen if FRFIs will argue, as many do in respect of securities dealer or adviser registration requirements, that this legislation is not within the power of the provinces with respect to them due to the separation of powers set out in the Canadian constitution.

Indicia for "Being in the Business" for Derivatives Dealers and Derivatives Advisers

Derivatives Dealers

The factors that indicate that a person or company is in the business of trading in derivatives are set out in the CP as:

  • Market making (which is basically activity where a party is not concerned about the nature of the positions they take, but instead are compensated by the act of intermediation through spreads or fees);
  • Transacting with frequency or regularity;
  • Facilitation and intermediation;
  • Transacting with the intention of being compensated;
  • Soliciting transactions; or
  • Engaging in activities similar to a derivatives dealer.

These indicia are essentially the same as those in section 1.3 of the Companion Policy to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") for securities dealers (market making and intermediation are treated as a single category in NI 31-103), so the CSA already has experience in interpreting these indicia.

Derivatives Advisers

Rather than set out specific indicia, the CP sets out a number of examples where registration would be required (absent an exemption) while the notice and request for comment accompanying the Proposed Instrument discusses certain circumstances where a registration requirement would not be triggered.

The CP includes a number of examples to demonstrate when registration is required. Generally, these are instances where a registrant under securities or commodity futures legislation also provides advice on derivatives or derivatives strategies, with the exception of one scenario that is very specific to the derivatives marketplace: "a person or company that recommends a derivative or derivatives trading strategy to investors as part of a general solicitation by an online derivatives trading platform."

This specific example is likely included to require registration as derivatives advisers for companies who provide free advice or information about market trends (generally by email or through social media) and then direct the recipients of the information to transact on a particular online platform (usually for instruments like contracts for differences or rolling spot foreign exchange transactions).  There has been a proliferation of these activities in the Canadian market recently by foreign companies, and by specifically mentioning these activities in the CP, the CSA is warning foreign companies that they must not solicit Canadians without being regulated.

The notice and request for comment accompanying the Proposed Instrument note that securities or commodity futures registrants and professionals (i.e. lawyers, accountants, geologists, etc.) who advise on derivatives in a way that is incidental to their core activities will not be considered to be in the business of advising others with regards to derivatives.  The term "incidental" is not defined in the notice or the Proposed Instrument. Past commentary from the CSA suggests that the activity cannot be a source of income and the activity should be a very small part of the overall activities of the registrant for any one client. A similar concept in Ontario commodity futures legislation regarding securities advisors who advise on commodity futures has been the subject of much debate and discussion for over 25 years, so it is unlikely that the true scope what is incidental activity will be determined in any definitive fashion before the Proposed Instrument comes into force.

Types of Derivatives Dealers

Derivatives dealers are divided into two broad types in the Proposed Instrument: those who deal solely with eligible derivatives parties and those who deal with both eligible derivatives parties and non-eligible derivatives parties.

Derivatives dealers who do not deal solely with eligible derivatives parties are required to become IIROC Dealer Members.  It remains to be seen if IIROC will impose different requirements on firms seeking to become IIROC Dealer Members only in respect of their derivatives activities.  Thus far, firms that have become IIROC Dealer Members solely due to their trading of foreign exchange contracts or contracts for differences have had to comply with the same regime as all other firms.

Eligible derivatives parties

An eligible derivatives party is defined essentially the same as a "permitted client" in NI 31-103 or as a "qualified party" in the existing provincial registration exemptions for over-the-counter derivatives dealing. The same general list of government entities, financial institutions and registrants is included in all of the above documents (with the exception being that a registered charity is not included in the eligible derivatives party definition)  and the asset tests are also similar ($25 million in net assets as shown in the most recently prepared financial statements for persons and companies other than individuals and $5 million in net financial assets for individuals). 

The definitions differ in that the eligible derivatives party definition includes commercial hedgers (unlike the permitted client definition) who have net assets of at least $10 million or are guaranteed by an eligible derivatives party (unlike the qualified party definition).  Commercial hedger is defined broadly and includes all hedging related to any business activities (not just limited to commodities).  It should be noted that there was no commercial hedger category in the definition of eligible derivatives party published in NI 93-101 and its inclusion here (and therefore in the next draft of NI 93-101) is in direct response to comments received on that instrument.

Parties can rely on written representations from their counterparties to determine eligible derivatives party status, only where it would be reasonable to do so.

Exemptions from Registration Requirements

Derivatives Dealers

  • End Users – this is not so much an exemption as a limitation on who is considered an end-user.  The end-user exemption basically codifies the business trigger indicia for derivatives dealers and advisers, but limits it to parties who are not registered in any jurisdiction in respect of dealing or advising activities.  The effect of this is that foreign banks or dealers who only deal with Canadian counterparties to hedge obligations would be required to register absent some other exemption.  This outcome is likely not ideal as many foreign banks only deal with Canadian counterparties to hedge Canada-related risks (such as Canadian currency) and Canadian counterparties are best placed worldwide to manage such risks. However many of these foreign banks will not want to comply with Canadian registration requirements, so they will seek to hedge risks with less well-placed parties, thus likely increasing overall systemic risk.
  • Small players – parties who are not registered anywhere and limit their activities to eligible derivatives parties are not required to register if they have do not have a month-end aggregate gross notional amount greater than $250,000,000 at any time over the previous 24 months. For foreign parties, this is measured only with respect to their transactions with Canadian counterparties.  The term "notional amount" is used throughout the Proposed Instrument and there are a number of questions from the CSA on how it should be interpreted particularly for complex transactions and transactions where there isn't a money amount referenced.  Whatever definition is used by the CSA, it will be broadly consistent with the international consensus.
  • Commodity dealers with less than $1 billion notional – parties who deal solely in commodities (which do not include currencies, cryptocurrencies or securities), are not registered anywhere, and limit their activities to eligible derivatives parties are not required to register if they have do not have a month-end aggregate gross notional amount greater than $1,000,000,000 at any time over the previous 24 months of derivatives with commodities as their only underlying asset. For foreign parties, this is measured only with respect to their transactions with Canadian counterparties.
  • Affiliated entities – parties whose derivatives activities are limited to trading with affiliated entities (other than investment funds) are not required to register.
  • Foreign derivatives dealers - parties with a head office or principal place of business in a foreign jurisdiction specified in Appendix B of the Proposed Instrument (which is currently blank) and limit their activities in Canada to eligible derivatives parties are not required to register.  This exemption broadly corresponds to the international dealer exemption in NI 31-103 (without the requirement that the derivatives themselves be foreign).

Derivatives Advisers

  • Advising generally - parties who deliver advice that is not tailored to the needs of the specific recipient and disclose all financial interests in recommended derivatives or their underlyings are not required to register.
  • Foreign derivatives advisers – parties with a head office or principal place of business in a foreign jurisdiction listed in Appendix G (which is currently blank) and limit their activities in Canada to eligible derivatives parties are not required to register. This exemption broadly corresponds to the international adviser exemption in NI 31-103; however, it does not limit the percentage of revenue that can be derived from Canadian clients or require that the derivatives be foreign.

The Proposed Instrument does not include an exemption which corresponds to the international sub-advisor exemption in NI 31-103 (which allows for foreign advisers to provide advice through a written agreement with a Canadian registered adviser or dealer).

Substituted Compliance

Certain parties that are already regulated may rely on compliance with the requirements applicable to them under other regulatory regimes to avoid compliance with certain obligations of the Proposed Instrument.These entities would still need to register, but they would not be subject to additional compliance requirements.

The entities that may use substituted compliance are:IIROC Dealer Members, various federally (OSFI) and provincially regulated financial institutions, foreign dealers who deal with non-eligible derivatives parties and foreign advisors who deal with non-eligible derivatives parties.Other than OSFI and AMF regulated financial institutions, there is not yet any analysis of which obligations could be avoided by substituted compliance.For OSFI and AMF regulated financial institutions, the Proposed Instrument includes an annex setting out which obligations have equivalents in the OSFI and AMF regulations and, therefore, would be subject to substituted compliance.

The Proposed Instrument includes substituted compliance for registered advisers (securities or commodity futures) but the accompanying notice and request for comment asks if substituted compliance should be extended to these entities as well.

Next Steps

The CSA has solicited comments from interested parties on the Proposed Instrument by September 17, 2018. It has specifically requested feedback on 12 questions published in the notice and request for comment which accompanies the Proposed Instrument.

We invite market participants who wish to discuss registration obligations for firms to contact us with any questions or concerns.  Market participants may wish to wait to review our second bulletin on initial and ongoing registration requirements and for the republication of NI 93-101 before making any comments to the CSA.  We are available to assist any parties interested in commenting.

by Shahen Mirakian and Shannon Ste. Marie, Student at Law


1 Ontario Securities Commission, CSA Notice and Request for Comment Proposed National Instrument 93-102 Derivates: Registration Proposed Companion Policy 93-102 Derivatives: Registration, online:

2 Please refer to McMillan LLP Derivatives Law bulletin on the proposed rules governing the business conduct of derivatives firms here.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2018

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.

Shahen A. Mirakian
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