CSA 93-101 – Derivatives Business Conduct

September 1, 2017

Download PDF:

CSA 93-101 – Derivatives Business Conduct

Letter Summary:

The proposed National Instrument establishes a regime for over-the-counter derivatives by setting out fundamental obligations for OTC derivatives dealers and advisers, who would be subject to the instrument if they tripped the “business trigger”.  

Certain obligations would be created including obligations regarding fair dealing, conflicts of interest and KYC requirements, segregation of assets and trade confirmations. The proposed National Instrument also includes obligations on “senior derivatives managers” that are similar to those of a Chief Compliance Officer with respect to accountability and reporting.

The proposed instrument introduces further measures such as a derivatives-specific suitability standard, the requirement to identify derivatives party-specific needs, and disclosure regarding leverage.

Overview of the Council’s Comments:

We support the CSA’s efforts in seeking to adopt a harmonized derivatives registration and business conduct regime.   Derivative Advisers and Dealers must have a broad understanding of their clients’ business, operations and the associated risks of derivative transactions.  To the extent rules can also be harmonized with those existing under National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations they ought to be.

• We are generally supportive of the current definition of an “eligible derivatives party” and appreciate the similarities to the existing definition of a “permitted client”.  

• We are concerned with respect to the requirement to obtain written representations as to the knowledge and experience of an eligible derivatives party, as such a standard evokes ambiguity and may result in uneven application.  

• We do not have a firm view as to whether individuals should be permitted to qualify as an eligible derivatives party.  We have taken the position in the past that simply possessing investable assets above a certain threshold does not necessary imply financial sophistication. 

• We are in favour of fair dealing standard that places the onus of disclosure on the derivatives Dealer and would also recommend an explicit best execution requirement be included.  

• We support the creation of a senior Derivatives Compliance Officer who would be responsible for supervisory, management and reporting obligations similar to the UPD concept in the securities market.