Ontario Securities Commission Bulletin
Issue 47/39 - September 26, 2024
Ont. Sec. Bull. Issue 47/39
• Ontario Securities Commission and Robert George Freeman -- s. 127(8)
• Notice of Coming into Force of National Instrument 93-101 Derivatives: Business Conduct
• Desjardins Société de placement inc. / Desjardins Investments Inc. et al.
• Temporary, Permanent & Rescinding Issuer Cease Trading Orders
• Temporary, Permanent & Rescinding Management Cease Trading Orders
• Multilateral Instrument 93-101 Derivatives: Business Conduct
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Oasis World Trading Inc. et al.
FOR IMMEDIATE RELEASE
September 18, 2024
TORONTO -- The previously scheduled days of January 6, 7, 8, 9, 13, 14, 15, 17, 20, 21, 22, 23, 30 and 31, and February 3, 4, 5, 6, 7, 27 and 28, 2025 will not be used for the merits hearing.
The merits hearing shall commence on May 6, 2025 at 10:00 a.m. and continue on May 7, 8, 9, 12, 13, 14 and 15, and on June 2, 3, 4, 5, 6, 9, 10 and 11, 2025, at 10:00 a.m. on each day.
The hearing will be held at the offices of the Tribunal at 20 Queen Street West, 17th floor, Toronto.
Members of the public may observe the hearing by videoconference, by selecting the "Register to attend" link on the Tribunal's hearing schedule, at capitalmarketstribunal.ca/en/hearing-schedule.
For Media Inquiries:
For General Inquiries:
FOR IMMEDIATE RELEASE
September 20, 2024
TORONTO -- The scheduled merits hearing dates of October 9 and 10, 2024 in the above-named matter will proceed by videoconference starting at 8:00 a.m. on each day.
Members of the public may observe the hearing by videoconference, by selecting the "Register to attend" link on the Tribunal's hearing schedule, at capitalmarketstribunal.ca/en/hearing-schedule.
For Media Inquiries:
For General Inquiries:
Ontario Securities Commission and Robert George Freeman
FOR IMMEDIATE RELEASE
September 24, 2024
TORONTO -- The Tribunal issued an Order in the above-named matter.
A copy of the Order dated September 24, 2024 is available at capitalmarketstribunal.ca.
For Media Inquiries:
For General Inquiries:
Ontario Securities Commission and Robert George Freeman -- s. 127(8)
File No. 2024-12
Adjudicator: |
M. Cecilia Williams (Chair) |
September 24, 2024
(Subsection 127(8) of the Securities Act, RSO 1990 c S.5)
WHEREAS on September 24, 2024, the Capital Markets Tribunal held a hearing by videoconference to consider a motion by the Ontario Securities Commission to extend a temporary order of the Commission dated July 29, 2024, and extended on August 8, 2024, against Robert George Freeman (the Temporary Order);
ON READING the materials filed by the representatives for the Commission and on hearing the submissions of the representatives for the parties, and on considering that Freeman consents to an extension of the Temporary Order;
IT IS ORDERED THAT:
1. pursuant to subsection 127(8) and paragraph 2 of subsection 127(1) of the Securities Act, all trading in the securities of QuBiologics Inc. by Freeman, directly or indirectly, or by any person on behalf of Freeman, including but not limited to any act, advertisement, solicitation, conduct, or negotiation, directly or indirectly in furtherance of a trade, shall cease until 4:30 p.m. on February 13, 2025; and
2. pursuant to subsection 127(8) and paragraph 3 of subsection 127(1) of the Securities Act, any exemptions contained in Ontario securities law do not apply to Freeman until 4:30 p.m. on February 13, 2025.
Notice of Coming into Force of National Instrument 93-101 Derivatives: Business Conduct
September 26, 2024
National Instrument 93-101 Derivatives: Business Conduct (the Rule) will come into force on September 28, 2024 (the Effective Date), pursuant to section 143.4 of the Securities Act (Ontario). The Rule, which was originally published as Multilateral Instrument 93-101 Derivatives: Business Conduct, is referred to as a national instrument following adoption of the Rule by the British Columbia Securities Commission on the Effective Date.
In connection with the Rule, the Ontario Securities Commission also adopted Companion Policy 93-101 Derivatives: Business Conduct (the Companion Policy). The Companion Policy will come into effect on September 28, 2024.
The Rule and Companion Policy were published in the Bulletin on September 28, 2023 at (2023), 46 OSCB 7759 and on the OSC website atwww.osc.ca.
The full text of the Rule and Companion Policy is reproduced in Chapter 5 of this Bulletin.
National Policy 11-206 Process for Cease to be a Reporting Issuer Applications -- Application to cease to be a reporting issuer under applicable securities laws -- The issuer is not an OTC reporting issuer; the securities of the issuer are beneficially owned by fewer than 15 securityholders in each of the jurisdictions of Canada and fewer than 51 securityholders worldwide; no securities of the issuer are traded on a market in Canada or another country; the issuer is not in default of securities legislation except it has not filed certain continuous disclosure documents.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 1(10)(a)(ii).
September 23, 2024
The principal regulator in the Jurisdiction has received an application from the Filer for an order under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the "Order Sought").
Under the Process for Cease to be a Reporting Issuer Applications (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 -- Passport System ("MI 11-102") is intended to be relied upon in Alberta and British Columbia (the "Jurisdictions").
Terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this order, unless otherwise defined.
This order is based on the following facts represented by the Filer:
1. The Filer was continued under the laws of the State of Delaware. The Filer's Canadian head office is located at 56 Temperance St, 7th Floor, Toronto, Ontario, M5H 3V5.
2. The Filer is a reporting issuer in the provinces of Ontario, Alberta and British Columbia.
3. On May 29, 2024, UGE International Ltd. and NOVA Infrastructure Fund II, LP, through its affiliated entity, 1000896425 Ontario Ltd. (the "Purchaser"), entered into an arrangement agreement pursuant to which the Purchaser agreed to acquire all of the issued and outstanding common shares of the Filer (the "Filer Shares") pursuant to a statutory plan of arrangement under section 182 of the Business Corporations Act (Ontario) (the "Arrangement").
4. The Arrangement was approved by holders of the Filer Shares, compensation warrants to purchase Filer shares, and the convertible debentures issued by the Filer (collectively, the "Securityholders") on July 31, 2024 and by the Ontario Superior Court of Justice (Commercial List) on August 6, 2024.
5. The full details of the Arrangement and the intention of the Filer to make an application to cease to be a reporting issuer were contained in a management information circular of the Filer dated June 28, 2024 and a news release dated August 16, 2024, copies of which are available under the Filer's profile on www.sedarplus.ca.
6. Pursuant to the Arrangement:
(a) each shareholder of UGE International Ltd., other than certain management representatives and shareholders of UGE (the "Rollover Shareholders") received cash consideration of C$2.00 per Filer Share.
(b) the Rollover Shareholders exchanged their Filer Shares for Class A LP units in NOVA-SWIFT HoldCo, LP, a limited partnership formed under the laws of the State of Delaware.
7. On August 15, 2024, the Arrangement took effect and the Purchaser acquired all of the issued and outstanding Filer Shares, and the Filer Shares were de-listed from the TSX Venture Exchange at the close of trading on August 19, 2024.
8. The Arrangement included the amalgamation of UGE International Ltd. and UGE Consulting Services Co. Ltd., which continued as one corporation ("Amalco 1") and the subsequent amalgamation of Amalco 1 and the Purchaser, which continued as one corporation ("Amalco 2"). Pursuant to the Arrangement, the name of Amalco 2 was UGE International Ltd. On August 22, 2024, Amalco 2 continued out of Ontario to Delaware (the "Continuance").
9. Following the Continuance, Amalco 2 changed its name to UGE International Inc. NOVA-Swift Holdco, LP, the sole shareholder of the Purchaser prior to the Arrangement, is now the sole shareholder of the Filer.
10. The Filer is not an OTC reporting issuer under Multilateral Instrument 51-105 -- Issuers Quoted in the U.S. Over the Counter Markets.
11. The outstanding securities of the Filer, including debt securities, are beneficially owned, directly or indirectly, by fewer than 15 securityholders in each of the jurisdictions of Canada and fewer than 51 securityholders in total worldwide.
12. No securities of the Filer, including debt securities, are traded in Canada or another country on a marketplace as defined in National Instrument 21-101 Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported.
13. The Filer has no intention to seek public financing by way of an offering of securities.
14. The Filer is applying for an order that the Filer has ceased to be a reporting issuer in all of the Jurisdictions.
15. The Filer is not eligible to use the simplified procedure under section 19 of National Policy 11-206 -- Process for Cease to be a Reporting Issuer Applications ("NP 11-206") because the Filer has been noted in default as a result of its failure to file interim financial statements, management's discussion and analysis, and related certifications of interim fillings for the period ended June 30, 2024 (collectively, the "Filings"), which were due on August 29, 2024 in accordance with National Instrument 51-102 Continuous Disclosure Obligations.
16. The Filer is not eligible to use the modified procedure noted in section 20 of NP 11-206 because, among other things, the Filer has represented that no securities of the Filer are traded in Canada or another country on a marketplace.
17. But for the fact the Filer is in default of securities legislation as a result of failing to file the Filings that were due after the completion of the Arrangement, the Filer would be eligible for the simplified procedure set out in NP 11-206.
18. Upon granting of the Order Sought, the Filer will not be a reporting issuer or equivalent in any jurisdiction of Canada.
The principal regulator is satisfied that the order meets the test set out in the Legislation for the principal regulator to make the order.
The decision of the principal regulator under the Legislation is that the Order Sought is granted.
OSC File #: 2024/0509
Desjardins Société de placement inc. / Desjardins Investments Inc. et al.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted to permit the extension of a prospectus' lapse date by 62 days to facilitate the consolidation of the funds' prospectus with the prospectus of different funds under common management.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 62(5).
SEDAR+ #: 06162223
September 18, 2024
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer on behalf of the January Funds for a decision under the securities legislation of the Jurisdictions (the Legislation) that the time limits for the renewal of the simplified prospectus and fund facts for the January Funds dated January 25, 2024 (the January Prospectus) be extended to those time limits that would apply if the lapse date of the January Prospectus was March 28, 2025 (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(i) the Autorité des marchés financiers is the principal regulator for this application;
(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System, which in Québec is a Regulation, RLRQ, c. V-1.1, r.1(Regulation 11-102), is intended to be relied upon in each province and territory of Canada (together with the Jurisdictions, the Canadian Jurisdictions); and
(iii) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions, which in Québec is a Regulation, RLRQ, c. V-1.1, r.3, Regulation 11-102, National Instrument 81-101 Mutual Fund Prospectus Disclosure, which in Québec is a Regulation, RLRQ, c. V-1.1, r.38 (Regulation 81-101), and National Instrument 81-102 Investment Funds, which in Québec is a Regulation, RLRQ, c. V-1.1, r.39 (Regulation 81-102) have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of Québec with its head office in Montréal, Québec.
2. The Filer is registered as an Investment Fund Manager in Québec, in Ontario and in Newfoundland and Labrador.
3. The Filer is the manager of each of the January Funds.
4. Neither the Filer nor any of the January Funds are in default of securities legislation in any of the Canadian Jurisdictions.
The January Funds
5. Each January Fund is: (a) an open-ended mutual fund trust established under the laws of Québec; (b) a reporting issuer as defined in the securities legislation of each of the Canadian Jurisdictions and (c); subject to Regulation 81-102.
6. Securities of each of the January Funds are currently distributed in the Canadian Jurisdictions pursuant to the January Prospectus.
Reasons for the Lapse Date Extension
7. Pursuant to subsection 2.5(2) of Regulation 81-101 and subsection 62(1) of the Securities Act (Ontario) (the Act), the lapse date of the January Prospectus is January 25, 2025. Accordingly, pursuant to subsections 2.5(3) and 2.5(4) of Regulation 81-101 and subsection 62(2) of the Act, the distribution of securities of each January Fund would have to cease on the current lapse date of the January Prospectus unless: (i) the January Funds file a pro forma simplified prospectus within 30 days before the current lapse date; (ii) the final simplified prospectus is filed within 10 days after the current lapse date; and (iii) a receipt for the final simplified prospectus is obtained within 20 days after the current lapse date.
8. The Filer is the investment fund manager of 88 other funds listed in Schedule A (the March Funds) that currently distribute their securities under a simplified prospectus and fund facts with a lapse date of March 28, 2025 (the March Prospectus).
9. The Filer wishes to combine the January Prospectus with the March Prospectus in order to reduce renewal, printing, and related costs.
10. Offering the January Funds and the March Funds under one prospectus would facilitate the distribution of the January Funds in the Canadian Jurisdictions and enable the Filer to streamline disclosure across the Filer's fund platform. The January Funds share many common operational and administrative features with the March Funds and combining them under one prospectus (as opposed to two) will allow investors to compare their features more easily.
11. It would be impractical to alter and modify all the dedicated systems, procedures, and resources required to prepare the March Prospectus and unreasonable to incur the costs and expenses associated therewith, so that the March Prospectus can be filed earlier with the January Prospectus.
12. If the Exemption Sought is not granted, it will be necessary to renew the January Prospectus twice within a short period of time in order to consolidate the January Prospectus with the March Prospectus.
13. The Filer may make minor changes to the features of the March Prospectus as part of its renewal. The ability to file the January Prospectus with the March Prospectus will ensure that the Filer can make the operational and administrative features of the respective funds consistent with each other, if necessary.
14. Except as otherwise disclosed in Amendment No.1 to the January Prospectus dated March 28, 2024, there have been no material changes in the affairs of the January Funds since the date of the January Prospectus. Accordingly, the current prospectus and fund facts represent the current information of the January Funds.
15. Given the disclosure obligations of the January Funds, should a material change in the affairs of any of the January Funds occur, the January Prospectus will be amended as required under the Legislation.
16. New investors of the January Funds will receive delivery of the most recently filed fund facts document(s) of the applicable January Fund(s). The January Prospectus will still be available upon request.
17. The Exemption Sought will not affect the accuracy of the information contained in the January Prospectus and therefore will not be prejudicial to the public interest.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted.
INCOME FUNDS
1. Desjardins Money Market Fund
2. Desjardins Short-Term Income Fund
3. Desjardins Sustainable Short-Term Income Fund (formerly Desjardins SocieTerra Short-Term Income Fund)
4. Desjardins Canadian Bond Fund
5. Desjardins Sustainable Canadian Bond Fund (formerly Desjardins SocieTerra Canadian Bond Fund)
6. Desjardins Enhanced Bond Fund
7. Desjardins Canadian Corporate Bond Fund
8. Desjardins Sustainable Canadian Corporate Bond Fund
9. Desjardins Global Government Bond Index Fund
10. Desjardins Global Total Return Bond Fund
11. Desjardins Sustainable Environmental Bond Fund (formerly Desjardins SocieTerra Environmental Bond Fund)
12. Desjardins Global Managed Bond Fund
13. Desjardins Sustainable Global Managed Bond Fund (formerly Desjardins SocieTerra Global Managed Bond Fund)
14. Desjardins Global Corporate Bond Fund
15. Desjardins Sustainable Global Corporate Bond Fund (formerly Desjardins SocieTerra Global Corporate Bond Fund)
16. Desjardins Sustainable Global Bond Fund (formerly Desjardins SocieTerra Global Bond Fund)
17. Desjardins Floating Rate Income Fund
18. Desjardins Global Tactical Bond Fund
19. Desjardins Canadian Preferred Share Fund
20. Desjardins Global High Yield Bond Fund
21. Desjardins Emerging Markets Bond Fund
22. Desjardins Sustainable Emerging Markets Bond Fund (formerly Desjardins SocieTerra Emerging Markets Bond Fund)
BALANCED FUNDS
23. Desjardins Global Balanced Growth Fund
24. Desjardins Québec Balanced Fund
25. Desjardins Global Balanced Strategic Income Fund
26. Desjardins Dividend Balanced Fund (formerly Desjardins Dividend Income Fund)
27. Desjardins Sustainable Global Balanced Fund (formerly Desjardins SocieTerra Global Balanced Fund)
CANADIAN EQUITY FUNDS
28. Desjardins Dividend Growth Fund
29. Desjardins Canadian Equity Income Fund
30. Desjardins Sustainable Canadian Equity Income Fund (formerly Desjardins SocieTerra Canadian Equity Income Fund)
31. Desjardins Low Volatility Canadian Equity Fund
32. Desjardins Canadian Equity Fund
33. Desjardins Canadian Equity Value Fund
34. Desjardins Sustainable Canadian Equity Fund (formerly Desjardins SocieTerra Canadian Equity Fund)
35. Desjardins Canadian Small Cap Equity Fund
AMERICAN EQUITY FUNDS
36. Desjardins American Equity Value Fund
37. Desjardins American Equity Growth Fund
38. Desjardins American Equity Growth Currency Neutral Fund
39. Desjardins Sustainable American Equity Fund9* (formerly Desjardins SocieTerra American Equity Fund)
40. Desjardins Sustainable American Small Cap Equity Fund (formerly Desjardins SocieTerra American Small Cap Equity Fund)
GLOBAL AND INTERNATIONAL EQUITY FUNDS
41. Desjardins Sustainable Low Volatility Global Equity Fund (formerly Desjardins SocieTerra Low Volatility Global Equity Fund)
42. Desjardins Overseas Equity Fund
43. Desjardins International Equity Value Fund
44. Desjardins Overseas Equity Growth Fund
45. Desjardins Sustainable International Equity Fund (formerly Desjardins SocieTerra International Equity Fund)
46. Desjardins Global Dividend Fund
47. Desjardins Sustainable Global Dividend Fund (formerly Desjardins SocieTerra Global Dividend Fund)
48. Desjardins Global Equity Fund
49. Desjardins Sustainable Global Opportunities Fund (formerly Desjardins SocieTerra Global Opportunities Fund)
50. Desjardins Sustainable Positive Change Fund (formerly Desjardins SocieTerra Positive Change Fund)
51. Desjardins Global Small Cap Equity Fund
52. Desjardins Sustainable International Small Cap Equity Fund (formerly Desjardins SocieTerra International Small Cap Equity Fund)
53. Desjardins Sustainable Cleantech Fund (formerly Desjardins SocieTerra Cleantech Fund)
54. Desjardins Emerging Markets Fund
55. Desjardins Emerging Markets Opportunities Fund
56. Desjardins Sustainable Emerging Markets Equity Fund (formerly Desjardins SocieTerra Emerging Markets Equity Fund)
ALTERNATIVE FUNDS
57. Desjardins Alt Long/Short Equity Market Neutral ETF Fund
SPECIALTY FUNDS
58. Desjardins Global Infrastructure Fund
INVESTMENT SOLUTIONS
59. Melodia Very Conservative Income Portfolio
60. Melodia Conservative Income Portfolio
61. Melodia Moderate Income Portfolio
62. Melodia Diversified Income Portfolio
63. Melodia Moderate Growth Portfolio
64. Melodia Diversified Growth Portfolio
65. Melodia Balanced Growth Portfolio
66. Melodia Maximum Growth Portfolio
67. Melodia 100% Equity Growth Portfolio
68. Desjardins Sustainable Fixed Income Portfolio (formerly SocieTerra Fixed Income Portfolio)
69. Desjardins Sustainable Conservative Portfolio (formerly SocieTerra Conservative Portfolio)
70. Desjardins Sustainable Moderate Portfolio (formerly SocieTerra Moderate Portfolio)
71. Desjardins Sustainable Balanced Portfolio (formerly SocieTerra Balanced Portfolio)
72. Desjardins Sustainable Growth Portfolio (formerly SocieTerra Growth Portfolio)
73. Desjardins Sustainable Maximum Growth Portfolio (formerly SocieTerra Maximum Growth Portfolio)
74. Desjardins Sustainable 100% Equity Portfolio (formerly SocieTerra 100% Equity Portfolio)
75. Chorus II Conservative Low Volatility Portfolio
76. Chorus II Moderate Low Volatility Portfolio
77. Chorus II Balanced Low Volatility Portfolio
78. Chorus II Growth Portfolio
79. Chorus II Aggressive Growth Portfolio
80. Chorus II Maximum Growth Portfolio
81. Chorus II 100% Equity Growth Portfolio
82. Wise Fixed Income ETF Portfolio
83. Wise Conservative ETF Portfolio
84. Wise Moderate ETF Portfolio (formerly Wise Balanced ETF Portfolio)
85. Wise Balanced 50 ETF Portfolio3
86. Wise Growth ETF Portfolio
87. Wise Aggressive ETF Portfolio (formerly Wise Maximum Growth ETF Portfolio)
88. Wise 100 % Equity ETF Portfolio3
Sun Life Capital Management (Canada) Inc.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from subparagraphs 13.5(2)(b)(ii) and (iii) of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations to permit in-specie transfers between pooled funds and managed accounts and other funds, subject to conditions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 13.5 and 15.1.
September 18, 2024
The principal regulator in the Jurisdiction has received an application from SLC for a decision under the securities legislation of the Jurisdiction (the Legislation) granting an exemption to each Filer from the prohibitions contained in subparagraphs 13.5(2)(b)(ii) and 13.5(2)(b)(iii) of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) to permit In Specie Transfers (as defined below) by:
(a) a Managed Account (as defined below) in relation to a Fund (as defined below); and
(b) a Private Fund in relation to another Fund (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) SLC has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of Alberta, British Columbia and Québec (together with the Jurisdiction, the Jurisdictions).
Terms defined in MI 11-102, National Instrument 14-101 Definitions, National Instrument 81-102 Investment Funds (NI 81-102) and NI 31-103 have the same meaning if used in this decision, unless otherwise defined. Additionally, the following terms shall have the following meanings:
"81-102 Funds" means collectively, the Existing 81-102 Funds and the Future 81-102 Funds.
"Clients" means individuals, private holding companies, pension plans, endowments, trusts, insurance companies, corporations, investment funds, other collective investment vehicles that are not investment funds and other entities to whom the Filer offers, or may offer, discretionary portfolio management services through a Managed Account.
"Discretionary Management Agreement" means a written agreement between the Filer and a Client seeking discretionary portfolio management or related services.
"Existing 81-102 Funds" means any existing investment fund of which the Filer and/or a Knowledge Affiliate (as defined below) is a portfolio adviser (including a sub-advisor) and to which NI 81-102 applies.
"Existing Private Funds" means any existing collective investment vehicle (which may or may not be an investment fund) that is:
(i) not a reporting issuer,
(ii) the securities of which are distributed on a private placement basis pursuant to available prospectus exemptions, and
(iii) for which the Filer and/or a Knowledge Affiliate acts as a portfolio adviser (including a sub-advisor).
"Fund Securities" means units or shares of any of the Funds.
"Funds" means collectively, the Private Funds and the 81-102 Funds.
"Future 81-102 Funds" means any investment fund established in the future of which the Filer and/or a Knowledge Affiliate is a portfolio adviser (including a sub-advisor) and to which NI 81-102 applies.
"Future Private Funds" means any future collective investment vehicle (which may or may not be an investment fund) that:
(i) is not a reporting issuer,
(ii) the securities of which will be distributed on a private placement basis pursuant to available prospectus exemptions, and
(iii) for which the Filer and/or a Knowledge Affiliate will act as a portfolio adviser (including a sub-advisor).
"In Specie Transfer" means causing (i) a Managed Account to deliver portfolio securities to a Fund in respect of the purchase of Fund Securities of such Fund, or causing a Managed Account to receive portfolio securities from the investment portfolio of a Fund in respect of a redemption of Fund Securities of such Fund (ii) a Private Fund to deliver portfolio securities to another Fund in respect of the purchase of Fund Securities of such other Fund, or causing a Private Fund to receive portfolio securities from the investment portfolio of another Fund in respect of a redemption of Fund Securities of such other Fund.
"Managed Account" means an account managed by the Filer for a Client that is not a "responsible person" and over which the Filer has discretionary authority.
"NI 81-102" means National Instrument 81-102 Investment Funds.
"NI 81-107" means National Instrument 81-107 Independent Review Committee for Investment Funds.
"Private Funds" means collectively, the Existing Private Funds and the Future Private Funds.
This decision is based on the following facts represented by the Filer:
SLC
1. SLC is a corporation established under the federal laws of Canada with its head office in Toronto, Ontario.
2. SLC is an indirect, wholly owned subsidiary of Sun Life Financial Inc., a company, the shares of which are listed on, among others, the Toronto Stock Exchange.
3. SLC is registered: (a) under the securities legislation of each Jurisdiction as an investment fund manager, portfolio manager and exempt market dealer; and (b) under the Commodity Futures Act (Ontario) as a commodity trading manager.
4. The Filer is not in default of securities legislation of any Jurisdiction.
The Funds
5. Each Fund is, or will be, an investment fund under securities legislation or a collective investment vehicle that does not meet the definition of an investment fund under securities legislation.
6. Each Fund is, or will be, organized as a limited partnership, a corporation or a trust established under the laws of Canada or a Jurisdiction.
7. The securities of each 81-102 Fund are, or will be, qualified for distribution in one or more of the Jurisdictions under a prospectus prepared and filed in accordance with the securities legislation of such Jurisdictions.
8. Each 81-102 Fund is, or will be, subject to the provisions of NI 81-102.
9. Each Private Fund is not, or will not be, a reporting issuer under the laws of any Jurisdiction.
10. The Filer and/or an affiliate of the Filer is or will be the investment fund manager of the Funds that are investment funds and the manager of the Private Funds that are not investment funds.
11. The Existing Private Funds and the Existing 81-102 Funds are not in default of securities legislation in any Jurisdiction.
12. An independent review committee (IRC) has been established, or will be established, for each 81-102 Fund in accordance with the requirements of NI 81-107.
The Managed Accounts
13. The Filer offers, or may in the future offer, discretionary portfolio management services to Clients seeking wealth management or related services under Discretionary Management Agreements.
14. Pursuant to the Discretionary Management Agreement entered into with each Client, the Client appoints the Filer to act as portfolio adviser in connection with an investment portfolio held in a Managed Account of the Client with full discretionary authority to trade in securities for the Managed Account without obtaining the specific consent or instructions of the Client to execute the trade.
15. The Filer may, where authorized under the applicable Discretionary Management Agreement, from time to time, invest the assets in a Client's Managed Account in securities of any one or more of the Funds in order to give such Client the benefit of asset diversification and economies of scale regarding minimum commission charges on portfolio trades, and generally to facilitate portfolio management.
In Specie Transfers
16. The Filer may wish to deliver portfolio securities held in a Managed Account to a Fund in respect of a purchase of Fund Securities, and may wish to, or otherwise be required to, receive portfolio securities from a Fund in respect of a redemption of Fund Securities by a Managed Account.
17. The Filer may also wish to deliver portfolio securities held in a Private Fund to another Fund in respect of a purchase of Fund Securities, and may wish to, or otherwise be required to, receive portfolio securities from another Fund in respect of a redemption of Fund Securities by a Private Fund.
18. The Filer is considered a "responsible person" within the meaning of NI 31-103 for any Fund for which it is the portfolio adviser.
19. In addition, an affiliate of the Filer may have access to investment decisions made on behalf of a Client or advice to be given to a Client (each a "Knowledge Affiliate"), and thus such Knowledge Affiliate would be considered a "responsible person" within the meaning of NI 31-103.
20. The Filer and/or a Knowledge Affiliate (each a "responsible person" within the meaning of NI 31-103) is or will be a portfolio adviser of the Funds that are "investment funds" for securities law purposes. Absent the grant of the Exemption Sought, the Filer is precluded by section 13.5(2)(b)(iii) of NI 31-103 from effecting In Specie Transfers between (i) a Managed Account and any such Fund, or (ii) a Private Fund and any such Fund.
21. An employee or agent of the Filer, or a partner, director, officer, employee or agent of an affiliate of the Filer may have access to, or participate in formulating, an investment decision made on behalf of a Client or advice to be given to a Client (each a "Knowledge Individual"), and thus such Knowledge Individual would be considered a "responsible person" within the meaning of NI 31-103.
22. In the case of a Fund that is a trust, the Filer and/or a Knowledge Affiliate (each a "responsible person" within the meaning of NI 31-103) is or will be the trustee of a Fund, and thus that Fund may be an associate of a responsible person. Absent the grant of the Exemption Sought, the Filer is precluded by section 13.5(2)(b)(ii) of NI 31-103 from effecting In Specie Transfers between (i) a Managed Account and any such Fund that is a trust, or (ii) a Private Fund and any such Fund that is a trust.
23. In the case of a Fund that is a limited partnership, the Filer, a director or officer of the Filer, a Knowledge Affiliate or a Knowledge Individual (each a "responsible person" within the meaning of NI 31-103) is or may be a limited partner of a Fund and thus that Fund may be an associate of such responsible person. Absent the grant of the Exemption Sought, the Filer is precluded by section 13.5(2)(b)(ii) of NI 31-103 from effecting In Specie Transfers between (i) a Managed Account and any such Fund that is a limited partnership, or (ii) a Private Fund and any such Fund that is a limited partnership.
24. In the case of a Fund that is a limited partnership, the Filer or a Knowledge Affiliate (each a "responsible person" within the meaning of NI 31-103) is or may be the general partner of the Fund and thus the Fund may be an associate of such responsible person. Absent the grant of the Exemption Sought, the Filer is precluded by section 13.5(2)(b)(ii) of NI 31-103 from effecting In Specie Transfers between (i) a Managed Account and any such Fund that is a limited partnership, or (ii) a Private Fund and any such Fund that is a limited partnership.
25. SLC submits that effecting the In Specie Transfers will allow the Filer to manage each asset class more effectively and reduce transaction costs for the Clients and the Funds. For example, In Specie Transfers reduce market impact costs, which can be detrimental to the Clients and/or the Funds, and may provide access to a broader range of securities. In Specie Transfers also allow a portfolio adviser to retain within its control institutional-size blocks of portfolio securities that otherwise would need to be broken and re-assembled. Conversely, In Specie Transfers may also allow a portfolio advisor to more efficiently transact in odd lots of securities, which are otherwise difficult to trade.
26. Prior to engaging in In Specie Transfers on behalf of a Managed Account, each Discretionary Management Agreement or other documentation will contain the authorization of the Client for the Filer, as portfolio adviser of the Managed Account, to engage in In Specie Transfers.
27. The only cost which may be incurred by a Managed Account or a Fund for an In Specie Transfer is a nominal administrative charge levied by the applicable custodian for recording the trades and any commission charged by the dealer executing the trade.
28. The securities transferred under an In Specie Transfer will be valued on the same valuation day on which the purchase price or redemption price of the Fund Securities is determined. With respect to the purchase of Fund Securities, the securities transferred by a Managed Account or a Private Fund to a Fund under an In Specie Transfer in satisfaction of the purchase price of those Fund Securities will be valued as if the securities were portfolio assets of the receiving Fund, as contemplated by section 9.4(2)(b)(iii) of NI 81-102. With respect to the redemption of Fund Securities, the securities transferred to a Managed Account or a Private Fund in satisfaction of the redemption price of those Fund Securities will have a value equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price of the Fund Securities, as contemplated by section 10.4(3)(b) of NI 81-102.
29. The valuation of any illiquid securities which would be the subject of an In Specie Transfer will be carried out according to the Filer's policies and procedures for the fair valuation of portfolio securities, including illiquid securities. Should any In Specie Transfer contemplated specifically by the Exemption Sought involve the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm's length purchaser or seller immediately before effecting the In Specie Transfer, other than in the case of an illiquid asset that is a mortgage, a loan or other type of illiquid asset for which the Filer, in its reasonable discretion, determines that it is not commercially reasonable to obtain such quote for the asset from an independent arm's length purchaser or seller, in which case the Filer will obtain at least one quote from an independent valuation agent immediately before effecting the In Specie Transfer. If any illiquid securities are the subject of an In Specie Transfer, the illiquid securities transferred will not materially change the exposure to illiquid securities for the Managed Account or Fund.
30. The Filer will not cause any 81-102 Fund to engage in anIn Specie Transfer if the applicable 81-102 Fund is not in compliance with the portfolio restrictions on the holding of illiquid assets described in section 2.4 of NI 81-102.
31. In Specie Transfers will be subject to (i) compliance with the written policies and procedures of the Filer respecting In Specie Transfers that are consistent with applicable securities legislation, and (ii) the oversight of the Filer's Chief Compliance Officer or his/her designate, to ensure that the transaction represents the business judgment of the Filer acting in its discretionary capacity with respect to the Fund and/or Managed Account, uninfluenced by considerations other than the best interests of the Fund and/or Managed Account.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) If the transaction is the purchase of Fund Securities of a Fund by a Managed Account:
(i) The Filer obtains the prior written consent of the Client of the Managed Account before it engages in any In Specie Transfer in connection with the purchase of Fund Securities of the Fund and such consent has not been revoked;
(ii) The Fund would, at the time of payment, be permitted to purchase the portfolio securities held by the Managed Account;
(iii) The portfolio securities are acceptable to the portfolio adviser of the Fund and consistent with the Fund's investment objectives;
(iv) The value of the portfolio securities sold to the Fund by the Managed Account as consideration for the Fund Securities is equal to the issue price of such Fund Securities, valued as if the portfolio securities were portfolio assets of that Fund; and
(v) The account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Fund and the value assigned to such securities;
(b) If the transaction is the redemption of Fund Securities of a Fund by a Managed Account:
(i) The Filer obtains the prior written consent of the Client of the Managed Account to the payment of redemption proceeds in the form of an In Specie Transfer;
(ii) The portfolio securities are acceptable to the Filer as portfolio adviser of the Managed Account and consistent with the Managed Account's investment objectives;
(iii) The value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;
(iv) The holder of the Managed Account has not provided notice to terminate its Discretionary Management Agreement with the Filer; and
(v) The account statement next prepared for the Managed Account will include a note describing the portfolio securities delivered to the Managed Account and the value assigned to such securities;
(c) If the transaction is the purchase of Fund Securities of a Fund by a Private Fund:
(i) The Fund would, at the time of payment, be permitted to purchase the portfolio securities held by the Private Fund;
(ii) The portfolio securities are acceptable to the portfolio adviser of the Fund and consistent with such Fund's investment objectives; and
(iii) The value of the portfolio securities sold to the Fund by the Private Fund as consideration for the Fund Securities is equal to the issue price of such Fund Securities, valued as if the portfolio securities were portfolio assets of that Fund;
(d) If the transaction is the redemption of Fund Securities of a Fund by a Private Fund:
(i) The portfolio securities are acceptable to the portfolio adviser of the Private Fund receiving portfolio securities and consistent with the Private Fund's investment objectives; and
(ii) The value of the portfolio securities is equal to the amount at which those securities were valued in calculating the net asset value per Fund Security used to establish the redemption price;
(e) In the case of an In Specie Transfer involving an 81-102 Fund:
(i) The IRC of the Fund has approved the In Specie Transfer in accordance with the terms of section 5.2 of NI 81-107;
(ii) Section 5.4 of NI 81-107 is complied with in respect of any standing instructions the IRC provides in connection with the In Specie Transfer;
(f) Each Fund keeps written records of all In Specie Transfers in a financial year of the Fund, reflecting details of the portfolio securities delivered to and by the Fund and the value assigned to such securities, for five years after the end of the financial year with the most recent two years in a reasonably accessible place;
(g) The Filer does not receive any compensation in respect of any sale or redemption of Fund Securities of a Fund and, in respect of any delivery of portfolio securities further to an In Specie Transfer, the only charge paid by a Fund or Managed Account, if any, is a nominal administrative charge levied by the applicable custodian for recording the trade and any commission charged by the dealer (if any) executing the trade; and
(h) If the In Specie Transfer involves the transfer of an "illiquid asset" (as defined in NI 81-102), the Filer will obtain at least one quote for the asset from an independent arm's length purchaser or seller immediately before effecting the In Specie Transfer, other than in the case of an illiquid asset that is a mortgage, a loan or other type of illiquid asset for which the Filer, in its reasonable discretion, determines that it is not commercially reasonable to obtain such quote for the asset from an independent arm's length purchaser or seller, in which case the Filer will obtain at least one quote from an independent valuation agent immediately before effecting the In Specie Transfer.
Application File #: 2024/0364
Temporary, Permanent & Rescinding Issuer Cease Trading Orders
Company Name |
Date of Temporary Order |
Date of Hearing |
Date of Permanent Order |
Date of Lapse/Revoke |
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THERE IS NOTHING TO REPORT THIS WEEK. |
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Company Name |
Date of Order |
Date of Revocation |
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THERE IS NOTHING TO REPORT THIS WEEK. |
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Temporary, Permanent & Rescinding Management Cease Trading Orders
Company Name |
Date of Order |
Date of Lapse |
|
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THERE IS NOTHING TO REPORT THIS WEEK. |
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Outstanding Management & Insider Cease Trading Orders
Company Name |
Date of Order or Temporary Order |
Date of Hearing |
Date of Permanent Order |
Date of Lapse/Expire |
Date of Issuer Temporary Order |
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Performance Sports Group Ltd. |
19 October 2016 |
31 October 2016 |
31 October 2016 |
__________ |
__________ |
Company Name |
Date of Order |
Date of Lapse |
|
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Agrios Global Holdings Ltd. |
September 17, 2020 |
__________ |
|
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Sproutly Canada, Inc. |
June 30, 2022 |
__________ |
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iMining Technologies Inc. |
September 30, 2022 |
__________ |
|
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Alkaline Fuel Cell Power Corp. |
April 4, 2023 |
__________ |
|
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mCloud Technologies Corp. |
April 5, 2023 |
__________ |
|
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FenixOro Gold Corp. |
July 5, 2023 |
__________ |
|
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HAVN Life Sciences Inc. |
August 30, 2023 |
__________ |
|
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Perk Labs Inc. |
April 4, 2024 |
__________ |
|
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Organto Foods Inc. |
May 8, 2024 |
__________ |
|
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AI/ML Innovations Inc. |
August 30, 2024 |
__________ |
|
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AION THERAPEUTIC INC. |
August 30, 2024 |
__________ |
Multilateral Instrument 93-101 Derivatives: Business Conduct
1. (1) In this Instrument
"CIRO" means the Canadian Investment Regulatory Organization;
"collateral" means cash, securities or other property that is
(a) received or held by a derivatives firm from, for or on behalf of a derivatives party, and
(b) intended to or does margin, guarantee, secure, settle or adjust one or more derivatives between the derivatives firm and the derivatives party;
"commercial hedger" means a person or company that carries on a business and that transacts a derivative to hedge a risk in respect of the business, related to any of the following:
(a) an asset that the person or company owns, produces, manufactures, processes, or merchandises or, at the time of the execution of the transaction, reasonably anticipates owning, producing, manufacturing, processing, or merchandising;
(b) a liability that the person or company incurs or, at the time the transaction occurs, reasonably anticipates incurring;
(c) a service that the person or company provides, purchases, or, at the time the transaction occurs, reasonably anticipates providing or purchasing;
"commodity derivative" means a derivative for which the only underlying interest is a commodity other than a currency;
"derivatives adviser" means any of the following:
(a) except in Québec, a person or company engaging in or holding themself out as engaging in the business of advising others in respect of derivatives;
(b) in Québec, an adviser as that term is defined in the Derivatives Act (Québec);
(c) any other person or company required to be registered as a derivatives adviser under securities legislation;
"derivatives dealer" means any of the following:
(a) except in Québec, a person or company engaging in or holding themself out as engaging in the business of trading in derivatives as principal or agent;
(b) in Québec, a dealer as that term is defined in the Derivatives Act (Québec);
(c) any other person or company required to be registered as a derivatives dealer under securities legislation;
"derivatives firm" means a derivatives dealer or a derivatives adviser, as applicable;
"derivatives party" means,
(a) in relation to a derivatives dealer, any of the following:
(i) a person or company for which the derivatives dealer acts or proposes to act as an agent in relation to a transaction;
(ii) a person or company that is, or is proposed to be, a party to a derivative for which the derivatives dealer is the counterparty, and
(b) in relation to a derivatives adviser, a person or company to which the adviser provides or proposes to provide advice in relation to a derivative;
"derivatives party assets" means any asset, including, for greater certainty, collateral, received or held by a derivatives firm from, for or on behalf of a derivatives party;
"derivatives position" means the economic interest of a counterparty in an outstanding derivative;
"derivatives sub-adviser" means an adviser to any of the following:
(a) a derivatives adviser;
(b) a person or company that is registered as an adviser under securities legislation of a jurisdiction of Canada, or a person or company registered under commodity futures legislation in Manitoba or Ontario;
(c) a registered dealer member or a derivatives dealer that is, in each case, a dealer member of CIRO acting as an adviser in accordance with the applicable rules of CIRO;
"eligible commercial hedger" means a person or company that,
(a) is described in paragraph (n) of the definition of "eligible derivatives party", and
(b) is not described in any other paragraph of that definition;
"eligible derivatives party" means, for a derivatives party of a derivatives firm, any of the following:
(a) a Canadian financial institution;
(b) the Business Development Bank of Canada continued under the Business Development Bank of Canada Act (Canada);
(c) a subsidiary of a person or company referred to in paragraph (a) or (b), if the person or company owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of the subsidiary;
(d) a person or company registered under the securities legislation of a jurisdiction of Canada as any of the following:
(i) a derivatives dealer;
(ii) a derivatives adviser;
(iii) an adviser;
(iv) an investment dealer;
(e) a pension fund that is regulated by the federal Office of the Superintendent of Financial Institutions or a pension commission or similar regulatory authority of a jurisdiction of Canada or a wholly-owned subsidiary of the pension fund;
(f) an entity organized under the laws of a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (e);
(g) the Government of Canada or the government of a jurisdiction of Canada, or any crown corporation, agency or wholly-owned entity of the Government of Canada or the government of a jurisdiction of Canada;
(h) a government of a foreign jurisdiction or any agency of that government;
(i) a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l'île de Montréal or an intermunicipal management board in Québec;
(j) a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a managed account managed by the trust company or trust corporation, as the case may be;
(k) a person or company that is acting on behalf of a managed account if the person or company is registered or authorized to carry on business as either of the following:
(i) an adviser or a derivatives adviser in a jurisdiction of Canada;
(ii) the equivalent of an adviser or a derivatives adviser under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction;
(l) an investment fund if either of the following apply:
(i) the investment fund is managed by a person or company registered as an investment fund manager under the securities legislation of a jurisdiction of Canada;
(ii) the investment fund is advised by an adviser registered or exempted from registration under securities legislation or under commodity futures legislation of a jurisdiction of Canada;
(m) a person or company, other than an individual, that has net assets of at least $25 000 000 as shown on its most recently prepared financial statements;
(n) a person or company that has represented to the derivatives firm, in writing, that it is a commercial hedger in relation to the derivatives that it transacts with the derivatives firm;
(o) an individual that beneficially owns financial assets, as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions, that have an aggregate realizable value before tax but net of any related liabilities of at least $5 000 000;
(p) a person or company, other than an individual, that has represented to the derivatives firm, in writing, that its obligations under derivatives that it transacts with the derivatives firm are fully guaranteed or otherwise fully supported, under a written agreement, by one or more derivatives parties referred to in this definition, other than a derivatives party referred to in paragraph (n) or (o);
(q) a qualifying clearing agency;
"institutional foreign exchange market" means the global foreign exchange market comprised of persons or companies that are active in foreign exchange markets as part of their business and transact in foreign exchange contracts or instruments, including, for greater certainty, short-term foreign exchange contracts or instruments;
"investment dealer" means a person or company registered as an investment dealer under the securities legislation of a jurisdiction of Canada;
"managed account" means an account of a derivatives party for which another person or company makes the trading decisions if the other person or company has discretion to transact derivatives for the account without requiring the derivatives party's express consent to the transaction;
"non-eligible derivatives party" means a derivatives party that is not an eligible derivatives party;
"permitted depository" means a person or company that is any of the following:
(a) a Canadian financial institution;
(b) a qualifying clearing agency;
(c) the Bank of Canada or the central bank of a permitted jurisdiction;
(d) a person recognized or exempted from recognition as a central securities depository under the Securities Act (Québec);
(e) a person or company
(i) whose head office or principal place of business is in a permitted jurisdiction,
(ii) that is a banking institution or trust company of a permitted jurisdiction, and
(iii) that has shareholders' equity, as reported in its most recent audited financial statements, of not less than $100 000 000;
(f) with respect to derivatives party assets that it receives from a derivatives party, a derivatives dealer;
"permitted jurisdiction" means a foreign jurisdiction that is any of the following:
(a) a country where the head office or principal place of business of an authorized foreign bank named in Schedule III of theBank Act (Canada) is located, and a political subdivision of that country;
(b) if a derivatives party has provided express written consent to the derivatives dealer entering into a derivative in a foreign currency, the country of origin of the foreign currency used to denominate the rights and obligations under the derivative entered into by, for or on behalf of the derivatives party, and a political subdivision of that country;
"qualifying clearing agency" means a person or company if any of the following apply:
(a) it is recognized or exempted from recognition as a clearing agency or a clearing house, as applicable, in a jurisdiction of Canada;
(b) it is subject to regulation in a foreign jurisdiction that is consistent with the Principles for financial market infrastructures applicable to central counterparties, as amended from time to time, and published by the Bank for International Settlements' Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions;
"referral arrangement" means any arrangement in which a derivatives firm agrees to pay or receive a referral fee;
"referral fee" means any compensation, whether made directly or indirectly, provided for the referral of a derivatives party to or from a derivatives firm;
"registered derivatives firm" means a derivatives dealer or a derivatives adviser that is registered under the securities legislation of a jurisdiction of Canada as a derivatives dealer or a derivatives adviser;
"registered firm" means a registered derivatives firm or a registered securities firm;
"registered securities firm" means a person or company that is registered as a dealer, an adviser or an investment fund manager in a category of registration specified in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
"segregate" means to separately hold or separately account for a derivatives party's positions related to derivatives or derivatives party assets;
"short-term foreign exchange contract or instrument" means a contract or instrument referred to in the following:
(a) in Manitoba, paragraph 2(1)(c) of Manitoba Securities Commission Rule 91-506 Derivatives: Product Determination;
(b) in Ontario, paragraph 2(1)(c) of Ontario Securities Commission Rule 91-506 Derivatives: Product Determination;
(c) in Québec, paragraph 2(c) of Regulation 91-506 respecting Derivatives Determination;
(d) in all other jurisdictions of Canada, paragraph 2(1)(c) of Multilateral Instrument 91-101 Derivatives: Product Determination;
"transaction" means either of the following:
(a) entering into a derivative or making a material amendment to, terminating, assigning, selling, or otherwise acquiring or disposing of, a derivative;
(b) the novation of a derivative, other than a novation with a qualifying clearing agency;
"valuation" means the value of a derivative as at a certain date determined in accordance with applicable accounting standards for fair value measurement using a methodology that is consistent with derivatives industry standards;
(2) In this Instrument, "adviser" includes
(a) in Manitoba, an "adviser" as defined in The Commodity Futures Act (Manitoba),
(b) in Ontario, an "adviser" as defined in the Commodity Futures Act (Ontario), and
(c) in Québec, an "adviser" as defined in the Securities Act (Québec).
(3) In this Instrument, a person or company is an affiliated entity of another person or company if one of them controls the other or each of them is controlled by the same person or company.
(4) In this Instrument, a person or company (the first party) is considered to control another person or company (the second party) if any of the following apply:
(a) the first party beneficially owns or directly or indirectly exercises control or direction over securities of the second party carrying votes which, if exercised, would entitle the first party to elect a majority of the directors of the second party unless the first party holds the voting securities only to secure an obligation;
(b) the second party is a partnership, other than a limited partnership, and the first party holds more than 50% of the interests of the partnership;
(c) all of the following apply:
(i) the second party is a limited partnership;
(ii) the first party is a general partner of the limited partnership referred to in subparagraph (i);
(iii) the first party has the power to direct the management and policies of the second party by virtue of being a general partner of the second party;
(d) all of the following apply:
(i) the second party is a trust;
(ii) the first party is a trustee of the trust referred to in subparagraph (i);
(iii) the first party has the power to direct the management and policies of the second party by virtue of being a trustee of the second party.
(5) In this Instrument, a person or company is a subsidiary of another person or company if at least one of the following applies:
(a) the person or company is controlled by
(i) the other person or company,
(ii) the other person or company and one or more persons or companies each of which is controlled by that person or company, or
(iii) 2 or more persons or companies each of which is controlled by the other person or company;
(b) the person or company is a subsidiary of a person or company that is that other person or company's subsidiary.
(6) For the purpose of this Instrument, a person or company referred to in paragraph (k) of the definition of "eligible derivatives party" is deemed to be transacting as principal when it is acting as an agent or trustee for a managed account.
(7) In this Instrument, in Alberta, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon, "derivative" means a "specified derivative" as defined in Multilateral Instrument 91-101 Derivatives: Product Determination.
2. For greater certainty, this Instrument applies to a derivatives firm and an individual acting on behalf of the derivatives firm whether or not they are registered.
3. This Instrument applies to,
(a) in Manitoba,
(i) a derivative other than a contract or instrument that, for any purpose, is prescribed by any of sections 2, 4 and 5 of Manitoba Securities Commission Rule 91-506 Derivatives: Product Determination not to be a derivative, and
(ii) a derivative that is otherwise a security and that, for any purpose, is prescribed by section 3 of Manitoba Securities Commission Rule 91-506Derivatives: Product Determination not to be a security,
(b) in Ontario,
(i) a derivative other than a contract or instrument that, for any purpose, is prescribed by any of sections 2, 4 and 5 of Ontario Securities Commission Rule 91-506 Derivatives: Product Determination not to be a derivative, and
(ii) a derivative that is otherwise a security and that, for any purpose, is prescribed by section 3 of Ontario Securities Commission Rule 91-506 Derivatives: Product Determination not to be a security,
(c) in Québec, a derivative specified in section 1.2 of Regulation 91-506 respecting Derivatives Determination, other than a contract or instrument specified in section 2 of that regulation, and
(d) in Alberta, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon, a "specified derivative" as defined in Multilateral Instrument 91-101 Derivatives: Product Determination.
4. (1) Despite section 3, this Instrument applies to a derivative that is a short-term foreign exchange contract or instrument in the institutional foreign exchange market transacted by a derivatives dealer with a derivatives party if all of the following apply:
(a) the derivatives dealer is a Canadian financial institution;
(b) the derivatives dealer has had, at any time after the date on which this Instrument comes into force, a month-end gross notional amount under all outstanding derivatives that exceed $500 000 000 000.
(2) In respect of a short-term foreign exchange contract or instrument to which subsection (1) applies, this Instrument does not apply other than the following provisions:
(a) section 9 [Fair dealing];
(b) section 10 [Conflicts of interest];
(c) section 12 [Handling complaints];
(d) Division 1 [Compliance] of Part 5 [Compliance and recordkeeping].
5. This Instrument does not apply to a person or company in respect of dealing with or advising an affiliated entity of the person or company unless the affiliated entity is an investment fund.
6. This Instrument does not apply to a qualifying clearing agency.
7. This Instrument does not apply to any of the following:
(a) the Government of Canada, the government of a jurisdiction of Canada or the government of a foreign jurisdiction;
(b) the Bank of Canada or a central bank of a foreign jurisdiction;
(c) the Bank for International Settlements;
(d) the International Monetary Fund.
8. (1) Subject to subsection (3), a derivatives firm is exempt from this Instrument, in relation to a transaction with a derivatives party if the derivatives party
(a) is an eligible derivatives party, and
(b) is not an individual or an eligible commercial hedger.
(2) Subject to subsection (3), a derivatives firm is exempt from this Instrument, in relation to a transaction with a derivatives party,
(a) if the derivatives party,
(i) is an eligible derivatives party,
(ii) is an individual or an eligible commercial hedger, and
(iii) has provided the derivatives firm with a written statement that it "waives protections provided in Multilateral Instrument 93-101" and specifies which protections that statement applies to, and
(b) if, in the case of a derivatives party that is an individual and is an eligible commercial hedger, the derivatives firm has identified and documented the nature of the derivatives party's business and the related commercial risks that the derivatives party is hedging.
(3) The exemptions in subsections (1) and (2) do not apply in respect of the following:
(a) Division 1 [General obligations towards all derivatives parties] of Part 3 [Dealing with or advising derivatives parties];
(b) sections 24 [Interaction with other Instruments] and 25 [Segregating derivatives party assets];
(c) subsection 28(1) [Content and delivery of transaction information];
(d) Part 5 [Compliance and recordkeeping].
Part 6 [Exemptions] of this Instrument provides exemptions from the requirements of this Instrument to persons or companies, subject to certain terms and conditions: |
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Foreign liquidity providers -- transactions with derivatives dealers (s. 37) |
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• |
Certain derivatives end-users (s. 38) |
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• |
Foreign derivatives dealers (s. 39) |
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Investment dealers (s. 41) |
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Canadian financial institutions (s. 42) |
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Derivatives transacted on a derivatives trading facility where the identity of the derivatives party is unknown (s. 43) |
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Certain notional amounts of certain commodity derivatives and other derivatives activity (s.44) |
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Advising generally (s. 45) |
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Foreign derivatives advisers (s. 46) |
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Foreign derivatives sub-advisers (s. 47) |
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Registered advisers under securities or commodity futures legislation (s. 48) |
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The text boxes in this Instrument do not form part of this Instrument and have no official status. |
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9. (1) A derivatives firm must act fairly, honestly and in good faith with a derivatives party.
(2) An individual acting on behalf of a derivatives firm must act fairly, honestly and in good faith with a derivatives party.
10. (1) A derivatives firm must establish, maintain and apply reasonable policies and procedures to identify all material conflicts of interest, and material conflicts of interest that the derivatives firm in its reasonable opinion would expect to arise, between the derivatives firm, including each individual acting on behalf of the derivatives firm, and a derivatives party.
(2) A derivatives firm must respond to a conflict of interest identified under subsection (1).
(3) If a reasonable derivatives party would expect to be informed of a conflict of interest identified under subsection (1), the derivatives firm must disclose, in a timely manner, the nature and extent of the conflict of interest to the derivatives party whose interest conflicts with the interest identified.
11. (1) For the purpose of paragraph (2)(c) in Ontario, "insider" has the same meaning as in the Securities Act except that "reporting issuer", as it appears in the definition of "insider", is to be read as "reporting issuer or any other issuer whose securities are publicly traded".
(2) A derivatives firm must establish, maintain and apply reasonable policies and procedures to ensure that the derivatives firm
(a) obtains the facts necessary to comply with applicable legislation relating to the verification of a derivatives party's identity,
(b) establishes the identity of a derivatives party and, if the derivatives firm has cause for concern, makes reasonable inquiries as to the reputation of the derivatives party,
(c) if transacting with, for or on behalf of, or advising a derivatives party in respect of a derivative that has one or more securities as an underlying interest, establishes whether either of the following applies:
(i) the derivatives party is an insider of a reporting issuer or any other issuer whose securities are publicly traded;
(ii) the derivatives party would reasonably be expected to have access to material non-public information relating to any interest underlying the derivative;
(d) establishes the creditworthiness of a derivatives party if the derivatives firm, as a result of its relationship with the derivatives party, will have any credit risk in relation to that derivatives party.
(3) For the purpose of establishing the identity of a derivatives party that is a corporation, partnership or trust, a derivatives firm must establish the following:
(a) the nature of the derivatives party's business;
(b) the identity of any individual if either of the following applies:
(i) in the case of a corporation, is a beneficial owner of, or exercises direct or indirect control or direction over, more than 25% of the voting rights attached to the outstanding voting securities of the corporation;
(ii) in the case of a partnership or trust, exercises control over the affairs of the partnership or trust.
(4) A derivatives firm must take reasonable steps to keep current the information required under this section.
(5) This section does not apply if the derivatives party is a registered firm or a Canadian financial institution.
12. (1) In Québec, a derivatives firm is deemed to comply with this section if it complies with section 74 to 76 of the Derivatives Act (Québec).
(2) A derivatives firm must document and, in a manner that a reasonable person would consider fair and effective, promptly respond to each complaint made to the derivatives firm about any product or service offered by the derivatives firm or an individual acting on behalf of the derivatives firm.
13. A derivatives firm, or an individual acting on behalf of the derivatives firm, must not impose undue pressure on or coerce a person or company to obtain a derivatives-related product or service from a particular person or company, including, for greater certainty, the derivatives firm and any of its affiliated entities, as a condition of obtaining another product or service from the derivatives firm.
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The obligations in this Division 2 apply if a derivatives firm is dealing with (i) a non-eligible derivatives party or (ii) an eligible derivatives party who is either an individual or eligible commercial hedger that has not waived these protections -- see section 8.
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14. (1) A derivatives firm must take reasonable steps to ensure that, before it makes a recommendation to or accepts an instruction from a derivatives party to transact in a derivative, or transacts in a derivative for a derivatives party's managed account, it has sufficient information regarding all of the following to enable it to comply with section 15 [Suitability]:
(a) the derivatives party's needs and objectives with respect to its transacting in derivatives;
(b) the derivatives party's financial circumstances;
(c) the derivatives party's risk tolerance;
(d) if applicable, the nature of the derivatives party's business and the operational risks it wants to manage.
(2) A derivatives firm must take reasonable steps to keep current the information required under this section.
15. (1) A derivatives firm, or an individual acting on behalf of a derivatives firm, must take reasonable steps to ensure, before it makes a recommendation to or accepts an instruction from a derivatives party to transact in a derivative, or transacts in a derivative for a derivatives party's managed account, that the derivative and the transaction are suitable for the derivatives party.
(2) If a derivatives party instructs a derivatives firm, or an individual acting on behalf of a derivatives firm, to transact in a derivative and, in the derivatives firm's reasonable opinion, following the instruction would result in a transaction or derivative that is not suitable for the derivatives party, the derivatives firm must inform the derivatives party in writing of the derivatives firm's opinion and must not transact in the derivative unless the derivatives party, after being informed, instructs the derivatives firm to proceed with the transaction.
16. A derivatives firm, or an individual acting on behalf of a derivatives firm, must not participate in a referral arrangement in respect of a derivative with another person or company unless all of the following apply:
(a) before a derivatives party is referred by or to the derivatives firm, the terms of the referral arrangement are set out in a written agreement between the derivatives firm and the person or company;
(b) the derivatives firm records all referral fees;
(c) the derivatives firm, or the individual acting on behalf of the derivatives firm, ensures that the information prescribed by subsection 18(1) [Disclosing referral arrangements to a derivatives party] is provided to the derivatives party in writing before the derivatives firm or the individual receiving the referral either opens an account for the derivatives party or provides services to the derivatives party.
17. A derivatives firm, or an individual acting on behalf of a derivatives firm, must not refer a derivatives party to another person or company unless the derivatives firm first takes reasonable steps to verify and conclude that the person or company has the appropriate qualifications to provide the services, and, if applicable, is registered to provide those services.
18. (1) The written disclosure of the referral arrangement required by paragraph 16(c) [Permitted referral arrangements] must include all of the following:
(a) the name of each party to the referral arrangement referred to in paragraph 16(a) [Permitted referral arrangements];
(b) the purpose and material terms of the referral arrangement, including the nature of the services to be provided by each party;
(c) any conflicts of interest resulting from the relationship between the parties to the referral arrangement and from any other element of the referral arrangement;
(d) the method of calculating the referral fee and, to the extent possible, the amount of the fee;
(e) the category of registration of, or exemption from registration relied upon by, each derivatives firm and individual acting on behalf of the derivatives firm that is a party to the referral arrangement with a description of the activities that the derivatives firm and individual is authorized to engage in under that category or exemption and, giving consideration to the nature of the referral, the activities that the derivatives firm or individual is not permitted to engage in;
(f) any other information that a reasonable derivatives party would consider important in evaluating the referral arrangement.
(2) If there is a change to the information set out in subsection (1), the derivatives firm must ensure that written disclosure of that change is provided to each derivatives party affected by the change as soon as possible and no later than the 30th day before the date on which a referral fee is next paid or received.
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The obligations in this Division 1 of Part 4 apply if a derivatives firm is dealing with (i) a non-eligible derivatives party or (ii) an eligible derivatives party who is either an individual or eligible commercial hedger that has not waived these protections -- see section 8.
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19. (1) Before transacting with, for or on behalf of, or advising, a derivatives party for the first time, a derivatives firm must deliver to the derivatives party all information that a reasonable person would consider important about the derivatives party's relationship with the derivatives firm, and each individual acting on behalf of the derivatives firm, that is providing derivatives-related services to the derivatives party.
(2) Without limiting subsection (1), the information delivered to a derivatives party under that subsection must include all of the following:
(a) a description of the nature or type of the derivatives party's account;
(b) a description of the conflicts of interest that the derivatives firm is required to disclose to a derivatives party under securities legislation;
(c) disclosure of the fees or other charges the derivatives party might be required to pay related to the derivatives party's account;
(d) a general description of the types of transaction fees or other charges the derivatives party might be required to pay in relation to derivatives;
(e) a general description of any compensation paid to the derivatives firm by any other party in relation to the different types of derivatives that a derivatives party may transact in through the derivatives firm;
(f) a description of the content and frequency of reporting for each account or portfolio of a derivatives party;
(g) disclosure of the derivatives firm's obligations if a derivatives party has a complaint contemplated under section 12 [Handling complaints];
(h) a statement that the derivatives firm has an obligation to assess whether a derivative is suitable for a derivatives party prior to executing a transaction or at any other time or a statement identifying the exemption the derivatives firm is relying on in respect of this obligation;
(i) the information a derivatives firm must collect about the derivatives party under sections 11 [Know your derivatives party] and 14 [Derivatives-party-specific needs and objectives];
(j) a general explanation of how performance benchmarks might be used to assess the performance of a derivatives party's derivatives and any options for benchmark information that might be available to the derivatives party from the derivatives firm;
(k) in the case of a derivatives firm that holds or has access to derivatives party assets, a general description of the manner in which the assets are held, used or are invested by the derivatives firm and a description of the risks and benefits to the counterparty arising from the derivatives firm holding or having access to use or invest the derivatives party assets in that manner.
(3) A derivatives firm must deliver the information required under subsection (1) to the derivatives party in writing before the derivatives firm does either of the following:
(a) first transacts in a derivative with, for or on behalf of the derivatives party;
(b) first advises the derivatives party in respect of a derivative.
(4) If there is a significant change in respect of the information delivered to a derivatives party under subsection (1) or (2), the derivatives firm must take reasonable steps to notify the derivatives party of the change in a timely manner and, if possible, before the derivatives firm next does either of the following:
(a) transacts in a derivative with, for or on behalf of the derivatives party;
(b) advises the derivatives party in respect of a derivative.
(5) A derivatives firm must not impose any new fee or other charge in respect of an account of a derivatives party, or increase the amount of any fee or other charge in respect of an account of a derivatives party, unless written notice of the new or increased fee or charge is provided to the derivatives party at least 60 days before the date on which the imposition or increase becomes effective.
(6) Subsections (1) to (4) do not apply to a derivatives dealer in respect of a derivatives party for whom the derivatives dealer transacts in a derivative only as directed by a derivatives adviser acting for the derivatives party.
(7) A derivatives dealer referred to in subsection (6) must deliver the information referred to in paragraphs (2)(a) to (g) to the derivatives party in writing before the derivatives dealer first transacts in a derivative for the derivatives party.
20. (1) Before transacting in a type of derivative with, for or on behalf of a derivatives party for the first time, a derivatives dealer must deliver each of the following to the derivatives party:
(a) a general description of the type of derivatives and services related to derivatives that the derivatives firm offers;
(b) a document designed to reasonably enable the derivatives party to assess each of the following:
(i) the types of risks that a derivatives party should consider when making a decision relating to types of derivatives that the derivatives dealer offers, including, for greater certainty, the material risks relating to the type of derivatives transacted and the derivatives party's potential exposure under the type of derivatives;
(ii) the material characteristics of the type of derivative, including, for greater certainty, the material economic terms and the rights and obligations of the counterparties to the type of derivative;
(c) the following statement, or a statement in writing that is substantially similar:
"A characteristic of many derivatives is that you are only required to deposit funds that correspond to a portion of your total potential obligations when entering into the derivative. However, your profits or losses from the derivative are based on changes in the total value of the derivative. This means the leverage characteristic magnifies the profit or loss under a derivative, and losses can greatly exceed the amount of funds deposited. We may require you to deposit additional funds to cover your obligations under a derivative as the value of the derivative changes. If you fail to deposit these funds, we may close out your position without warning. You should understand all of your obligations under a derivative, including your obligations if the value of the derivative declines.
Using borrowed money to finance a derivatives transaction involves greater risk than using cash resources only. If you borrow money, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the derivative declines."
(2) Before transacting in a derivative with, for or on behalf of a derivatives party, a derivatives dealer must advise the derivatives party of all of the following:
(a) any material risks or material characteristics that are materially different from the risks or characteristics described in the disclosure required under subsection (1);
(b) if applicable, the price of the derivative to be transacted and the most recent valuation;
(c) any compensation or other incentive payable by the derivatives party relating to the derivative or the transaction.
21. (1) On each business day, a derivatives dealer must make available to a derivatives party a valuation for each derivative that it has transacted with, for or on behalf of the derivatives party and with respect to which obligations remain outstanding on that day.
(2) At least once every 3 months, a derivatives adviser must make available to a derivatives party a valuation statement for each derivative that it has transacted for or on behalf of the derivatives party, unless the derivatives party requests the valuation statement be made available monthly, in which case the adviser must make available a statement to the derivatives party for each one-month period.
22. A derivatives dealer whose head office or principal place of business is not in Canada must not transact in a derivative with a derivatives party in the local jurisdiction unless it has delivered to the derivatives party a statement in writing disclosing all of the following:
(a) the foreign jurisdiction in which the head office or the principal place of business of the derivatives dealer is located;
(b) that all or substantially all of the assets of the derivatives dealer may be situated outside the local jurisdiction;
(c) that there may be difficulty enforcing legal rights against the derivatives dealer because of the above;
(d) the name and address of the agent for service of process of the derivatives dealer in the local jurisdiction.
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Sections 24 and 25 apply when a derivatives firm is dealing with any derivatives party; the remaining sections in this Division only apply if a derivatives firm is dealing with (i) a non-eligible derivatives party or (ii) an eligible derivatives party who is either an individual or eligible commercial hedger that has not waived these protections -- see section 8.
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23. In this Division, "initial margin" means any derivatives party assets delivered by a derivatives party to a derivatives firm as collateral to cover potential changes in the value of a derivative over an appropriate close-out period in the event of a default.
24. A derivatives firm is exempt from the provisions in this Division if any of the following apply:
(a) the derivatives firm is subject to and complies with or is exempt from sections 3 to 8 of National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions in respect of derivatives party assets;
(b) the derivatives firm is subject to and complies with Guideline E-22 Margin Requirements for Non-Centrally Cleared Derivatives issued by the federal Office of the Superintendent of Financial Institutions;
(c) the derivatives firm is subject to and complies with the Guideline on margins for over-the-counter derivatives not cleared by a central counterparty issued by the Autorité des marchés financiers in respect of derivatives party assets;
(d) the derivatives firm is subject to and complies with National Instrument 81-102Investment Funds in respect of derivatives party assets.
25. A derivatives firm must segregate derivatives party assets and derivatives positions from the property and derivatives positions of the derivatives firm and other persons or companies.
26. A derivatives firm must hold initial margin in an account at a permitted depository.
27. (1) A derivatives firm must not use or invest initial margin without receiving written consent from the derivatives party.
(2) A derivatives firm must not use or invest the initial margin of a derivatives party unless the derivatives firm has entered into a written agreement with the derivatives party under which the derivatives firm assumes all losses resulting from the investment or use of initial margin by the derivatives firm.
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This Division, other than subsection 28(1), applies if a derivatives firm is dealing with (i) a non-eligible derivatives party or (ii) an eligible derivatives party who is either an individual or eligible commercial hedger that has not waived these protections -- see section 8.
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28. (1) A derivatives dealer that transacts with, for or on behalf of a derivatives party must promptly deliver a written confirmation of the transaction to the following, as applicable:
(a) the derivatives party;
(b) if the derivatives party has consented in writing, a derivatives adviser acting for the derivatives party.
(2) If a derivatives dealer has transacted with, for or on behalf of a non-eligible derivatives party, the written confirmation required under subsection (1) must include all of the following, as applicable:
(a) a description of the derivative;
(b) a description of the agreement that governs the transaction;
(c) the notional amount, quantity or volume of the underlying asset of the derivative;
(d) the number of units of the derivative;
(e) the total price paid for the derivative and the per unit price of the derivative;
(f) the commission, sales charge, service charge and any other amount charged in respect of the transaction;
(g) whether the derivatives dealer acted as principal or agent in relation to the derivative;
(h) the date and the name of the trading facility on which the transaction took place;
(i) the name of each individual acting on behalf of the derivatives firm that provided advice relating to the derivative or the transaction;
(j) the date of the transaction;
(k) the name of the qualifying clearing agency where the derivative was cleared.
29. (1) A derivatives firm must deliver a statement referred to in subsection (2) to a derivatives party, at the end of each quarterly period, if either of the following applies:
(a) within the quarterly period the derivatives firm transacted a derivative with, for or on behalf of the derivatives party;
(b) the derivatives party has an outstanding derivatives position resulting from a transaction where the derivatives firm acted as a derivatives dealer.
(2) A derivatives firm that delivers a statement referred to in subsection (1) must include in the statement all of the following information for each transaction made with, for or on behalf of the derivatives party by the derivatives firm during the period covered by the statement, if applicable:
(a) the date of the transaction;
(b) a description of the transaction, including, for greater certainty, the notional amount, the number of units, the price per unit and the total price of the derivative transacted;
(c) information sufficient to identify the agreement that governs the transaction.
(3) A derivatives firm that delivers a statement referred to in subsection (1) must include in the statement all of the following information, as applicable, as at the date of the statement:
(a) a description of each outstanding derivative to which the derivatives party is a party;
(b) the valuation, as at the statement date, of each outstanding derivative referred to in paragraph (a);
(c) the final valuation, as at the expiry or termination date, of each derivative that expired or terminated during the period covered by the statement;
(d) a description of all derivatives party assets held or received by the derivatives firm as collateral;
(e) the amount of any cash balance in the derivatives party's account;
(f) a description of assets of a derivatives party, other than assets referred to in paragraph (d), held or received by the derivatives firm;
(g) the total market value of any outstanding derivatives and derivatives party assets referred to in paragraph (f) in the derivatives party's account.
30. In this Division,
"chief compliance officer" means the officer or partner of a derivatives firm who is responsible for establishing, maintaining and applying written policies and procedures to monitor and assess compliance, of the derivatives firm and individuals acting on its behalf, with securities legislation relating to derivatives;
"derivatives business unit" means, in respect of a derivatives firm, a division or other organizational unit the employees of which transact in, or provide advice in relation to, a type of derivative, or a class of derivatives, on behalf of the derivatives firm;
"senior derivatives manager" means an individual designated by the derivatives dealer under subsection 32(1).
31. A derivatives firm must establish, maintain and apply policies and procedures that establish a system of controls and supervision sufficient to provide reasonable assurance that all of the following are satisfied:
(a) the derivatives firm and each individual acting on its behalf in relation to transacting in, or providing advice in relation to, a derivative, comply with securities legislation relating to trading and advising in derivatives;
(b) the risks relating to its derivatives activities within the derivatives business unit are managed in accordance with the derivatives firm's risk management policies and procedures;
(c) each individual who performs an activity on behalf of the derivatives firm relating to transacting in, or providing advice in relation to, a derivative, before commencing the activity and on an ongoing basis,
(i) has the experience, education and training that a reasonable person would consider necessary to perform the activity competently,
(ii) without limiting subparagraph (i), understands the structure, features and risks of each derivative that the individual transacts in or advises in relation to, and
(iii) acts with integrity.
32. (1) A derivatives dealer must do the following:
(a) designate an individual as a senior derivatives manager for each derivatives business unit;
(b) identify to the regulator or, in Québec, the securities regulatory authority, upon request, each individual designated as the senior derivatives manager in respect of each derivatives business unit.
(2) A senior derivatives manager must do the following:
(a) supervise the derivatives-related activities conducted in the derivatives business unit directed towards ensuring compliance by the derivatives business unit, and each individual employed in the derivatives business unit, with this Instrument, applicable securities legislation, including for greater certainty, ensuring the policies and procedures required under section 31[Policies and procedures] are applied;
(b) respond by addressing, in a timely manner, any material non-compliance by an individual employed in the derivatives business unit with this Instrument, applicable securities legislation, or the policies and procedures required under section 31 [Policies and procedures], including reporting to the chief compliance officer.
(3) At least once every calendar year, the senior derivatives manager in respect of each derivatives business unit must,
(a) prepare a report containing the following, as applicable:
(i) a description of
(A) each incident of material non-compliance with this Instrument, securities legislation relating to trading in derivatives or the policies and procedures required under section 31 [Policies and procedures] by the derivatives business unit or an individual in the derivatives business unit, and
(B) the steps taken to respond to each incidence of material non-compliance;
(ii) a statement to the effect that the derivatives business unit is in material compliance with this Instrument, securities legislation relating to trading and advising in derivatives and the policies and procedures required under section 31 [Policies and procedures]; and
(b) submit the report referred to in paragraph (a) to the board of directors of the derivatives firm.
(4) The obligation of the senior derivatives manager under paragraph (3)(b) may be fulfilled by the derivatives firm's chief compliance officer.
33. A derivatives dealer must report to the regulator or, in Québec, the securities regulatory authority, in a timely manner any circumstance in which a derivatives dealer is not or was not in compliance with the requirements of this Instrument or other securities legislation relating to trading in derivatives if any of the following applies:
(a) the non-compliance creates or created, in the opinion of a reasonable person, a risk of material harm to a derivatives party;
(b) the non-compliance creates or created, in the opinion of a reasonable person, a risk of material harm to capital markets;
(c) the non-compliance is part of a pattern of material non-compliance.
34. (1) A derivatives firm must, before transacting in a derivative with, for or on behalf of a derivatives party, enter into an agreement referred to in subsection (2) with the derivatives party.
(2) For the purposes of (1), the agreement must establish all of the material terms governing the relationship between the derivatives firm and the derivatives party including the rights and obligations of the derivatives firm and the derivatives party.
35. A derivatives firm must keep records of its derivatives transactions and advising activities, including all of the following, as applicable:
(a) records containing a general description of its derivatives business and activities conducted with, for or on behalf of, derivatives parties, and compliance with applicable provisions of securities legislation, including,
(i) records of derivatives party assets, and
(ii) records documenting the derivatives firm's compliance with internal policies and procedures;
(b) for each derivative, records demonstrating the existence and nature of the derivative, including,
(i) records of communications with the derivatives party relating to transacting in the derivative,
(ii) documents provided to the derivatives party to confirm the derivative, the terms of the derivative and each transaction relating to the derivative,
(iii) correspondence relating to the derivative and each transaction relating to the derivative,
(iv) records made by staff relating to the derivative and each transaction relating to the derivative, including notes, memos and journals,
(v) records relating to pre-execution activity for each transaction including all communications relating to quotes, solicitations, instructions, transactions and prices, however they may be communicated,
(vi) reliable timing data for the execution of each transaction relating to the derivative,
(vii) records relating to the execution of the transaction, including
(A) information obtained to determine whether the counterparty qualifies as an eligible derivatives party,
(B) fees or commissions charged,
(C) information used in calculating the derivative's valuation; and
(D) any other information relevant to the transaction;
(viii) an itemized record of post-transaction processing and events, including a record in relation to the calculation of margin and exchange of collateral; and
(ix) the price and valuation of the derivative.
36. (1) The records required to be maintained in this Instrument must be kept in a safe location, readily accessible and in a durable form for a period of,
(a) except in Manitoba, 7 years from the date the record is created, and
(b) in Manitoba, 8 years from the date the record is created.
(2) A record required to be provided to the regulator or, in Québec, the securities regulatory authority, must be provided in a format that is capable of being read by the regulator or, in Québec, the securities regulatory authority.
37. A person or company is exempt from the provisions of this Instrument in respect of a transaction if all of the following apply:
(a) the transaction is made with either an investment dealer registered in accordance with National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations or a derivatives dealer, that, in each case, is transacting as principal for its own account;
(b) the person or company is registered, licensed or authorized, or otherwise operates under an exemption or exclusion from a requirement to be registered, licensed or authorized under the securities, commodity futures or derivatives legislation of a foreign jurisdiction in which its head office or principal place of business is located to carry on the activities in that jurisdiction that registration as a derivatives dealer would permit it to carry on in the local jurisdiction;
(c) the person or company is not any of the following:
(i) a derivatives dealer whose head office or principal place of business is in Canada;
(ii) a derivatives dealer that is a Canadian financial institution.
38. (1) A person or company is exempt from this Instrument if all of the following apply:
(a) the person or company does not solicit or otherwise transact a derivative with, for or on behalf of, a non-eligible derivatives party;
(b) the person or company does not, in respect of any derivative or transaction, advise a non-eligible derivatives party, other than general advice that is provided in accordance with the conditions of section 45 [Advising generally];
(c) the person or company does not regularly make or offer to make a market in a derivative with a derivatives party;
(d) the person or company does not regularly facilitate or otherwise intermediate transactions for another person or company;
(e) the person or company does not facilitate the clearing of a derivative through the facilities of a qualifying clearing agency for another person or company.
(2) The exemption in subsection (1) is not available to a person or company if either of the following applies:
(a) the person or company is a registered derivatives firm or a registered securities firm in any jurisdiction of Canada or is registered under the commodity futures legislation of Manitoba or Ontario;
(b) the person or company is registered under the securities, commodity futures or derivatives legislation of a foreign jurisdiction in which its head office or principal place of business is located in a category of registration to carry on the activities in that jurisdiction that registration as a derivatives dealer or derivatives adviser would permit it to carry on in the local jurisdiction.
39. (1) A derivatives dealer whose head office or principal place of business is in a foreign jurisdiction specified in Appendix A is exempt from the provisions in this Instrument if all of the following apply:
(a) the derivatives dealer transacts only with, for or on behalf of, a person or company in the local jurisdiction that is an eligible derivatives party;
(b) the derivatives dealer is registered, licensed or authorized under the securities, commodity futures or derivatives legislation of a foreign jurisdiction specified in Appendix A to conduct the derivatives activities in the foreign jurisdiction that it proposes to conduct with the derivatives party;
(c) the derivatives dealer is subject to and complies with the securities, commodity futures or derivatives legislation of the foreign jurisdictions specified in Appendix A relating to the activities being conducted by the derivatives dealer with a derivatives party whose head office or principal place of business is in Canada;
(d) the derivatives dealer provides the regulator or, in Québec, the securities regulatory authority, with prompt access to its books and records upon request with respect to any matter relating to the activities being conducted with a derivatives party whose head office or principal place of business is located in Canada.
(2) The exemption in subsection (1) is not available unless all of the following apply:
(a) the derivatives dealer engages in the business of a derivatives dealer in the foreign jurisdiction in which its head office or principal place of business is located;
(b) the derivatives dealer has delivered to the derivatives party a statement in writing disclosing all of the following:
(i) the foreign jurisdiction in which the derivatives dealer's head office or principal place of business is located;
(ii) that all or substantially all of the assets of the derivatives dealer may be situated outside of the local jurisdiction;
(iii) that there may be difficulty enforcing legal rights against the derivatives dealer because of the above;
(iv) the name and address of the agent for service of process of the derivatives dealer in the local jurisdiction;
(c) the derivatives dealer has submitted to the regulator or, in Québec, the securities regulatory authority, a completed Form 93-101F1 Submission to Jurisdiction and Appointment of Agent for Service of Process.
(3) Paragraphs (1) (a) to (d) do not apply if the derivatives party is an affiliated entity of the derivatives dealer unless the affiliated entity is an investment fund.
(4) Paragraph (2)(b) does not apply if the derivatives party is an affiliated entity of the derivatives dealer unless the affiliated entity is an investment fund.
40. In this Division, "local counterparty" means a counterparty to a derivative in any jurisdiction of Canada if either of the following applies:
(a) the counterparty is a person or company, other than an individual, to which one or more of the following apply:
(i) the person or company is organized under the laws of the local jurisdiction;
(ii) the head office of the person or company is in the local jurisdiction;
(iii) the principal place of business of the person or company is in the local jurisdiction;
(b) the counterparty is an affiliated entity of a person or company referred to in paragraph (a) and the person or company is liable for all or substantially all of the liabilities of the counterparty.
41. A derivatives dealer that is an investment dealer member of CIRO is exempt from the provisions of this Instrument set out in Appendix B if both of the following apply:
(a) the derivatives dealer is subject to and complies with the corresponding conduct and other applicable rules of CIRO in connection with a transaction or other related activity;
(b) the derivatives dealer promptly notifies the regulator or, in Québec, the securities regulatory authority, of each instance of material non-compliance with a provision of this Instrument that is set out in Appendix B.
42. A derivatives dealer that is a Canadian financial institution is exempt from the provisions of this Instrument set out in Appendix C if both of the following apply:
(a) the derivatives dealer is subject to and complies with the corresponding conduct and other regulatory provisions of its prudential regulator in connection with a transaction or other related activity;
(b) the derivatives dealer promptly notifies the regulator or, in Québec, the securities regulatory authority, of each instance of material non-compliance with a provision of this Instrument that is set out in Appendix C.
43. A derivatives dealer is exempt from the provisions in this Instrument, except for section 9 [Fair dealing], section 12 [Handling complaints], and Part 5 [Compliance and recordkeeping], in respect of a transaction to which both of the following apply:
(a) the execution of the transaction is on and subject to the rules of a derivatives trading facility;
(b) the derivatives dealer does not know the identity of the derivatives party prior to and at the time of execution of the transaction.
44. (1) A derivatives dealer is exempt from this Instrument, other than section 9 [Fair dealing], section 10 [Conflicts of Interest] and section 28 [Content and delivery of transaction information], if all of the following apply:
(a) the derivatives dealer does not solicit or otherwise transact a derivative with, for or on behalf of, a non-eligible derivatives party;
(b) the derivatives dealer does not, in respect of derivatives or transactions, advise a non-eligible derivatives party, other than in accordance with section 45 [Advising generally];
(c) either of the following applies:
(i) the derivatives dealer has its head office or principal place of business in a jurisdiction of Canada and the derivatives dealer, together with each affiliated entity of the derivatives dealer that is a local counterparty, excluding investment funds, and excluding derivatives between all affiliated entities, has not had, in any of the previous 24 calendar months, an aggregate month-end gross notional amount under outstanding derivatives, exceeding $250 000 000;
(ii) the derivatives dealer has its head office and principal place of business in a foreign jurisdiction and the derivatives dealer, together with each affiliated entity of the derivatives dealer that is a local counterparty, excluding investment funds, and excluding derivatives between all affiliated entities, has not had, in any of the previous 24 calendar months, an aggregate month-end gross notional amount under outstanding derivatives with one or more counterparties that have a head office or principal place of business in Canada, exceeding $250 000 000.
(2) Subject to subsection (3), a derivatives dealer is exempt from the provisions of this Instrument, other than section 9 [Fair dealing], section 10 [Conflicts of Interest] and section 28 [Content and delivery of transaction information], if all of the following apply:
(a) the derivatives dealer does not solicit or otherwise transact a derivative with, for or on behalf of, a non-eligible derivatives party;
(b) the derivatives dealer does not, in respect of derivatives or transactions, advise a non-eligible derivatives party, other than in accordance with section 45 [Advising generally];
(c) the derivatives dealer, and each affiliated entity of the derivatives dealer that is also a derivatives dealer, is a derivative dealer solely as a result of transactions in respect of commodity derivatives;
(d) either of the following applies:
(i) the derivatives dealer has its head office or principal place of business in a jurisdiction of Canada and the derivatives dealer, together with each affiliated entity of the derivatives dealer that is a local counterparty, excluding investment funds, and excluding derivatives between all affiliated entities, has not had, in any of the previous 24 calendar months, an aggregate month-end gross notional amount under outstanding commodity derivatives, exceeding $10 000 000 000;
(ii) the derivatives dealer has its head office and principal place of business in a foreign jurisdiction and the derivatives dealer, together with each affiliated entity of the derivatives dealer that is a local counterparty, excluding investment funds, and excluding derivatives between all affiliated entities, has not had, in any of the previous 24 calendar months, an aggregate month-end gross notional amount under outstanding commodity derivatives with one or more counterparties that have a head office or principal place of business in Canada, exceeding $10 000 000 000.
(3) Subsection (2) does not apply in respect of a commodity derivative for which the underlying interest is a cryptoasset.
45. (1) For the purpose of subsection (3), "financial or other interest" in relation to a derivative or a transaction includes the following:
(a) ownership of, beneficial or otherwise, an underlying interest or underlying interests of the derivative;
(b) ownership of, beneficial or otherwise, or another interest in, a derivative that has the same underlying interest as the derivative;
(c) a commission or other compensation received or expected to be received from any person or company in relation to a transaction, an underlying interest in the derivative or a derivative that has the same underlying interest as the derivative;
(d) a financial arrangement in relation to the derivative, an underlying interest in the derivative or a derivative that has the same underlying interest as the derivative;
(e) any other interest that relates to the transaction.
(2) A person or company that acts as a derivatives adviser is exempt from the provisions of this Instrument applicable to a derivatives adviser if the advice that the person or company provides does not purport to be tailored to the needs of the person or company receiving the advice.
(3) If the person or company referred to in subsection (2) recommends a transaction involving a derivative, a class of derivatives or the underlying interest of a derivative or class of derivatives in which any of the following has a financial or other interest, the person or company must disclose the interest, including a description of the nature of the interest, concurrently with providing the advice:
(a) the person or company;
(b) any partner, director or officer of the person or company;
(c) if the person is an individual, the spouse or child of the individual;
(d) any other person or company that would be an insider of the first mentioned person or company if the first mentioned person or company were a reporting issuer.
46. (1) A derivatives adviser whose head office or principal place of business is in a foreign jurisdiction specified in Appendix D is exempt from the provisions of this Instrument in respect of advice provided to a derivatives party if all of the following apply:
(a) the derivatives party to whom the advice is being provided is an eligible derivatives party;
(b) the derivatives adviser is registered, licensed or authorized, or otherwise operates under an exemption from registration, under the securities, commodity futures or derivatives legislation of a foreign jurisdiction specified in Appendix D to conduct the derivatives activities in the foreign jurisdiction that it proposes to conduct with the derivatives party;
(c) the derivatives adviser is subject to and complies with the securities, commodity futures or derivatives legislation of the foreign jurisdictions specified in Appendix D relating to the activities being conducted by the derivatives adviser with a derivatives party whose head office or principal place of business is in Canada;
(d) the derivatives adviser provides the regulator or, in Québec, the securities regulatory authority, with prompt access to its books and records upon request with respect to any matter relating to the activities being conducted with a derivatives party whose head office or principal place of business is in Canada.
(2) The exemption under subsection (1) is not available unless all of the following apply:
(a) the derivatives adviser engages in the business of a derivatives adviser in the foreign jurisdiction in which its head office or principal place of business is located;
(b) the derivatives adviser has delivered to the derivatives party a statement in writing disclosing the following:
(i) the foreign jurisdiction in which the derivatives adviser's head office or principal place of business is located;
(ii) that all or substantially all of the assets of the derivatives adviser may be situated outside of the local jurisdiction;
(iii) that there may be difficulty enforcing legal rights against the derivatives adviser because of the above;
(iv) the name and address of the agent for service of process of the derivatives adviser in the local jurisdiction.
(c) the derivatives adviser has submitted to the regulator or, in Québec, the securities regulatory authority, a completed Form 93-101F1 Submission to Jurisdiction and Appointment of Agent for Service of Process;
(3) A derivatives adviser that relied on the exemption under subsection (1) during the 12-month period preceding December 1 of a year must notify the regulator or, in Québec, the securities regulatory authority, of that fact by December 1 of that year.
(4) In Ontario, subsection (3) does not apply to a derivatives adviser that complies with the filing and fee payment provisions applicable to an unregistered exempt international firm under Ontario Securities Commission Rule 13-502 Fees.
(5) A person or company is exempt from subsections (2) and (3) if the person or company is registered as a derivatives adviser in the local jurisdiction.
(6) Paragraphs (1) (a) to (d) do not apply if the derivatives party is an affiliated entity of the derivatives adviser unless the affiliated entity is an investment fund.
(7) Paragraph (2)(b) does not apply if the derivatives party is an affiliated entity of the derivatives adviser unless the affiliated entity is an investment fund.
47. (1) A derivatives sub-adviser whose head office or principal place of business is in a foreign jurisdiction specified in Appendix E is exempt from the provisions of this Instrument if all of the following apply:
(a) the obligations and duties of the sub-adviser are set out in a written agreement with the derivatives adviser or derivatives dealer;
(b) the derivatives adviser or derivatives dealer has entered into a written agreement with its derivatives parties on whose behalf derivatives advice is or portfolio management services are to be provided, agreeing to be responsible for any loss that arises out of the failure of the derivatives sub-adviser to do any of the following:
(i) exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the derivatives firm and each derivatives party of the derivatives firm for whose benefit the derivatives advice is, or portfolio management services are, to be provided;
(ii) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
(2) The exemption under subsection (1) is not available unless all of the following apply:
(a) the derivatives sub-adviser's head office or principal place of business is in a foreign jurisdiction;
(b) the derivatives sub-adviser is registered, licensed or authorized in a category of registration, or operates under an exemption from registration, under the securities, commodity futures or derivatives legislation of the foreign jurisdiction in which its head office or principal place of business is located;
(c) the legislation of the foreign jurisdiction referred to in paragraph (b) permits the derivatives sub-adviser to carry on the activities in that jurisdiction that registration as a derivatives adviser would permit it to carry on in the local jurisdiction;
(d) the derivatives sub-adviser engages in the business of a derivatives adviser in the foreign jurisdiction in which its head office or principal place of business is located.
48. A derivatives adviser that is registered as an adviser under securities legislation or, in Ontario and Manitoba, commodity futures legislation, is exempt from the provisions set out in Appendix F if the derivatives adviser complies with the corresponding business conduct provisions of securities or commodity futures legislation in connection with a transaction or other related derivatives activity with a derivatives party.
49. (1) The regulator or, in Québec, the securities regulatory authority, may grant an exemption from this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.
(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.
(3) Except in Alberta and Ontario, an exemption referred to in subsection (1) is granted under the statute referred to in Appendix B of National Instrument 14-101 Definitions opposite the name of the local jurisdiction.
50. (1) In this section "transition period" means the period commencing on September 28, 2024 and expiring on September 28, 2029.
(2) During the transition period, for the purposes of this Instrument, an "eligible derivatives party", as defined in section 1(1) [Definitions and interpretation], includes a person or company, that is any of the following:
(a) a permitted client, as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
(b) in Ontario, an accredited investor, other than an individual, as that term is defined in National Instrument 45-106 Prospectus Exemptions;
(c) an accredited counterparty, as that term is defined in the Derivatives Act (Québec);
(d) a qualified party, as that term is defined in any of the following:
(i) in Alberta, Blanket Order 91-507 Over-the-Counter Trades in Derivatives;
(ii) in British Columbia, Blanket Order 91-501 Over-the-Counter Derivatives;
(iii) in Manitoba, Blanket Order 91-501 Over-the-Counter Trades in Derivatives;
(iv) in New Brunswick, Local Rule 91-501 Over-the-Counter Trades in Derivatives;
(v) in Nova Scotia, Blanket Order 91-501 Over-the-Counter Trades in Derivatives;
(vi) in Saskatchewan, General Order 91-908 Over-the-Counter Derivatives;
(e) an eligible contract participant as that term is defined under Section 1(a)(18) of the United States Commodity Exchange Act;
(f) a financial counterparty as that term is defined under Article 2(8) of the European Market Infrastructure Regulation;
(g) a non-financial counterparty as that term is defined under Article 2(9) of, and which exceeds clearing thresholds pursuant to Article 10(4)(b) of, the European Market Infrastructure Regulation.
(3) Despite subsection (2), if either of the following circumstances apply, the definition of "eligible derivatives party", as set out in subsection 1(1), applies to that circumstance:
(a) the derivatives firm has obtained a representation from the derivatives party in writing, that the derivatives party is considered to be an eligible derivatives party on the basis of any of paragraphs (2)(a) to (g);
(b) the representation referred to in paragraph (a) was made prior to the effective date of this Instrument.
51. Other than section 9 [Fair dealing], the provisions of this Instrument do not apply in respect of the transaction if both of the following apply:
(a) the transaction was entered into before the effective date of this Instrument;
(b) the derivatives firm has taken reasonable steps to determine that the derivatives party is one or more of the following, as applicable:
(i) a permitted client, as that term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;
(ii) in Ontario, an accredited investor, other than an individual, as that term is defined in National Instrument 45-106 Prospectus and Registration Exemptions;
(iii) an accredited counterparty, as that term is defined in the Derivatives Act (Québec);
(iv) a qualified party, as that term is defined in any of the following:
(A) in Alberta Blanket Order 91-507 Over-the-Counter Trades in Derivatives;
(B) in British Columbia Blanket Order 91-501 Over-the-Counter Derivatives;
(C) in Manitoba Blanket Order 91-501 Over-the-Counter Trades in Derivatives;
(D) in New Brunswick Local Rule 91-501 Over-the-Counter Trades in Derivatives;
(E) in Nova Scotia Blanket Order 91-501 Over-the-Counter Trades in Derivatives;
(F) in Saskatchewan General Order 91-908 Over-the-Counter Derivatives;
(v) an eligible contract participant as that term is defined in Section 1(a)(18) of the United States Commodity Exchange Act;
(vi) a financial counterparty as that term is defined under Article 2(8) of the European Market Infrastructure Regulation;
(vii) a non-financial counterparty as that term is defined under Article 2(9) of, and which exceeds clearing thresholds pursuant to Article 10(4)(b) of, the European Market Infrastructure Regulation.
52. Despite paragraph 8(2)(a)(iii), a derivatives firm has a period of one year following the effective date of this Instrument to obtain the waiver referred to in paragraph 8(2)(a)(iii) of this Instrument.
53. (1) This Instrument comes into force on September 28, 2024.
(2) In Saskatchewan, despite subsection (1), if this Instrument is filed with the Registrar of Regulations after September 28, 2024, this Instrument comes into force on the day on which it is filed with the Registrar of Regulations.
(Section 39)
LIST OF SPECIFIED FOREIGN JURISDICTIONS
Australia
Brazil
Hong Kong
Iceland
Japan
Republic of Korea
New Zealand
Norway
Singapore
Switzerland
United States of America
United Kingdom of Great Britain and Northern Ireland
Any member country of the European Union
(Section 41)
Section 11, Know your derivatives party
Section 12, Handling complaints
Section 14, Derivatives-party-specific needs and objectives
Section 15, Suitability
Section 19(2)(a)-(k) to (4), Relationship disclosure information
Section 20, Pre-transaction disclosure
Section 21, Valuation reporting
Section 25, Segregating derivatives party assets
Section 26, Holding initial margin
Section 27, Investment or use of initial margin
Section 28, Content and delivery of transaction information
Section 29, Derivatives party statements
Section 32, Designation and responsibilities of senior derivatives managers
Section 33, Responsibility of derivatives dealer to report to the regulator or the securities regulatory authority
(Section 42)
Section 11, Know your derivatives party
Section 13, Tied selling
Section 25, Segregating derivatives party assets
Section 26, Holding initial margin
Section 27, Investment or use of initial margin
Section 34, Derivatives party agreement
(Section 46)
LIST OF SPECIFIED FOREIGN JURISDICTIONS
Australia
Brazil
Hong Kong
Iceland
Japan
Republic of Korea
New Zealand
Norway
Singapore
Switzerland
United States of America
United Kingdom of Great Britain and Northern Ireland
Any member country of the European Union
(Section 47)
LIST OF SPECIFIED FOREIGN JURISDICTIONS
Australia
Brazil
Hong Kong
Iceland
Japan
Republic of Korea
New Zealand
Norway
Singapore
Switzerland
United States of America
United Kingdom of Great Britain and Northern Ireland
Any member country of the European Union
(Section 48)
Section 12, Handling complaints
Section 13, Tied-selling
Division 2, Additional obligations when dealing with or advising certain derivatives parties of Part 3, Dealing with or advising derivatives parties
Part 4, Derivatives party accounts
Part 5, Compliance and recordkeeping, except section 31, Policies and Procedures
1. Name of person or company ("Foreign Firm"):
2. If the Foreign Firm was previously assigned an NRD number as a registered firm or an unregistered exempt international firm, provide the NRD number of the firm.
3. Jurisdiction of incorporation of the Foreign Firm:
4. Head office address of the Foreign Firm:
5. The name, email address, phone number and fax number of the Foreign Firm's chief compliance officer, or equivalent.
Name:
Email address:
Phone:
Fax:
6. Section of Multilateral Instrument 93-101 Derivatives: Business Conduct the Foreign Firm is relying on:
[x] Section 39 [foreign derivatives dealer]
[x] Section 46 [foreign derivatives adviser]
[x] Other [specify] [e.g exemptive relief decision -- please explain]
7. Name of agent for service of process (the "Agent for Service"):
8. Address for service of process on the Agent for Service:
9. The Foreign Firm designates and appoints the Agent for Service at the address stated above as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal or other proceeding (a "Proceeding") arising out of or relating to or concerning the Foreign Firm's activities in the local jurisdiction and irrevocably waives any right to raise as a defence in any such Proceeding any alleged lack of jurisdiction to bring such Proceeding.
10. The Foreign Firm irrevocably and unconditionally submits to the non-exclusive jurisdiction of the judicial, quasi-judicial and administrative tribunals of the local jurisdiction in any Proceeding arising out of or related to or concerning the Foreign Firm's activities in the local jurisdiction.
11. Until 7 years after the Foreign Firm ceases to rely on section 39 [foreign derivatives dealer] or section 46 [foreign derivatives adviser], the Foreign Firm must submit to the securities regulatory authority
a. a new Submission to Jurisdiction and Appointment of Agent for Service in this form no later than the 30th day before the date this Submission to Jurisdiction and Appointment of Agent for Service is terminated;
b. an amended Submission to Jurisdiction and Appointment of Agent for Service no later than the 30th day before any change in the name or above address of the Agent for Service; and
c. a notice detailing a change to any information submitted in this form, other than the name or above address of the Agent for Service, no later than the 20th day after the change.
12. This Submission to Jurisdiction and Appointment of Agent for Service is governed by and construed in accordance with the laws of the local jurisdiction.
Dated:
_______________________________________________
(Signature of the Foreign Firm or authorized signatory)
_______________________________________________
(Name of signatory)
_______________________________________________
(Title of signatory)
The undersigned accepts the appointment as Agent for Service of ______________________________ [Insert name of Foreign Firm] under the terms and conditions of the foregoing Submission to Jurisdiction and Appointment of Agent for Service.
Dated: ___________________________________
_______________________________________________
(Signature of the Agent for Service or authorized signatory)
_______________________________________________
(Name of signatory)
_______________________________________________
(Title of signatory)
Companion Policy 93-101 Derivatives: Business Conduct
TABLE OF CONTENTS
PART |
TITLE |
|
|
PART 1 |
GENERAL COMMENTS |
|
|
PART 2 |
APPLICATION AND EXEMPTION |
|
|
PART 3 |
DEALING WITH OR ADVISING DERIVATIVES PARTIES |
|
|
PART 4 |
DERIVATIVES PARTY ACCOUNTS |
|
|
PART 5 |
COMPLIANCE AND RECORDKEEPING |
|
|
PART 6 |
EXEMPTIONS |
|
|
PART 7 |
GRANTING AN EXEMPTION |
|
|
PART 8 |
TRANSITION AND EFFECTIVE DATE |
This companion policy (the Policy) sets out the views of the Canadian Securities Administrators (the CSA or we) on various matters relating to Multilateral Instrument 93-101 Derivatives: Business Conduct (the Instrument or MI 93-101) and related securities legislation.
Except for Part 1, the numbering and headings of Parts, sections and subsections in this Policy correspond to the numbering and headings in the Instrument. Any general guidance for a Part or section appears immediately after the Part or section name. Any specific guidance on a section or subsection follows any general guidance. If there is no guidance for a Part or section, the numbering in this Policy will skip to the next provision that does have guidance.
Unless otherwise stated, any reference to a Part, section, subsection, paragraph, subparagraph or definition in this Policy is a reference to the corresponding Part, section, subsection, paragraph, subparagraph or definition in the Instrument.
Unless defined in the Instrument or this Policy, terms used in the Instrument and in this Policy have the meaning given to them in securities legislation, including in National Instrument 14-101 Definitions (NI 14-101). "Securities legislation" is defined in NI 14-101 and includes statutes and other instruments related to both securities and derivatives.
In this Policy,
"Product Determination Rule" means,
• in Alberta, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon, Multilateral Instrument 91-101 Derivatives: Product Determination,
• in Manitoba, Manitoba Securities Commission Rule 91-506 Derivatives: Product Determination,
• in Ontario, Ontario Securities Commission Rule 91-506 Derivatives: Product Determination, and
• in Québec, Regulation 91-506 respecting Derivatives Determination;
"regulator" means the regulator or securities regulatory authority in a jurisdiction as defined in NI 14-101.
The term "Canadian financial institution" is defined in NI 14-101. With respect to the Canadian financial institutions that are Schedule I or Schedule II banks, the definition of "Canadian financial institution" encompasses both domestic and foreign branches (if the bank in fact operates a foreign branch) -- a branch does not have a legal identity apart from its principal entity. However, the definition of "Canadian financial institution" does not include an affiliate of a bank that is established, incorporated or organized as a separate legal entity in a foreign jurisdiction.
The definition of "Canadian financial institution" does not include a Schedule III bank. Schedule III banks are distinct legal entities that are organized in foreign jurisdictions and maintain a branch in Canada. To the extent a Schedule III bank enters into a derivatives transaction with a derivatives party in the local jurisdiction, we would consider that entity to be a foreign derivatives dealer for the purposes of the Instrument.
A person or company that meets the definition of "derivatives adviser" or "derivatives dealer" in a local jurisdiction is subject to the Instrument in that jurisdiction, whether or not it is registered or exempted from the requirement to be registered in that jurisdiction.
A person or company will be subject to the requirements of the Instrument if it is either of the following:
• in the business of trading derivatives or in the business of advising others in respect of derivatives;
• otherwise required to register as a derivatives dealer or a derivatives adviser under securities legislation.
In determining whether a person or company is in the business of trading or in the business of advising in derivatives, a number of factors should be considered. Several factors that we consider relevant are described below. This is not a complete list and other factors may also be considered.
• Acting as a market maker -- Market making is generally understood as the practice of routinely standing ready to transact derivatives by
• responding to requests for quotes on derivatives, or
• making quotes available to other persons or companies that seek to transact derivatives, whether to hedge a risk or to speculate on changes in the market value of the derivative.
Market makers are typically compensated for providing liquidity through spreads, fees or other compensation, including fees or compensation paid by an exchange or a trading facility that do not relate to the change in the market value of the derivative transacted. A person or company that contacts another person or company about a transaction to accommodate its own risk management needs or to speculate on the market value of a derivative will not, typically, be considered to be acting as a market maker.
A person or company will be considered to be "routinely standing ready" to transact derivatives if it is responding to requests for quotes or it is making quotes available with some frequency, even if it is not on a continuous basis. Persons or companies that respond to requests or make quotes available occasionally are not "routinely standing ready".
A person or company would also typically be considered to be a market maker when it holds itself out as undertaking the activities of a market maker.
Engaging in bilateral discussions relating to the terms of a transaction will not, on its own, constitute market making activity.
• Directly or indirectly carrying on the activity with repetition, regularity or continuity -- Frequent or regular transactions are a common indicator that a person or company may be engaged in trading or advising for a business purpose. The activity does not have to be its sole or even primary endeavour for it to be in the business. We consider regularly trading or advising in any way that produces, or is intended to produce, profits to be for a business purpose.
• Facilitating or intermediating transactions -- The person or company provides services relating to the facilitation of trading or intermediation of transactions between third-party counterparties to derivatives contracts.
• Transacting with the intention of being compensated -- The person or company receives, or expects to receive, any form of compensation for carrying on transaction activity. This would include any compensation that is transaction or value-based including compensation from spreads or built-in fees. It does not matter if the person or company actually receives compensation or what form the compensation takes. However, a person or company would not be considered to be a derivatives dealer solely by reason that it realizes a profit from changes in the market price for the derivative (or its underlying reference asset), regardless of whether the derivative is intended for the purpose of hedging or speculating.
• Directly or indirectly soliciting in relation to transactions -- The person or company directly solicits transactions. Solicitation includes contacting someone by any means, including communication that offers (i) transactions, (ii) participation in transactions or (iii) services relating to transactions. This would include providing quotes to derivatives parties or potential derivatives parties that are not provided in response to a request. This also includes advertising on the internet with the intention of encouraging transacting in derivatives by local persons or companies. A person or company might not be considered to be soliciting solely because it contacts a potential counterparty, or a potential counterparty contacts them to enquire about a transaction, unless it is the person or company's intention or expectation to be compensated as a result of the contact. For example, a person or company that wishes to hedge a specific risk is not necessarily soliciting for the purpose of the Instrument if it contacts multiple potential counterparties to enquire about potential transactions to hedge the risk.
• Engaging in activities similar to a derivatives adviser or derivatives dealer -- The person or company carries out any activities related to transactions involving derivatives that would reasonably appear, to a third party, to be similar to the activities discussed above. This would not include the operator of an exchange or a clearing agency.
• Providing derivatives clearing services -- The person or company provides services to allow third parties, including counterparties to transactions involving the person or company, to clear derivatives through a clearing agency. These services are actions in furtherance of a trade conducted by a person or company that would typically play the role of an intermediary in the derivatives market.
In determining whether or not it is, for the purposes of the Instrument, a derivatives dealer, a person or company should consider its activities holistically. Assessment of the factors discussed above may depend on a person or company's particular facts and circumstances. We do not consider that all of the factors discussed above necessarily carry the same weight or that any one factor will be determinative.
Under securities legislation, a person or company engaging in or holding itself out as engaging in the business of advising others in relation to derivatives is generally required to register as a derivatives adviser unless an exemption is available.
As with the definition of "derivatives dealer", the definition of "derivatives adviser" (and the definition of "adviser" in securities legislation generally) requires an assessment of whether the person or company is "in the business" of conducting an activity. In the case of derivatives advisers, it is necessary to determine whether a person or company is "advising others" in relation to derivatives.
As with derivatives dealers, a person or company that is determining whether or not it is a derivatives adviser should consider its activities holistically. We do not consider that all of the factors discussed above necessarily carry the same weight or that any one factor will be determinative.
The definition of "derivatives adviser" also contains an additional element that the derivatives adviser should be in the business of "advising others" in relation to derivatives. Examples of persons and companies that may be considered to be in the business of advising others in relation to derivatives include the following:
• a registered adviser under securities or commodity futures legislation that provides advice to an investment fund or another person or company in relation to derivatives or derivatives trading strategies;
• a registered adviser under securities or commodity futures legislation that manages an account for a client and makes trading decisions for the client in relation to derivatives or derivatives trading strategies;
• an investment dealer that provides advice to clients in relation to derivatives or derivatives trading strategies;
• 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.
A person or company that discusses the merits of a particular derivative or derivatives trading strategy in a newsletter or on a website may be considered to be advising others in relation to derivatives but would be exempt if it meets the conditions in section 45 [Advising generally].
Similarly, a derivatives dealer that recommends a particular derivative or derivatives trading strategy to a customer in connection with a proposed transaction may be considered to be advising the customer in relation to derivatives. However, so long as the derivatives dealer is appropriately registered and has the necessary proficiency to provide the advice (or is otherwise exempt from registration), the derivatives dealer will not also be treated as a derivatives adviser with respect to the same activity.
If the derivatives firm's trading or advising activity is incidental to the firm's primary business, we may not consider it to be for a business purpose. For example, appropriately licensed professionals, such as lawyers, accountants, engineers, geologists and teachers, may provide advice in relation to derivatives in the normal course of their professional activities. We would generally not consider them to be advising on derivatives for a business purpose if such activities are incidental to their bona fide professional activities.
Generally, we would consider a person or company that engages in the activities discussed above in an organized and repetitive manner to be a derivatives dealer or, depending on the context, a derivatives adviser. Ad hoc or isolated instances of the activities discussed above may not necessarily result in a person or company being a derivatives dealer or, depending on the context, a derivatives adviser. Similarly, organized and repetitive proprietary trading, in and of itself, absent other factors described above, may not result in a person or company being considered to be a derivatives dealer for the purposes of the Instrument.
A person or company does not need to have a physical location, staff or other presence in the local jurisdiction to be a derivatives dealer or derivatives adviser in that jurisdiction. A derivatives dealer or a derivatives adviser in a local jurisdiction is a person or company that conducts the described activities in that jurisdiction. For example, this would include a person or company that is located in a local jurisdiction and that conducts dealing or advising activities in that local jurisdiction or in a foreign jurisdiction. This would also include a person or company located in a foreign jurisdiction that conducts dealing or advising activities with a derivatives party located in the local jurisdiction.
Where dealing or advising activities are provided to derivatives parties in a local jurisdiction or where dealing or advising activities are otherwise conducted within a local jurisdiction, regardless of the location of the derivatives party, we would generally consider a person or company to be a derivatives dealer or derivatives adviser (unless an exemption is otherwise available). However, where the person or company that is a derivatives dealer or adviser is not located in the local jurisdiction (e.g., is a foreign derivatives dealer or a foreign derivatives adviser), the obligations in the Instrument only apply to its dealing or advising activities with a derivatives party that is located in the local jurisdiction.
Note that a person or company that may be in the business of transacting derivatives may nevertheless be exempt from requirements of the Instrument; see the following Part 6 [Exemptions]:
• Foreign liquidity providers -- transactions with derivatives dealers (s. 37)
• Certain derivatives end-users (s. 38)
• Foreign derivatives dealers (s. 39)
• Investment dealers (s. 41)
• Canadian financial institutions (s. 42)
• Derivatives transacted on a derivatives trading facility where the identity of the derivatives party is unknown (s. 43)
• Certain notional amounts of certain commodity derivatives and other derivatives activity (s. 44)
• Advising generally (s. 45)
• Foreign derivatives advisers (s. 46)
• Foreign derivatives sub-advisers (s. 47)
• Registered advisers under securities or commodity futures legislation (s. 48)
"Derivatives party assets" includes all assets of a derivatives party that are received or held by a derivatives firm for or on behalf of the derivatives party for any purpose relating to derivatives transactions.
The term "derivatives party" is similar to the concept of a "client" in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations (NI 31-103). We have used the term "derivatives party" instead of "client" to reflect the circumstance where the derivatives firm may not regard its counterparty as its "client."
The definition of "commercial hedger" is used in paragraph (n) of the definition of "eligible derivatives party".
The concept of "commercial hedger" is meant to apply to a business entering into a transaction for the purpose of managing risks inherent in its business. For example, this could include a commodity producer managing risks associated with fluctuations in the price of the commodity it produces or a company entering into an interest rate swap to hedge its interest rate risks associated with a loan obligation. It could also include derivatives that are intended to eliminate or reduce currency risk associated with international commercial transactions (for example, when a company's functional currency or currency of index prices referenced in its transactions and the currency of settlement are not the same currency). It is not, however, intended to include a circumstance where the commercial enterprise enters into a transaction for speculative purposes; there has to be a significant link between the transaction and the business risks that are being hedged.
The term "eligible derivatives party" is intended to refer to those derivatives parties that have the requisite knowledge and experience to evaluate the information about derivatives that has been provided to the derivatives party by the derivatives firm. These persons or companies generally may not require the full set of protections that are provided to other derivatives parties that are not eligible derivatives parties. As a result, only the following provisions in the Instrument apply to transactions with an eligible derivatives party (subject to the limitation discussed below for transactions with an eligible derivatives party that is an individual or eligible commercial hedger):
• Division 1 of Part 3 (fair dealing, conflicts of interest, know your derivatives party, handling complaints, tied selling);
• Sections 24 and 25 relating to derivatives party assets;
• Subsection 28(1) requirement to deliver a transaction confirmation; and
• Part 5 relating to compliance and recordkeeping requirements.
When a derivatives firm is dealing with or advising a derivatives party that is either an individual or a commercial hedger, all applicable additional protections in the Instrument are presumed to apply unless that derivatives party has provided the derivatives firm with the necessary representations and waived, in writing, some or all of the additional protections in the Instrument. Section 8 of this Policy provides additional guidance relating to this waiver and the conditions that must be fulfilled by the derivatives firm in order for the derivatives firm to rely on the exemption set out in section 8 of the Instrument.
A derivatives firm should take reasonable steps to determine if a derivatives party is an eligible derivatives party. In determining whether the person or company that it transacts with, solicits or advises is an eligible derivatives party, the derivatives firm may rely on factual representations made in writing by the derivatives party, unless a reasonable person would have grounds to believe that such statements are false, or it is otherwise unreasonable to rely on the representations. Examples of such grounds may include the following:
• a situation where a derivatives dealer has information in its possession (e.g. financial statements) that raise material questions with respect to a derivatives party's status as an eligible derivatives party; or
• a situation where a company represents that it is an eligible derivatives party on the basis of the commercial hedger category, however, the derivatives dealer is aware that the derivative in question is not being used to hedge risks of that company or is aware that the derivative is not linked to the business of the company.
Under paragraphs (n) and (p) of the definition of "eligible derivatives party", a person or company will only be considered to be an eligible derivatives party if it has made certain representations to the derivatives firm in writing.
If the derivatives firm has not received a written statement from a derivatives party, the derivatives firm should not consider the derivatives party to be an eligible derivatives party.
We expect that a derivatives firm would maintain a copy of each derivatives party's written representations that are relevant to its status as an eligible derivatives party and would have policies and procedures reasonably designed to ensure that the information relating to each derivatives party is up to date.
Whether it is reasonable for a derivatives firm to rely on a derivatives party's written representation will depend on the particular facts and circumstances of the derivatives party and its relationship with the derivatives firm.
Commercial hedgers in paragraph (n)
A person or company is an eligible derivative party under paragraph (n) only if the person or company has, at the time the transaction occurs, represented that it is a commercial hedger. The derivatives firm may rely on a written representation from the derivatives party that it is a commercial hedger for the derivatives it transacts with the derivatives firm unless a reasonable person would have grounds to believe that the statement is false, or it is otherwise unreasonable to believe that the representation is accurate. A derivatives firm may not rely on a representation if a reasonable person would have grounds to believe there may not be a reasonable link between the commercial risks the derivatives party is hedging and the transaction entered into. This representation may be tailored by the eligible derivatives party and the derivatives firm to provide that the derivatives party is only treated as an eligible derivatives party for specific derivatives or types of derivatives.
The concept of "commercial hedger" under paragraph (n) is meant to apply to a business (including a sole proprietorship) entering into a transaction for the purpose of managing risks inherent in its business. For example, this could include, a commodity producer managing risks associated with fluctuations in the price of the commodity it produces, or a company entering into an interest rate swap to hedge its interest rate risks associated with a loan obligation. It could also include derivatives that are intended to eliminate or reduce currency risk associated with international commercial transactions (for example, in circumstances where a company's functional currency or currency of index prices referenced in its transactions and the currency of settlement, are not the same currency). It could also include an agribusiness (e.g., farmer, grain operator) that operates as a sole proprietorship hedging risks associated with the production and operation of their commercial business. It is not, however, intended to include a circumstance where the commercial enterprise enters into a transaction for speculative purposes; there has to be a reasonable link between the transaction and the business risks that are being hedged.
For greater certainty, the "commercial hedger" concept under paragraph (n) is available for use by individuals operating sole proprietorships. We understand that there are specific scenarios where sole proprietorships (which are legally treated as individuals) also enter into derivatives to hedge risks associated with their commercial activities. A "sole proprietorship" is an unincorporated business that is owned by one individual. The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all the losses, and does not have a separate legal status from the business. Accordingly, individual sole proprietors operating a commercial business are able to qualify as commercial hedgers if they satisfy the conditions for qualifying as a commercial hedger and are entering into a transaction solely for the purposes of managing risks inherent to the commercial enterprise. For greater certainty, the "commercial hedger" concept is not intended to include a circumstance where an individual is entering into over-the-counter derivatives to hedge risks associated with their personal investment activities. To ensure this prong of the eligible derivatives party definition is used for its intended purpose, CSA Staff intend to carefully monitor and review the use of this prong of the definition by clients of derivatives firms to qualify as an eligible derivatives party.
The Instrument does not provide a definition of hedge. While, generally, we would expect that the hedge relating to a derivative would qualify for hedge accounting under applicable accounting standards, we understand that certain persons or companies may choose to account for the fair value of the contract in their financial statements. The key is that the hedging transaction be objectively connected to, and measurably reduce, a risk related to the commercial activity carried on by the person or company.
The additional obligations in the Instrument presumptively apply to transactions with a derivatives party that is an eligible commercial hedger; however, pursuant to subsection 8(2) of MI 93-101, an eligible commercial hedger may "waive" the application of the additional protections under MI 93-101.
In addition, as an eligible derivatives party, the eligible commercial hedger comes within the class of derivatives parties that a foreign derivatives dealer or adviser may deal with under an available exemption.
Obligations guaranteed by another eligible derivatives party under paragraph (p)
Paragraph (p) of the definition of "eligible derivatives party" provides that a derivatives firm may treat a derivatives party as an eligible derivatives party if the derivatives party represents to the derivatives firm that all of its obligations under a derivative are fully guaranteed or otherwise supported (under a letter of credit or credit support agreement) by one or more eligible derivatives parties, other than an eligible derivatives party qualifying as such under paragraphs (n) (an eligible commercial hedger) or (o) (an individual).
Determining assets -- paragraphs (m) and (o)
For the purposes of paragraph (m), net assets must have an aggregate realizable value, before taxes, but after deduction of the corresponding liabilities, that are more than $25 000 000 in Canadian dollars or an equivalent amount in another currency as shown on its last financial statements. "Net assets" under this paragraph is calculated as total assets minus total liabilities. Unlike in paragraph (o), assets considered for the purposes of paragraphs (m) are not limited to "financial assets".
In the case of paragraph (o), the individual must beneficially own "financial assets", as that term is defined in section 1.1 of NI 45-106, that have an aggregate realizable value before tax but net of any related liabilities of at least $ 5 000 000 in Canadian dollars (or an equivalent amount in another currency). "Financial assets" is defined to include cash, securities or a deposit, or an evidence of a deposit that is not a security for the purposes of securities legislation. Realizable value is typically the amount that would be received by selling an asset.
In general, determining whether financial assets are beneficially owned by an individual should be straightforward. However, this determination may be more difficult if financial assets are held in a trust or in other types of investment vehicles for the benefit of an individual.
Factors indicating beneficial ownership of financial assets include:
• possession of evidence of ownership of the financial asset;
• entitlement to receive any income generated by the financial asset;
• risk of loss of the value of the financial asset;
• the ability to dispose of the financial asset or otherwise deal with it as the individual sees fit.
In recognition of the international nature of the derivatives market, paragraph (e) of the definition of "permitted depository" permits a foreign bank or trust company with a minimum amount of reported shareholders' equity to act as a permitted depository and hold derivatives party assets, provided its head office or principal place of business is located in a permitted jurisdiction and it is regulated as a bank or trust company in the permitted jurisdiction.
Paragraph (a) of the definition of "permitted jurisdiction" captures jurisdictions where foreign banks authorized under the Bank Act to carry on business in Canada, subject to supervision by the Office of the Superintendent of Financial Institutions (OSFI), are located.{1} As of the time of the publication of the Instrument, the following countries and their political subdivisions are permitted jurisdictions: Belgium, France, Germany, Ireland, Japan, Netherlands, Singapore, Switzerland, United Kingdom, and the United States of America.
For paragraph (b) of the definition of "permitted jurisdiction," in the case of the euro, where the currency does not have a single "country of origin", the provision will be read to include all countries in the euro area and countries using the euro under a monetary agreement with the European Union.{2}
While the term "segregate" means to separately hold or separately account for derivatives party assets or positions, consistent with the PFMI Report and National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (NI 94-102), accounting segregation is acceptable (i.e., customer collateral is segregated by maintaining records that allow the positions and the value of collateral delivered by each customer to be identified).
The PFMI Report is the April 2012 final report entitled Principles for financial market infrastructures published by the Bank for International Settlements' Committee on Payments and Market Infrastructure (formerly the Committee on Payment and Settlement Systems) and the Technical Committee of the International Organization of Securities Commissions, as amended from time to time.
The term "valuation" is defined to mean the value of a derivative determined in accordance with accounting principles for fair value measurement that are consistent with accepted methodologies within the derivatives firm's industry. Where market quotes or market-based valuations are unavailable, we expect the value to represent the current mid-market level derived from market-based metrics incorporating a fair value hierarchy. The mid-market level does not have to include adjustments incorporated into the value of a derivative to account for the characteristics of an individual counterparty.
The Instrument applies to "derivatives advisers" and "derivatives dealers" as defined in subsection 1(1) of the Instrument. These definitions include a person or company that, under securities legislation is
• registered as a "derivatives dealer" or "derivatives adviser",
• exempt from the requirement to register as a "derivatives dealer" or "derivatives adviser", and
• excluded from registration as a "derivatives dealer" or "derivatives adviser".
Accordingly, derivatives firms that may be exempt from the requirement to register in a jurisdiction, such as Canadian financial institutions and individuals acting on their behalf in relation to transacting in, or providing advice in relation to, a derivative, will nevertheless be subject to the same standard of conduct towards their derivatives parties that apply to registered derivatives firms and their registered representatives.
Section 3 ensures that the Instrument applies to the same contracts and instruments in all jurisdictions of Canada. Each jurisdiction has adopted a Product Determination Rule that excludes certain types of contracts and instruments from regulation under the Instrument.
General principle
Subsection 4(1) provides that the Instrument applies to short-term foreign exchange contracts or instruments in the wholesale foreign exchange market, which are typically settled within two business days or less (short-term FX) and, which include, for greater certainty, transactions in this market that are commonly referred to as spot FX.
Inclusion of certain short-term FX transactions in the institutional foreign exchange market
The wholesale foreign exchange market is a global over-the-counter market made up of a broad subset of market participants, including, the types of derivatives parties referred to in paragraphs (a) to (m) and (q) of the definition of eligible derivatives party. Specifically, this includes banks, central banks, supranational and quasi-government organizations, investment funds, pension funds, insurance companies, investment dealers, payment remittance and money services businesses, proprietary trading firms, benchmark and trading execution providers, as well as large multinational corporates with global treasury operations (wholesale FX market participants). These wholesale FX market participants transact short-term FX with other wholesale FX market participants. As wholesale FX market participants, Canadian financial institutions typically transact short-term FX as market maker, as well as for hedging, speculation and operational purposes.
The obligations in the Instrument relating to fair dealing, conflicts of interest, complaints handling, as well as compliance and recordkeeping obligations (including the obligations related to senior managers) will apply to a derivatives dealer that is also a Canadian financial institution with respect to short-term FX transactions it enters into with its counterparties that are also wholesale FX market participants. These obligations, however, will only apply to a derivatives dealer that is a Canadian financial institution if its notional exposure under all outstanding derivatives -- calculated on the basis of outstanding derivatives that are reportable derivatives under the trade reporting rules{3} -- exceeds $500 billion (i.e., short-term FX transactions are excluded from this calculation).
Applying these obligations to cover the short-term FX transactions of this population of derivatives dealers in the wholesale foreign exchange market is generally consistent with expectations already laid out in a voluntary code of conduct that certain wholesale FX market participants, including derivatives dealers that are Canadian financial institutions, already adhere to. In addition to currency-linked derivatives that are covered by the Instrument, our intention is that this provision covers the same short-term FX activity that is covered by these voluntary codes of conduct. Therefore, we expect these derivatives dealers will already have in place an existing compliance framework (i.e., policies, procedures, and controls) to address this activity and would generally expect that existing framework will meet section 31 compliance obligations and the other limited subset of obligations of the Instrument that apply to short-term FX transactions.
For greater certainty, a Canadian financial institution that is subject to this provision is not required or expected to obtain any status certifications or representations from its counterparties. The limited subset of three provisions in the Instrument (fair dealing, conflicts of interest, complaints handling) that apply to short-term FX contracts in the wholesale FX market is intended to overlay the existing policies and procedures that have already been adopted by the population of derivatives dealers subject to these provisions, including the existing policies and procedures that have been incorporated into their internal compliance frameworks through their adherence to a voluntary code of conduct that covers short-term FX activity and other FX derivatives (e.g., the FX Global Code, as it is amended and restated from time to time).{4}
If a derivatives party would not be considered a wholesale FX market participant that transacts in the wholesale FX market with a Canadian financial institution under the FX Global Code, we would not interpret any FX transaction by such derivatives party as a short-term FX transaction that needs to be included for the purposes of section 4.
The wholesale foreign exchange market does not include retail foreign currency exchange transactions, including retail foreign currency exchange transactions conducted at the branch level.
Section 7 provides that the Instrument does not apply to certain governments, central banks and international organizations specified in the section. Section 7 does not, however, exclude derivatives firms that deal with or advise these entities from the application of the Instrument.
We are of the view that, because of their nature, regulatory oversight, financial resources or experience, eligible derivatives parties do not require the full set of protections afforded to other derivatives parties. Other derivatives parties are referred to in this Policy as non-eligible derivatives parties.
The obligations of a derivatives firm and the individuals acting on its behalf towards a derivatives party differ depending on whether the derivatives party is an eligible derivatives party and on the nature of the eligible derivatives party.
Dealing with or advising a derivatives party that is a non-eligible derivatives party
If a derivatives firm is dealing with or advising a non-eligible derivatives party, no exemption is available from the requirements in Parts 3, 4 and 5.
Dealing with or advising an eligible derivatives party that is not an individual or an eligible commercial hedger
A derivatives firm is exempt from the requirements of the Instrument if it is dealing with or advising a derivatives party that is an eligible derivatives party that is not an individual or an eligible commercial hedger, other than the following requirements (the core requirements):
• in Part 3 [Dealing with or advising derivatives parties], all of the requirements in Division 1 [General obligations towards all derivatives parties]:
• section 9 [Fair dealing];
• section 10 [Conflicts of interest];
• section 11 [Know your derivatives party];
• section 12 [Handling complaints]; and
• section 13 [Tied selling];
• in Part 4, Division 2 [Derivatives party assets]:
• section 24 [Interaction with other instruments]; and
• section 25 [Segregating derivatives party assets];
• in Part 4, Division 3 [Reporting to derivatives parties]:
• subsection 28(1) [Content and delivery of transaction information];
• in Part 5 [Compliance and recordkeeping]:
• all of Division 1 [Compliance]; and
• all of Division 2 [Recordkeeping].
Dealing with or advising an eligible derivatives party that is an individual or an eligible commercial hedger
Under subsection 8(2), when a derivatives firm is dealing with or advising a derivative party that is an individual or eligible commercial hedger, all applicable additional protections in the Instrument are presumed to apply unless that derivatives party has provided the derivatives firm with the requisite representations indicating that they qualify as an eligible derivatives party and the eligible derivatives party waives, in writing, some or all of the additional protections in Instrument. As specified in subsection 8(3), the core requirements cannot be waived by the eligible derivatives party.
An eligible derivatives party that is an individual or eligible commercial hedger can waive specific requirements for a specific derivative, a class of derivatives, or for all derivatives. For example, a producer of a certain commodity may choose to waive certain requirements in relation to derivatives where the underlying asset is a commodity that they produce but may not want to waive protections in relation to other types of derivatives.
We do not consider there to be an obligation under the Instrument to update the waiver after it is made. However, it is always open to an eligible derivatives party that is an individual or an eligible commercial hedger to withdraw, in whole or in part, any waiver it has made to a derivatives firm.
There is no prescribed form for the waiver provided by subparagraph 8(2)(a)(iii). For example, it may be appropriate for the waiver to be given by an eligible derivatives party that is an individual or an eligible commercial hedger as part of account-opening documentation, in master trading agreements or in protocols amending master trading agreements. A derivatives firm may also wish to use a form of waiver that is similar to the typical forms of waivers used by securities market participants when certain permitted clients provide a waiver from certain suitability/disclosure obligations under NI 31-103.
However, consistent with the derivatives firm's obligation to deal fairly, honestly and in good faith with derivatives parties, we expect the waiver to be presented to the derivatives party in a clear and meaningful manner in order to ensure the derivatives party understands the information presented and the significance of the protections being waived. We would consider it to be a breach of section 9 [Fair dealing] to put unreasonable pressure on a derivatives party to waive any requirements. We also expect the derivatives firm to remind the derivatives party that it has the option to obtain independent advice before signing the waiver.
In the limited circumstances where a sole proprietorship (which is legally treated as an individual) uses derivatives to hedge against commercial risk and thus qualify as an eligible derivatives party, the derivatives firm transacting with such party must identify and document the nature of the sole proprietorship's business and the commercial risks it needs to manage for purposes of the transaction (paragraph 8(2)(b)). This is in addition to the expectation that a derivatives firm will take reasonable steps to determine if a derivatives party is an eligible derivatives party (described more fully in Section 1 of this Policy).
General Principle
The obligation in section 9 (the fair dealing obligation) is a principles-based obligation and is intended to be similar to the duty to act fairly, honestly and in good faith applicable to registered firms and registered individuals under securities legislation (the registrant fair dealing obligation).{5}
The fair dealing obligation should be interpreted flexibly and in a manner sensitive to context
We recognize that there are important differences between derivatives markets and securities markets. The fair dealing obligation under the Instrument may not always apply to derivatives market participants in the same manner as the registrant fair dealing obligation would apply to securities market participants. Accordingly, we believe that the fair dealing obligation in section 9, as a principles-based obligation, should be interpreted flexibly and in a manner that is sensitive to context and to derivatives market participants' reasonable expectations. For this reason, prior CSA guidance and case law on the registrant fair dealing obligation may not necessarily be relevant in interpreting the fair dealing obligation under the Instrument. Similarly, the guidance in this Policy is not necessarily applicable to registrants in their conduct with securities market participants.
We take the view that the concept of fairness when applied to derivatives market participants is context-specific. Conduct that may be considered unfair when dealing with a derivatives party that is not an eligible derivatives party may be considered fair and part of ordinary commercial practice when dealing with an eligible derivatives party. For example, the fair dealing obligation may be interpreted differently if the derivatives party is an individual or small business than from how it would be interpreted if the derivatives party is a sophisticated market participant, such as a global financial institution. Similarly, conduct that may be considered to be unfair when acting as an agent to facilitate a derivatives transaction with a third-party may be considered fair when entering into a derivative as principal, where it would be expected that each party negotiating the derivative is seeking to ensure favourable financial terms.
When a derivatives firm is dealing with or advising an eligible derivatives party, we generally interpret the fair dealing obligation in section 9 in a similar manner to the "fair and balanced communications" obligation as it is conceived in the context of similar rules in the United States.
Abusive practices, including fraud, price fixing, spoofing and layering, manipulation of benchmark rates, and front-running of trades would be considered a severe breach of the fair dealing obligation.
Derivatives firms have an obligation to transact with a derivatives party under terms that are fair. What constitutes "fair" will vary depending on the particular circumstances. Misrepresenting the nature of the product and related risks, or deliberately selling a derivative that is not appropriate for a derivatives party, would not be considered to be "fair" and, in our view, would be a breach of the fair dealing obligation.
We expect a derivatives firm to ensure a derivatives party is reasonably made aware of the implications of terminating a transaction prior to maturity, including potential exit costs. However, depending on the level of sophistication of the derivatives party, as well as the nature of the derivatives party, we recognize that this may not be necessary and therefore, the obligation to be "fair" in this context is minimal. For example, it would be appropriate for this information to be provided to an eligible commercial hedger; whereas, we would generally not expect this information to be disclosed between two banks. We recognize that implications of termination, including costs, are wholly dependent on market conditions at the time of termination and therefore, the more specific details relating to such costs would only be disclosed when actual termination of the transaction is being discussed or negotiated.
As part of the policies and procedures required under section 31, a derivatives firm is expected to be able to demonstrate that it has established and follows policies and procedures that are reasonably designed to achieve fair terms, in the context, for the derivatives firm's derivatives parties and that these policies and procedures are reviewed regularly and amended as required.
We interpret the fair dealing obligation to include determining prices for derivatives transacted with derivatives parties in a fair and equitable manner. We expect there to be a rational basis for a discrepancy in price where essentially the same derivative is transacted with different derivatives parties. Factors that indicate a rational basis could include the level of counterparty risk and capital risk of a particular derivatives party, the derivatives party's trading activity, or relationship pricing. Lack of sophistication, knowledge or understanding of a derivatives product should never be a factor in providing less advantageous pricing. Both the compensation component and the market value or price component of the derivative are relevant in determining whether the price for a derivatives party is fair. A derivatives firm's policies and procedures under section 31 must address pricing practices, as well as how the reasonableness of compensation is determined. A derivatives party should be given an opportunity, at their option, to obtain independent advice before transacting in a derivative.
Derivatives firms are expected to obtain information from each derivatives party to allow them to meet their fair dealing obligation.
We consider a conflict of interest to be any circumstance where the interests of a derivatives party and those of a derivatives firm or its representatives are inconsistent or divergent.
The conflict of interest provisions in section 10 should be interpreted flexibly and in a manner that is sensitive to context and to derivatives market participants' reasonable expectations. For example, a derivatives firm and the derivatives party with which it transacts bilaterally hold opposing positions under the same derivative and this may represent an inherent conflict of interest in the narrow context of that specific derivative. We further recognize that transacting in certain commodity derivatives markets, such as energy derivatives markets, may also necessarily involve counterparties that have competing interests. We recognize, therefore, that it may not necessarily be appropriate to apply the conflict of interest provisions under the Instrument to derivatives market participants in the same manner as the relevant conflict of interest provisions would apply to securities market participants.
We take the view that a conflict of interest, when applied to derivatives market participants, is context-specific. Circumstances that may be considered to give rise to a conflict of interest when dealing with a derivatives party that is not an eligible derivatives party may be considered fair and part of ordinary commercial practice when dealing with an eligible derivatives party. For example, conflicts of interests may be viewed differently when dealing with a non-eligible derivative party that is an individual or a small business than they would be viewed if the derivatives party were an eligible derivatives party, which may be different again from how conflicts of interest would be viewed if the derivatives party were a sophisticated market participant such as a global financial institution.
In addition, the circumstances that may give rise to a conflict of interest when acting as an intermediary on behalf of an eligible derivatives party, may not represent a conflict of interest when entering into a derivative as principal, provided the eligible derivatives party is reasonably aware that the derivatives firm is seeking terms favourable to its own interests. One way to generally address this conflict would be to provide a representation to that effect in a master trading agreement; however, such standard representation may not necessarily address all of the circumstances that would give rise to a conflict of interest that ought to be disclosed to a derivatives party.
We expect that a derivatives firm's policies and procedures for managing conflicts should allow the firm and its staff to
• identify conflicts of interest,
• determine the level of risk, to both the derivatives firm and a derivatives party, that a conflict of interest raises, and
• respond appropriately to conflicts of interest.
When responding to any conflict of interest, we expect the derivatives firm to consider the fair dealing obligation in section 9 as well as any other standard of care that may apply when dealing with or advising a derivatives party.
There are three methods that are generally reasonable to respond to a conflict of interest, depending on the circumstances: avoidance, control and disclosure.
We expect that if there is a risk of material harm to a derivatives party or the integrity of the markets, the derivatives firm will take all reasonable steps to avoid the conflict of interest. If there is not a risk of material harm and the derivatives firm does not avoid the conflict of interest, we expect that it will take steps to either control or disclose the conflict, or both. We also expect the derivatives firm to consider what internal structures or policies and procedures it should implement to reasonably respond to such a conflict of interest.
Avoiding conflicts of interest
A derivatives firm must avoid all conflicts of interest that are prohibited by law. If a conflict of interest is not prohibited by law, we expect the derivatives firm to avoid the conflict if it is sufficiently contrary to the interests of a derivatives party that there can be no other reasonable response. We are generally of the view that conflicts that have a lesser impact on the interests of a derivatives party can be managed through controls or disclosure.
Where conflicts of interest between a derivatives party and a derivatives firm cannot be managed using controls or disclosure, we expect the derivatives firm to avoid the conflict. This may require the derivatives firm to stop providing the service or stop transacting derivatives with, or providing advice in relation to derivatives to, the derivatives party.
Controlling conflicts of interest
We expect that a derivatives firm would design its organizational structures, lines of reporting and physical locations to, where appropriate, control conflicts of interest effectively. For example, the following situations would likely raise a potential conflict of interest that could be controlled in this manner:
• advisory staff reporting to marketing staff,
• compliance or internal audit staff reporting to a business unit, and
• individuals acting on behalf of a derivatives firm and investment banking staff in the same physical location.
Depending on the conflict of interest, a derivatives firm may be able to reasonably respond to the conflict of interest by controlling the conflict in an appropriate way. This may include
• assigning a different individual to provide a service to the derivatives party,
• creating a group or committee to review, develop or approve responses to a type of conflict of interest,
• monitoring trading activity, or
• using information barriers for certain internal communication.
Where a conflict of interest is such that no control is effective, we expect the conflict to be avoided or disclosed.
When disclosure is appropriate
We expect a derivatives firm to inform each derivatives party it transacts derivatives with, or provides advice in relation to derivatives to, about any conflicts of interest that could affect the services the firm provides to the derivatives party.
Timing of disclosure
Under subsection 10(3), a derivatives firm and individuals acting on its behalf must disclose a conflict of interest in a timely manner. We expect a derivatives firm and its representatives to disclose the conflict to a derivatives party before or at the time they recommend the transaction or provide the service that gives rise to the conflict to enable the derivatives party to decide beforehand whether or not they wish to proceed with the transaction or service.
Where this disclosure is provided to a derivatives party before the transaction takes place, we expect the disclosure to be provided shortly before the transaction takes place. For example, if it was initially provided with the derivatives party's account-opening documentation months or years previously, we expect that an individual acting on behalf of a derivatives firm to also disclose this conflict to the derivatives party shortly before the transaction or at the time the transaction is recommended.
When disclosure is not appropriate
Disclosure may not be appropriate if a conflict of interest involves confidential or commercially-sensitive information, or the information amounts to "inside information" under insider trading provisions in securities legislation. In these situations, a derivatives firm will need to assess whether there are other methods to adequately respond to the conflict of interest. If not, the firm may have to decline to provide the service to avoid the conflict of interest. We also expect a derivatives firm to have specific procedures for responding to conflicts of interest that involve inside information and for complying with insider trading provisions.
How to disclose a conflict of interest
Subsection 10(3) provides that a derivatives firm must provide disclosure about a material conflict of interest to a derivatives party. When a derivatives firm provides this disclosure, we expect that the disclosure would
• be prominent, specific, clear and meaningful to the derivatives party, and
• explain the conflict of interest and how it could affect the service the derivatives party is being offered.
We expect that a derivatives firm would not
• provide only generic disclosure,
• provide only partial disclosure that could mislead the derivatives party, or
• obscure conflicts of interest in overly detailed disclosure.
More specifically, we generally expect that disclosures are separated into two categories:
(i) general conflicts of interest disclosures applicable to all counterparties (those which affect all counterparties and transaction types, addressed in a written general disclosure) that could be disclosed to counterparties on an annual basis, and
(ii) disclosures specific to a counterparty or a specific contemplated transaction (i.e., disclosure regarding specific conflicts of interest that are material and specific to a counterparty or a particular transaction prior to entering into a transaction) by providing written notice of or disclosing the conflict to a trader of their derivatives party over a taped line prior to trading.
We recognize that it may be appropriate in some circumstances for a derivatives firm to disclose a conflict where it arises after the original transaction has taken place. This might arise, for example, in the case of an equity total return swap where subsequent to entering into a transaction with a derivatives party, the derivatives dealer becomes a mergers and acquisitions adviser in respect of the equity underlier (where the proposed merger and acquisition activity has been announced).
Specific situations where a derivatives firm could be in a conflict of interest and how to manage the conflict are described below.
Acting as both dealer and counterparty
When a derivatives firm enters into a transaction with or recommends a transaction to a derivatives party, and the derivatives firm or an affiliated entity of the derivatives firm is the counterparty to the derivatives party in the transaction, we expect that the derivatives firm would respond to the resulting conflict of interest by disclosing it to the derivatives party.
Competing interests of derivatives parties
If a derivatives firm deals with or provides advice to multiple derivatives parties, we expect the derivatives firm to make reasonable efforts to be fair to all such derivatives parties. We expect that a derivatives firm will have internal policies and procedures to evaluate the balance of these interests.
Acting on behalf of derivatives parties
When a derivatives firm, or the individuals acting on its behalf, exercise discretionary authority over the accounts of its derivatives parties to enter into transactions on their behalf, we expect the derivatives firm to have policies and procedures to address the potential conflicts of interest ensuing from the contractual relationship governing the exercise of discretionary authority.
Compensation practices
We expect that a derivatives firm would consider whether any benefits, compensation or remuneration practices are inconsistent with their obligations to derivatives parties, especially if the firm relies heavily on commission-based remuneration. For example, if there is a complex product that carries a high commission but may not be appropriate for the derivatives firm's derivatives parties, the derivatives firm may decide that it is not appropriate to offer that product.
Derivatives firms act as gatekeepers of the integrity of the derivatives markets. They should not, by act or omission, facilitate conduct that brings the market into disrepute. As part of their gatekeeper role, derivatives firms are required to establish the identity of, and conduct due diligence on, their clients or counterparties under the know-your-derivatives party obligation in section 11 (the "KYDP obligation"). Complying with this obligation can help ensure that derivatives transactions are completed in accordance with securities laws.
The KYDP obligation requires derivatives firms to take reasonable steps to obtain and periodically update information about their derivatives parties. In the ordinary course, an annual request to a derivatives party from a derivatives dealer to confirm that nothing has changed in relation to the gatekeeper KYDP information in section 11 would satisfy this obligation.
Section 43 provides an exemption for derivatives firms from the obligations under this section for transactions that are executed on a derivatives trading facility where the identity of the counterparty is unknown prior to and at the time the transaction is executed.
General duty to document and respond to complaints
Section 12 requires a derivatives firm to document complaints in respect of its derivatives business and to effectively, fairly and promptly respond to them. We expect that a derivatives firm would document and respond to all complaints received from a derivatives party who has dealt with the derivatives firm in respect of the derivatives activity at issue (in this section, a "complainant").
Complaint handling
We are of the view that an effective complaint system would deal with all formal and informal complaints or disputes in a timely and fair manner. To achieve the objective of handling complaints fairly, we expect the derivatives firm's compliance system to include standards allowing for objective factual investigation and analysis of the matters specific to the complaint.
We expect a derivatives firm to take a balanced approach to the gathering of facts that objectively considers the interests of
• the complainant,
• the individual or individuals acting on behalf of the derivatives firm, and
• the derivatives firm.
We also expect a derivatives firm to limit its consideration and handling of complaints for the purposes of the Instrument to those relating to possible violations of securities legislation.
Complaint monitoring
We expect a derivatives firm's complaint system to provide for specific procedures for reporting the complaints to superiors, in order to allow the detection of frequent and repetitive complaints made with respect to the same matter which may, on a cumulative basis, indicate a serious problem. We also expect the derivatives firm to take appropriate measures to promptly address the cause of a problem that is the subject of a complaint, particularly a serious problem.
Types of complaints
We expect a derivatives firm to provide an appropriate response to all complaints, including complaints relating to one of the following matters, by providing an initial and substantive response, promptly in writing:
• a trading or advising activity;
• a breach of the derivatives party's confidentiality;
• theft, fraud, misappropriation or forgery;
• misrepresentation;
• the fair dealing obligation;
• an undisclosed or prohibited conflict of interest; or
• personal financial dealings with a derivatives party.
A derivatives firm may determine that a complaint relating to matters other than the matters listed above is nevertheless of a sufficiently serious nature to be responded to in the manner described below. This determination should be made, in all cases, by considering if a derivatives party, acting reasonably, would expect a written response to its complaint.
Timeline for responding to complaints
We expect that a derivatives firm would
• promptly send an initial written response to a complainant within 5 business days of receipt of the complaint, and
• provide a substantive response to all complaints relating to the matters listed under "Types of complaints" above, indicating the derivatives firm's decision on the complaint.
A derivatives firm may also wish to use its initial response to seek clarification or additional information from the derivatives party.
We encourage derivatives firms to respond to and resolve complaints relating to the matters listed above within a reasonable timeframe depending on the nature of the dispute (in the ordinary course, within 90 days would be considered reasonable).
Section 13 prohibits a derivatives firm from imposing undue pressure on or coercing a person or company to obtain a product or service from a particular person or company, including the derivatives firm or any of its affiliates, as a condition of obtaining another product or service from the derivatives firm. These types of practices are known as "tied selling". In our view, this section would be contravened if, for example, a financial institution agreed to lend money to a derivatives party on the condition that the derivatives party hedged their loan through the same financial institution. In this example, we would take the view that a derivatives firm would not contravene section 13 if it required the derivatives party to enter into an interest rate derivative in connection with a loan agreement, as long as the derivatives party were permitted to transact in this derivative with the counterparty of their choice.
Section 13 is not intended to prohibit relationship pricing or other beneficial selling arrangements similar to relationship pricing. Relationship pricing refers to the practice of industry participants offering financial incentives or advantages to certain derivatives parties.
The obligations in Division 2 of Part 3 do not apply if a derivatives firm is dealing with or advising:
• an eligible derivatives party that is not an individual or an eligible commercial hedger; or
• an eligible derivatives party that is an individual or eligible commercial hedger that has waived these obligations.
Information on a derivatives party's specific needs and objectives (referred to below as "derivatives-party-specific KYC information") forms the basis for determining whether transactions are suitable for a derivatives party. The obligations in section 14 require a derivatives firm to take reasonable steps to obtain and periodically update information about their derivatives parties.
The derivatives-party-specific KYC information may also be relevant in complying with policies and procedures that are aimed at ensuring fair terms of a derivative for a derivatives party under subsection 9(1).
Derivatives parties may have a variety of execution priorities. For example, a derivatives party may have as their primary objective executing the transaction as quickly as possible rather than trying to obtain the best available price. Factors to consider when evaluating execution include price, certainty, timeliness, and minimizing the impact of making a trading interest public.
Before transacting with a derivatives party, we expect a derivatives firm to have the appropriate information to assess the derivatives party's knowledge, experience and level of understanding of the relevant type of derivative, the derivative's party's objective in entering into the derivative and the financial and business risks involved, in order to assess whether the derivative is suitable for the derivatives party. The derivatives-party-specific KYC information is obtained with this goal in mind.
If the derivatives party chooses not to provide the necessary information that would enable the derivatives firm to assess suitability, or if the derivatives party provides insufficient information, we expect the derivatives party to be notified. The derivatives firm would be expected to advise the derivatives party that
• this information is required to determine whether the derivative is suitable for the derivatives party, and
• without this information there is a strong risk that it will not be able to determine whether the derivatives party has the ability to understand the derivative and the risks involved with transacting the derivative.
Derivatives-party-specific KYC information for suitability depends on circumstances
The extent of derivatives-party-specific KYC information that a derivatives firm needs in order to determine the suitability of a transaction or a derivatives party's priorities when transacting in the derivative will depend on factors that include
• the derivatives party's circumstances and objectives,
• the type of derivative,
• the derivatives party's relationship to the derivatives firm, and
• the derivatives firm's business model.
In some cases, a derivatives firm will need extensive derivatives-party-specific KYC information, for example, where the derivatives party would like to enter into a derivatives strategy using a range of asset classes to hedge a commercial activity and related risks. In these cases, we expect the derivatives firm to have a comprehensive understanding of the derivatives party's
• needs and objectives when entering into a derivative, including the derivatives party's time horizon for their hedging or speculative strategy,
• overall financial circumstances, and
• risk tolerance for various types of derivatives, taking into account the derivative party's knowledge of derivatives.
In other cases, a derivatives firm may need to obtain less derivatives-party-specific KYC information, for example, if the derivatives firm enters into a single derivative with a derivatives party who needs to hedge a loan that the derivatives firm extended to the derivatives party.
Subsection 14(2) corresponds to subsection 11(4) of MI 93-101 and subsection 13.2(4) of NI 31-103. In the context of NI 31-103, CSA Staff have generally interpreted this to mean the firm has to refresh the client specific KYC information at least once a year. Pursuant to subsection 14(1) of MI 93-101, any time that a derivatives firm makes a recommendation or accepts an order, it is required to make a suitability determination unless (i) the derivatives party is an eligible derivatives party, provided that it is not an eligible derivatives party that is an individual or eligible commercial hedger; or (ii) the derivatives party is an eligible derivatives party that is an individual or an eligible commercial hedger that has waived this requirement. Consequently, any time a firm makes a recommendation or accepts an order, the firm needs to know whether the client is an eligible derivatives party or a retail counterparty in order to know whether it has to satisfy the suitability obligation. As long as the firm complies with its obligation in subsection 11(4) to keep its derivatives-party-specific KYDP information current, and as long as the firm does not know otherwise, the firm can rely on existing representations.
Subsection 15(1) requires a derivatives firm to take reasonable steps to ensure that a proposed transaction is suitable for a derivatives party before making a recommendation or accepting instructions from the derivatives party to transact in a derivative.
Suitability obligation
To meet the suitability obligation, a derivatives firm should have in-depth knowledge of all derivatives that it transacts with or for, or recommends to, its derivatives party. This is often referred to as the "know your product" or KYP obligation.
We expect a derivatives firm to know each derivative well enough to understand and explain to the derivatives party the derivative's risks, key features, and initial and ongoing obligations. The decision by a derivatives firm to include a type of derivative on its product shelf or approved list of products does not necessarily mean that the derivative will be suitable for each derivatives party. Individuals acting on behalf of a derivatives firm must still determine the suitability of each transaction for every derivatives party.
When assessing suitability, we expect a derivatives firm to take all reasonable steps to determine whether the derivatives party has the capability to understand the particular type of derivative and the risks involved.
In all cases, we expect a derivatives firm to be able to demonstrate a process for making suitability determinations that is appropriate under the circumstances.
Any direction from a derivatives party to override a suitability determination made by a derivatives firm should be made in writing or otherwise documented by the firm/individual acting on its behalf.
Suitability obligation cannot be delegated
A derivatives firm should not
• delegate its suitability obligation to anyone other than an officer or employee of the derivatives firm, or
• satisfy the suitability obligation by simply disclosing the risks involved with a transaction.
Sections 14 and 15 -- Use of online services to determine derivatives party specific needs and objectives and suitability
The conduct obligations set out in the Instrument, including the derivatives-party-specific KYC and suitability obligations in sections 14 and 15, are intended to be "technology neutral". This means that these obligations are the same for derivatives firms that interact with derivatives parties on a face-to-face basis or through an online platform.
Where the information necessary to fulfill a derivatives firm's obligations pursuant to sections 14 and 15 is solicited through an online service or questionnaire, we expect that this process would amount to a meaningful discussion with the derivatives party.
An online service or questionnaire is expected to achieve this objective if it
• uses a series of behavioural questions to establish risk tolerance and elicit other derivatives-party-specific KYC information,
• prevents a derivatives party from progressing further until all questions have been answered,
• tests for inconsistencies or conflicts in the answers and will not let the derivatives party complete the questionnaire until the inconsistencies or conflicts are resolved,
• offers information about the terms and concepts involved, and
• reminds the derivatives party that an individual from the derivatives firm is available to help them throughout the process.
Subsection 1(1) defines a "referral arrangement" in broad terms. Referral arrangement means an arrangement in which a derivatives firm agrees to pay or receive a referral fee. The definition is not limited to referrals for providing derivatives, financial services or services requiring registration. It also includes receiving a referral fee for providing a derivatives party's name and contact information to an individual or a firm. "Referral fee" is also broadly defined. It includes any benefits received from referring a derivatives party, including sharing or splitting any commission resulting from a transaction.
Under section 16, parties to a referral arrangement are required to set out the terms of the arrangement in a written agreement. This is intended to ensure that each party's roles and responsibilities are made clear. This includes obligations for a derivatives firm involved in referral arrangements to keep records of referral fees (this includes records of all fees relating to referrals that were either paid by the derivatives firm to another person or company or received by the derivatives firm from another person or company). Payments do not necessarily have to go through a derivatives firm, but a record of all payments related to a referral arrangement must be kept.
We expect referral agreements to include
• the roles and responsibilities of each party,
• limitations on any party that is not a derivatives firm,
• the specific contents of the disclosure to be provided to referred derivatives parties, and
• who provides the disclosure to referred derivatives parties.
If the person or company receiving the referral is a derivatives firm or an individual acting on behalf of that derivatives firm, they would be responsible for carrying out all obligations of a derivatives firm towards the referred derivatives party in respect of the derivatives-related activities for which the derivatives party is referred and communicating with the referred derivatives party. However, if the referring person or company is a derivatives firm, the referring derivatives firm is still required to comply with sections 16 [Permitted referral arrangements], 17 [Verifying the qualifications of the person or company receiving the referral] and 18 [Disclosing referral arrangements to a derivatives party].
If a derivatives party is referred by or to an individual acting on behalf of a derivatives firm, we expect the derivatives firm to be a party to the referral agreement. This ensures that the derivatives firm is aware of these arrangements so it can adequately supervise the individuals acting on its behalf and monitor compliance with the agreements. It does not preclude the individual acting on behalf of the derivatives firm from also being a party to the agreement.
A party to a referral arrangement may need to be registered depending on the activities that the party carries out. A derivatives firm cannot use a referral arrangement to assign, contract out of or otherwise avoid its regulatory obligations.
In making referrals, a derivatives firm should ensure that the referral itself does not constitute an activity that the derivatives firm is not authorized to engage in.
We generally are of the view that the compliance practices of investment dealers with respect to referral arrangements under NI 31-103 could similarly be employed to meet the requirements under the Instrument with respect to referral arrangements.
Section 17 requires the derivatives firm, or individual acting on its behalf, making a referral to satisfy itself that the party receiving the referral is appropriately qualified to perform the services, and, if applicable, is appropriately registered. The derivatives firm, or individual acting on its behalf, is responsible for determining the steps that are reasonable in the circumstances. For example, this may include an assessment of the types of derivatives parties that the referred services would be appropriate for.
The disclosure of information to a derivatives party required under section 18 is intended to help the derivatives party make an informed decision about the referral arrangement and to assess any conflicts of interest. We expect the disclosure to be provided to a derivatives party before or at the time the referred services are provided. We also expect a derivatives firm, and any individuals acting on behalf of the derivatives firm who is directly participating in the referral arrangement, to take reasonable steps so that a derivatives party understands
• which entity it is dealing with,
• what it can expect that entity to provide to it,
• the derivatives firm's key responsibilities to it,
• if applicable, the limitations of the derivatives firm's registration category or exemptive relief,
• if applicable, any relevant terms and conditions imposed on the derivatives firm's registration or exemptive relief,
• the extent of the referrer's financial interest in the referral arrangement, and
• the nature of any potential or actual conflict of interest that may arise from the referral arrangement.
The obligations in this Division do not apply if a derivatives firm is dealing with or advising an eligible derivatives party that is not an individual or an eligible commercial hedger or an eligible derivatives party that is an individual or an eligible commercial hedger that has waived these obligations.
Content of relationship disclosure information
The Instrument does not prescribe a form for the relationship disclosure information required under section 19. A derivatives firm may provide this information in a single document, or in separate documents, which together give the derivatives party the prescribed information.
We expect that relationship disclosure information would contain accurate, complete, and up-to-date information. We suggest that derivatives firms review their disclosures annually or more frequently, as necessary. A derivatives firm must take reasonable steps to notify a derivatives party, in a timely manner, of significant changes in respect of the relationship disclosure information that has been provided.
To satisfy their obligations under subsection 19(1), an individual acting on behalf of a derivatives firm must spend sufficient time with a derivatives party in a manner consistent with their operations to adequately explain the relationship disclosure information that is delivered to the derivatives party. We expect a derivatives firm to have policies and procedures that reflect the derivatives firm's practices when preparing, reviewing, delivering and revising relationship disclosure documents.
Disclosure should occur before entering into an initial transaction, prior to advising a derivatives party in respect of a derivative and when there is a significant change in respect of the information delivered to a derivatives party. We expect that the derivatives firm will maintain evidence of compliance with their disclosure requirements.
Description of the nature or type of the derivative party's account
Under paragraph 19(2)(a), a derivatives firm must provide derivatives parties with a description of the nature or type of account that the derivatives party holds with the derivatives firm. In particular, we expect that a derivatives firm would provide sufficient information to enable the derivatives party to understand the manner in which transactions will be executed and any applicable contractual obligations. We also expect a derivatives firm to provide information regarding margin and collateral requirements, if applicable. Under paragraph 19(2)(k) the derivatives firm must disclose how the derivatives party assets will be held, used and invested.
We expect that the relationship disclosure information would also describe any related services that may be provided by the derivatives firm. If the firm is advising in derivatives, and the adviser has discretion over the derivatives party's account, we also expect this to be disclosed.
Describe the conflicts of interest
Under paragraph 19(2)(b) a derivatives firm must provide a description of the conflicts of interest that the derivatives firm is required to disclose under securities legislation. One such requirement is in section 10, which provides that a firm must take reasonable steps to identify and then respond to existing and potential material conflicts of interest between the derivatives firm and the derivatives party. This includes disclosing the conflict, where appropriate.
Disclosure of charges, fees and other compensation
Paragraphs 19(2)(c), (d) and (e) require a derivatives firm to provide a derivatives party information on fees and costs they might be charged when entering into a transaction. These requirements ensure that a derivatives party receives all relevant information to evaluate the costs associated with the products and services they receive from the derivatives firm. We expect this disclosure to include information related to compensation or other incentives that the derivatives party may pay relating to a transaction.
We also expect a derivatives firm to provide the derivatives party with general information on any transaction and other charges that a derivatives party may be required to pay, including general information about potential break costs if a derivative is terminated prior to maturity, as well as other compensation the derivatives firms may receive from a third party as a result of their business relationship.
We recognize that a derivatives firm may not be able to provide all information about the costs associated with a particular derivative or transaction until the terms of the derivative have been agreed upon. However, before entering into an initial transaction, a derivatives firm must meet the applicable pre-transaction disclosure requirements in section 20.
Description of content and frequency of reporting
Under paragraph 19(2)(f) a derivatives firm is required to provide a description of the content and frequency of reporting to the derivatives party. Reporting to derivatives parties includes, as applicable
• valuation reporting under section 21,
• transaction confirmations under section 28, and
• derivatives party statements under section 29.
Further guidance about a derivatives firm's reporting obligations to a derivatives party is provided in Division 3 of this Part.
Know your derivatives party information
Paragraph 19(2)(i) requires a derivatives firm to disclose the type of information that it must collect from the derivatives party. We expect this disclosure will also indicate how this information will be used in assessing and determining the suitability of a derivatives party transaction.
The Instrument does not prescribe a form for the pre-transaction disclosure that must be provided to a derivatives party under section 20. The derivatives firm may provide this information in a single document, or in separate documents, which together give the derivatives party the prescribed information.
The disclosure document required under subsection 20(1) must be delivered to the derivatives party at a reasonably sufficient time prior to entering into the first transaction with the derivatives firm to allow the derivatives party to assess the material risks and material characteristics of the type of derivative transacted. This disclosure document may be communicated by email or other electronic means.
Identify the derivatives-related products or services the derivatives firm offers
Under paragraph 20(1)(a), a derivatives firm must provide a general description of the derivatives products and services related to derivatives that the derivatives firm offers to a derivatives party. We expect the relationship disclosure information to explain which asset classes the derivatives firm deals in and explain the different types of derivative products that the derivatives firm can transact with the derivatives party. The information required to be delivered under paragraph 20(1)(a) may be provided orally or in writing.
Describe the types of risks that a derivatives party should consider
Subparagraph 20(1)(b)(i) requires a derivatives firm to provide an explanation of the risks associated with the derivatives products being transacted, including any specific risks relevant to the derivatives offered and strategies recommended to the derivatives party. The risks disclosed may include market, credit, liquidity, operational, legal and currency risks, as applicable.
The information required to be delivered under paragraph 20(1)(b) may be provided orally or in writing.
Describe the risks of using leverage to finance a derivative to a derivatives party
Paragraph 20(1)(c) contemplates that a derivatives firm will disclose the risk of leverage to all derivatives parties, regardless of whether or not the derivatives party uses leverage or the derivatives firm recommends the use of borrowed money to finance any part of a transaction. Using leverage means that derivatives parties are only required to deposit a percentage of the total value of the derivative when entering into a transaction. This effectively amounts to a loan by the derivatives firm to the derivatives party. However, the derivatives party's profits or losses are based on changes in the total value of the derivative. Leverage magnifies a derivatives party's profit or loss on a transaction, and losses can exceed the amount of funds deposited.
Posting of the disclosure on a derivatives firm's website in a readily accessible location will be sufficient for purposes of ensuring the relevant disclosure has been provided (and refreshed as appropriate) as long as the derivatives firm directs the relevant derivatives party to the website before executing a transaction with or on behalf of a derivatives party.
We understand that the use of the term "price" is not always appropriate in relation to a derivative or transaction in a derivative. Therefore, under paragraph 20(2)(b), disclosure with respect to spreads, premiums, costs, etc., could be more appropriate than the price.
A derivatives dealer under subsection 21(1) does not have to make the daily mid-market mark (or valuation) available to a derivatives party for a derivative that is cleared through a qualifying clearing agency because we expect that derivatives parties will already be able to access valuation information from the clearing agency. However, the derivatives dealer should notify the derivatives party of its right to request and receive the clearing agency's daily mid-market mark.
This information should be available to a derivatives party in an electronic form (such as through an online platform that allows the derivatives party to see the value of its derivatives position). The derivatives firm should provide its derivatives parties with guidance on how to access this information before executing a transaction with or on behalf of a derivatives party and whenever the derivatives firm makes a change to the way the information is provided to a derivatives party.
In respect of a transaction involving a managed account, we expect the derivatives dealer to make the information required under subsection 21(1) available to the derivatives adviser that is acting on behalf of the managed account. Whereas in respect of the same transaction, the derivatives adviser that is acting for a managed account for its client is only required to make the information required under subsection 21(2) available to the derivatives party (i.e., its client) at least once every three months, unless their client requests to receive that information monthly, in which case the derivatives advisor must make that information available for each one-month period. We expect that a derivatives adviser would typically make this information available to its client in a statement that also includes information with respect to its client's overall portfolio and may include the type of information contemplated in section 14.14 [Account Statements] of NI 31-103.
The notice required under section 22 may be provided by a derivatives firm to a derivatives party in standard form industry documentation; a separate statement is not required to be provided to satisfy the obligations of this section.
The provisions in this Division, other than sections 24 [Application and interaction with other Instruments] and 25 [Segregating derivatives party assets], do not apply if a derivatives firm is dealing with or advising (i) an eligible derivatives party that is not an individual or an eligible commercial hedger, or (ii) an eligible derivatives party that is an individual or an eligible commercial hedger that has waived these obligations.
A derivatives firm is exempt from the requirements of this Division in respect of derivatives party assets if the derivatives firm
• is subject to and complies with or is exempt from sections 3 to 8 of NI 94-102 in respect of the derivatives party assets. The exemption from the requirements of this Division set out in paragraph (a) also extends to derivatives firms that rely on substituted compliance under NI 94-102,
• is subject to and complies with Guideline E-22 Margin Requirements for Non-Centrally Cleared Derivatives issued by the federal Office of the Superintendent of Financial Institutions (OSFI), including derivatives firms that rely on an exemption from such rules because they are complying with the equivalent rules of a foreign jurisdiction;
• is subject to and complies with securities legislation relating to margin and collateral requirements or National Instrument 81-102 Investment Funds;
• is subject to and complies with the Autorité des marchés financiers' Guideline on margins for over-the-counter derivatives not cleared by a central counterparty.
The exemption from the requirements of this Division on this basis extends to derivatives firms that rely on exemptions from the requirements under securities legislation relating to margin and collateral requirements.
A derivatives firm is required to segregate derivatives party assets from its own property and from the property of the firm's other derivatives parties either by separately holding or separately accounting for derivatives party assets.
We expect a derivatives firm to take reasonable efforts to confirm that the permitted depository holding initial margin
• qualifies as a permitted depository under the Instrument,
• has appropriate rules, policies and procedures, including robust accounting practices, to help ensure the integrity of the derivatives party assets and minimize and manage the risks associated with the safekeeping and transfer of the derivatives party assets,
• maintains securities in an immobilized or dematerialized form for their transfer by book entry,
• protects derivatives party assets against custody risk through appropriate rules and procedures consistent with its legal framework,
• employs a robust system that ensures segregation between the permitted depository's own property and the property of its participants and segregation among the property of participants and, where supported by the legal framework, supports operationally the segregation of property belonging to a derivative party on the participant's books and facilitates the transfer of derivatives party assets,
• identifies, measures, monitors, and manages its risks from other activities that it may perform, and
• facilitates prompt access to initial margin, when required.
If a derivatives firm is a permitted depository, as defined in the Instrument, it may hold derivatives party assets itself and is not required to hold derivatives party assets at a third-party depository. For example, a Canadian financial institution that acts as a derivatives firm would be permitted to hold derivatives party assets provided it did so in accordance with the requirements of the Instrument. Where a derivatives firm deposits derivatives party assets with a permitted depository, the derivatives firm is responsible for ensuring the permitted depository maintains appropriate books and records to ensure the derivatives party assets can be attributed to the derivatives party.
Section 27 requires that a derivatives firm receive written consent from a derivatives party before investing or otherwise using collateral provided as initial margin. In order to provide consent a derivatives party needs to be made aware of and agree to any potential investment or use. If applicable, we expect such disclosure to take the form of the disclosures provided by paragraph 19(2)(k) [Relationship disclosure information], which requires the derivatives firm to disclose the manner in which the assets are used or invested and to provide a description of the risks and benefits to the derivatives party that arises from the derivatives firm having access to use or invest derivatives party assets.
The obligations in this Division, other than subsection 28(1) [Content and delivery of transaction information], do not apply if a derivatives firm is dealing with or advising an eligible derivatives party that is not an individual or an eligible commercial hedger, or an eligible derivatives party that is an individual or an eligible commercial hedger that has waived these obligations.
Requirement to deliver a confirmation to all derivatives parties
The requirement to provide a written confirmation under subsection 28(1) can be satisfied by electronic confirmations (including SWIFT confirmations) as well as confirmations (or certain provisions within a confirmation) that are otherwise capable of being represented in computer code in accordance with standards developed by relevant industry associations from time to time.
Paragraph 28(1)(b) allows for a confirmation to be delivered to a derivatives adviser on behalf of a derivatives party, provided the derivative party has consented to this in writing. A client typically authorizes or gives consent to its derivatives adviser to receive the transaction confirmation on its behalf in an investment management agreement. In our view, this practice is consistent with the requirement in paragraph 28(1)(b). We do not intend to alter the market practice for a derivatives dealer to deliver the confirmation to the derivatives adviser as agent for the derivatives party and we do not expect a derivatives adviser to obtain an entirely new and separate written direction from a derivatives party.
Where a transaction is executed on a derivatives trading facility (or analogous regulated trading venue), we understand the trade confirmation will be provided by the derivatives trading facility (i.e., a U.S. Commodity Futures Trading Commission (CFTC) regulated swap execution facility that is regulated as an exempt exchange in Canada) pursuant to the terms in its rulebook to each of the counterparties to the transaction and therefore, we would not expect a derivatives firm in this scenario to provide a separate and additional trade confirmation to a derivatives party.
Additional requirements, where applicable, for confirmations delivered to non-eligible derivatives parties
Subsection 28(2) applies only to transactions with a non-eligible derivatives party. This subsection is intentionally flexible -- it requires information to be disclosed only to the extent that information applies to the transaction in question. We are of the view that the written description of the derivative transacted required by paragraph 28(2)(a) for transactions would be fulfilled by providing a plain language description of the asset class of the derivative and the features of the derivative (e.g., fixed for floating interest rate swap with CDOR as the reference rate).
We interpret "delivery" of a statement referred to in subsection 29(1) to include a statement that is made available to a derivatives party through the derivatives firm website or that is posted to a derivative's party's online account with the derivatives firm.
We are of the view that the description of the derivative transacted required by paragraphs 29(2)(b) and (3)(a) would be fulfilled by providing a plain language description of the asset class of the derivative and the features of the derivative (e.g., fixed for floating interest rate swap with CDOR as reference rate).
The objective of this Division is to further a culture of compliance and personal accountability within a derivatives firm. Section 32 imposes certain obligations on a senior derivatives manager of a derivatives dealer, further discussed below, with respect to ensuring compliance by individuals performing activities relating to transacting in, or advising in relation to, derivatives within the area of the business the senior derivatives manager is responsible for, which is referred to in the Instrument and below as a "derivatives business unit".
Sections 31 and 33 set out certain obligations on the derivatives dealer regarding policies and procedures relating to compliance and responding to material non-compliance. We are of the view that a derivatives dealer should be afforded flexibility with respect to who fulfills these obligations of the derivatives dealer. The obligations on the derivatives dealer under these sections may be carried out by, for example, one or more senior derivatives managers designated by the derivatives dealer.
Section 31 also sets out certain obligations on the derivatives adviser regarding policies and procedures relating to compliance; however, the "senior derivatives manager" requirements in this Division (sections 32 and 33) are not applicable to derivatives advisers.
Derivatives business unit
The definition of "derivatives business unit" is not intended to dictate that a derivatives dealer must organize its derivatives activity in any particular organizational structure. Depending on the size of the derivatives dealer, a derivatives business unit could relate to, for example, a class of derivatives, an asset class or sub-asset class, a business line or a division of the derivatives department of the derivatives dealer.
Senior derivatives manager
The definition of "senior derivatives manager" refers to the individual designated as primarily responsible for a particular derivatives business unit and who manages or has significant influence over its activity on a day-to-day basis. This definition is intended to lead to the designation of the individual responsible for
• the management or conduct of a derivatives business unit, including implementing, within the derivatives business unit, management of business priorities, risk management and operational efficiency and streamlining processes with respect to a class of derivatives, an asset class or sub-asset class, a business line or a division of the derivatives department, and
• operationalizing, within the derivatives business unit, policies and procedures relating to compliance established by the department that is responsible for compliance of the derivatives dealer.
In a large financial institution, a "senior derivatives manager" may refer to a business manager.
General principle
A strong culture of compliance, which focuses not only on compliance with applicable rules and regulations but also emphasizes the importance of personal integrity and the need to deal with a derivatives party fairly, honestly and in good faith, is the responsibility of each individual acting on behalf of a derivatives firm in its derivatives operations with respect to derivatives activity.
Establishing a compliance system
Toward that end, section 31 requires a derivatives firm to establish, maintain and apply policies and procedures and a system (i.e., a "compliance system") of controls and supervision sufficient to provide reasonable assurance that
• the derivatives firm and those acting for it, as applicable, comply with applicable securities legislation,
• the derivatives firm and each individual acting on its behalf manage derivatives-related risks prudently,
• individuals performing a derivatives-related activity on behalf of the firm, prior to commencing the activity and on an ongoing basis,
[x] possess the experience, education and training that a reasonable person would consider necessary to perform these activities in a competent manner, and
[x] conduct themselves with integrity.
We expect that the policies, procedures and controls referred to in section 31 include internal controls and monitoring that are reasonably likely to identify non-compliance at an early stage and would allow the derivatives firm to correct non-compliance in a timely manner.
We do not expect that the policies, procedures and controls referred to in section 31 be applicable to derivatives firm's activities other than its activities relating to transacting in, or advising in relation to, derivatives. For example, a derivatives dealer may also be a reporting issuer. The policies, procedures and controls established to monitor compliance with the Instrument would not necessarily reference matters related only to the derivatives firm's status as a reporting issuer. Nevertheless, a derivatives firm would not be precluded from establishing a single set of policies, procedures and controls (i.e., a firm-wide policy) related to the derivatives firm's compliance with all applicable securities legislation.
We expect a derivatives firm, from time to time, to review, assess and update its policies, procedures and controls to adapt to or reflect changes in applicable securities legislation, as well as industry practices/norms (including, the adoption of voluntary codes of conduct).
We interpret "risks relating to its derivatives activities" in paragraph 31(1)(b) to include the risks inherent in derivatives trading (including credit risk, counterparty risk, and market risk) that relate to a derivatives firm's overall financial viability.
Paragraph 31(c) establishes a reasonable person standard with respect to proficiency, rather than prescribing specific courses or other training requirements. However, we note that a derivatives firm and an individual transacting in, or providing advice in relation to, a derivative on behalf of the derivatives firm may be subject to more specific education, training and experience requirements, including under other securities legislation, if applicable.
Subparagraph 31(c)(i) contemplates that industry experience can be a substitute for formal education and training. We are of the view that this is particularly relevant in respect of formal education and training prior to commencing an activity on behalf of the derivatives firm relating to transacting in, or providing advice in relation to, a derivative. However, we expect that all individuals who perform such activity receive appropriate training on an ongoing basis. We expect training program to include compliance training, periodic training sessions on fundamentals and other relevant developments to the derivatives market, as well as training on new derivatives products and services.
Subparagraph 31(c)(iii) relates to integrity of the individuals who perform an activity on behalf of the derivatives firm relating to transacting in, or providing advice in relation to, a derivative. We expect individuals performing such activities to conduct themselves with integrity, which includes honesty and good faith, particularly in dealing with clients.
Prior to employing an individual in a derivatives business unit, we expect that a derivatives firm will assess the integrity of the individual by having regard to the following:
• references provided by previous employers, including any relevant complaint of fraud or misconduct against the individual;
• if the individual has been subject to any disciplinary action by its previous employer or to any adverse finding or settlement in civil proceedings;
• whether the individual has been refused the right to carry on a trade, business or profession requiring a licence, registration or other professional designation;
• in light of the individual's responsibility, whether the individual's reputation may have an adverse impact on the firm for which the activity is to be performed.
On an ongoing basis, a firm-wide code of conduct/ethics policies can be relied on as part of satisfying the obligation under subparagraph 31(c)(iii). We also expect derivatives firms to require the employees in its derivatives business unit to read the code of conduct and for each employee to provide some form of an acknowledgement (typically updated annually) to the derivatives firm that they are complying with such code of conduct.
Paragraph 32(1)(a) imposes an obligation on a derivative dealer to designate a senior derivatives manager in respect of a derivatives business unit (unless the derivatives dealer is exempt from this obligation under section 44 [Exemptions from certain requirements in this Instrument for certain notional amounts of commodity derivatives and other derivatives activity].
Depending on its size, level of derivatives activity and organizational structure, a derivatives dealer may have a number of different derivatives business units and therefore, it would be appropriate to designate a senior derivatives manager for each business unit. For example, a large dealer with multiple trading desks covering different products may have a number of different senior managers. The specific title or job description of the individual designated as "senior derivatives manager" for a derivatives business unit could vary between derivatives dealers, depending once again on their size, level of derivatives activity and organizational structures. In general, we would not expect that the same individual would be designated as the senior derivatives manager for more than one derivatives business unit.
Except in a small derivatives dealer operating a single derivatives business unit, a senior derivatives manager should not be the same individual as the chief executive officer of the derivatives dealer, or another individual registered under securities legislation.
It is the responsibility of the derivatives dealer to identify within the organizational structure of their business the individual that should be designated as the senior derivatives manager of a derivatives business unit.
Following implementation of the Instrument, we expect to monitor the process derivatives dealers use to identify the individual or individuals that are designated as senior derivatives managers.
Under paragraph 32(2)(b), an appropriate response to non-compliance is a contextual determination, depending on the harm or potential harm, of the non-compliance. We are of the view that an appropriate response could include one or more of the following, depending on the circumstances:
• rectifying the non-compliance;
• disciplining one or more individuals who perform an activity on behalf of the derivatives firm relating to transacting in, or providing advice in relation to, a derivative;
• working with a chief compliance officer or other person responsible for the policies, to improve (or recommending improvements to) processes, policies and procedures aimed at ensuring compliance with the Instrument, applicable securities legislation and the policies and procedures required under section 31 [Policies and procedures].
An appropriate response could include directing a subordinate to respond to the non-compliance.
A senior derivatives manager's responsibilities under this Division apply to the senior derivatives manager even in situations where that individual has delegated his or her responsibilities.
Whether non-compliance with the Instrument or applicable securities legislation is "material" will depend on the specific circumstances. For example, material non-compliance with respect to a small, unsophisticated derivatives party may differ from the material non-compliance with respect to a large, more sophisticated derivatives party. Further, if the non-compliance is part of a continual pattern or practice of activities constituting non-compliance within the derivatives business unit or by an individual employee within the derivatives business unit, even if a single incident of non-compliance would not be material, the pattern of non-compliance itself may be "material". Any single incident of fraud, price fixing, manipulation of benchmark rates, or front-running of trades would be considered material.
We expect that in complying with the requirement to submit a report under paragraph 32(3)(b) to the board of directors, that reasonable care will be exercised in determining when and how often material non-compliance should be reported to the board. For example, in a case of serious misconduct, we expect the board to be made aware promptly of the misconduct. In the ordinary course, it may otherwise be appropriate to consolidate the senior derivatives manager's report into an annual report; however, the senior derivatives manager should be involved in preparing the report on behalf of the derivatives business unit, even in the circumstances where the senior derivatives manager's obligation to submit the report to the board of directors is being fulfilled by the derivatives dealer's chief compliance officer.
The requirement on a derivatives dealer to make a report to the regulator under section 33 will depend on whether the particular non-compliance would reasonably be considered by the derivatives dealer to be non-compliance with the Instrument or applicable securities legislation and create a risk of material harm to a derivatives party or to capital markets, or otherwise reflect a significant pattern of non-compliance.
The derivatives dealer should establish a standard for determining when there is a risk of material harm to a derivatives party of the firm or to the capital markets. Whether the harm is "material" is dependent on the specific circumstances. Material harm to a small, unsophisticated derivatives party may differ from the material harm to a large, more sophisticated derivatives party.
We expect that the report to the regulator could be provided by any one of the following individuals:
(a) the chief executive officer of the derivatives dealer, or if the derivatives dealer does not have a chief executive officer, an individual acting in a capacity similar to that of a chief executive officer;
(b) a partner or the sole proprietor of the registered derivatives dealer;
(c) if the derivatives dealer has other significant business activities, the officer in charge of the division of the derivatives firm that acts as a derivatives dealer; or
(d) the chief compliance officer of the derivatives dealer.
See Appendix A of this Policy for the suggested form that a derivatives dealer may use to report the type of non-compliance contemplated in section 33 to the regulator.
This section does not apply to derivatives advisers.
The Instrument does not prescribe a form of agreement. Appropriate subject matter for the derivatives party agreement typically includes terms addressing payment obligations, netting of payments, events of default or other termination events, calculation and netting of obligations upon termination, transfer of rights and obligations, governing law, valuation, and dispute resolution. In determining whether the requirements of section 34 are met, we would generally take into consideration harmonized disclosure, reporting and other documentary practices that may be developed from time to time by global trade associations in standard form industry documentation based on requirements applicable in the major global markets.
The process of reaching an agreement with a new counterparty may involve setting out the essential terms before the transaction, followed by more general terms (such as events of default) in the trade confirmation, prior to executing a master agreement. We would accept in some circumstances that this process could satisfy the obligations in section 34. We expect that the agreement would also cover other areas as appropriate in the context of the transactions into which the parties will enter. For example, where transactions will be subject to margin, we expect the agreement to include terms that cover margin requirements, assets that are acceptable as collateral, collateral valuation methods, investment and rehypothecation of collateral, and custodial arrangements for initial margin, if applicable.
We understand that it is not market practice by Canadian market participants for certain types of foreign exchange transactions to be documented in standard form industry documentation. Rather, firms will typically rely on a trade confirmation (including a SWIFT confirmation) to evidence the agreement between the parties. In this circumstance, we would generally accept that the requirements in section 34 can also be satisfied through a trade confirmation (including a SWIFT confirmation) required to be delivered under subsection 28(1), which may not include all the terms that are otherwise typically included in standard form industry documentation.
Section 35 imposes a general obligation on a derivatives firm to keep full and complete records relating to the derivatives firm's derivatives, transactions in derivatives, and all of its business activities relating to derivatives, trading in derivatives or advising in derivatives. These records must be kept in a form that is readily accessible and searchable. This list of records is not intended to be exhaustive but rather sets out the minimum records that must be kept. We expect a derivatives firm to consider the nature of its derivatives-related activity when determining the records that it must keep and the form of those records.
The principle underlying section 35 is that a derivatives firm should document, through its records,
• compliance with all applicable securities legislation (including the Instrument) for its derivatives-related activities,
• the details and evidence of each derivative which it has been a party or in respect of which it has been an agent,
• the circumstances surrounding the entry into and termination of those derivatives, and
• related post-transaction matters.
We expect, for example, a derivatives firm to be able to demonstrate, for each derivatives party, the details of compliance with the obligations in section 11 [Know your derivatives party] and, if applicable, the obligations in section 14 [Derivatives-party-specific needs and objectives] and section 15 [Suitability] (and if sections 14 and 15 are not applicable, the reason as to why they are not).
If a derivatives firm wishes to rely on any exemption or exclusion in the Instrument or other related securities legislation, it should be able to demonstrate that the conditions of the exemption or exclusion are met.
With respect to records required under paragraph 35(b), demonstrating the existence and nature of the derivatives firm's derivatives, and records required under paragraph 35(a) documenting the transactions relating to the derivatives, we expect
• a derivatives firm to accurately and fully document every transaction it enters into, and
• to keep records to the extent that they demonstrate the existence and nature of the derivative (this includes documentation capable of being represented in computer code, if the records meet the requirements in the Instrument).
We also expect a derivatives firm to maintain notes of communications that could have an impact on a derivatives party's account or its relationship with the derivatives firm. These records of communications kept by a derivatives firm may include notes of oral and written communications, including all communications by e-mail, regular mail, fax, instant messaging, chat rooms, mobile device, or other digital or electronic media performed across a technology platform.
While a derivatives firm may not need to save every voicemail or e-mail, or record all telephone conversations with every derivatives party, we expect a derivatives firm to maintain reasonable records of all communications with a derivatives party relating to derivatives transacted with, for or on behalf of the derivatives party. What is "reasonable" for larger derivatives firms may be different from what is "reasonable" for a smaller derivatives firm.
Derivatives firms are required to keep their records in a safe location. This includes ensuring that no one has unauthorized access to information, particularly confidential derivatives party and counterparty information. We expect a derivatives firm to be particularly vigilant if it maintains books and records in a location that may be accessible by a third party. In this case, we expect the derivatives firm to have a confidentiality agreement with the third party.
The Instrument requires records to be kept for 7 years (or 8 years in Manitoba) from the date such record is created. For greater certainty, this principle does not override the record retention requirements found in other CSA derivatives instruments that applicable firms are subject to, such as derivatives trade reporting rules.
The Instrument provides several exemptions from the requirements in the Instrument. If a firm is exempt from a requirement in the Instrument, the individuals acting on its behalf are likewise exempt.
General principle
This exemption allows foreign liquidity providers (i.e., foreign derivatives dealers) to transact with derivatives dealers that are located in Canada without being subject to the conduct requirements in the Instrument in order to facilitate access and liquidity in the inter-dealer market.
Availability of the exemption
There are no notice or filing requirements (or any additional conditions) imposed on foreign derivatives dealers relying on this exemption when they transact with local derivatives dealers. Foreign dealers that seek wider access to Canadian derivatives markets on an exempt basis would need to rely on the foreign derivatives dealer exemption in section 39 [Exemption for foreign derivatives dealers].
A derivatives dealer that is a Schedule I or Schedule II bank under the Bank Act (Canada) is not permitted to rely on this exemption; however, we intend for this exemption to be available to derivatives dealers that are Schedule III banks (foreign bank branches of foreign derivatives dealers authorized under the Bank Act to do business in Canada), since the exemption is intended to be available to a foreign bank (i.e., the foreign legal entity that is counterparty to a transaction with a local derivatives dealer).
For example, a derivatives dealer located in the U.S., regardless of whether it is a registered swaps dealer or otherwise operates under an exemption from having to be registered (because they fall below certain financial thresholds that would require them to register as a U.S. swaps dealer), is exempt from the conduct requirements in the Instrument when transacting with a Canadian financial institution that is a derivatives dealer. Similarly, the conduct requirements in the Instrument would not apply to a derivatives dealer solely in commodities that is located in the U.S., regardless of whether it is a registered swaps dealer or otherwise operates under an exemption from having to be registered (because they fall below certain financial thresholds that would require them to register as a U.S. swaps dealer), when they are transacting with a person or company referenced in paragraph 37(a).
For the purposes of this exemption, we consider "securities, commodity futures or derivatives legislation in a foreign jurisdiction" to include banking legislation of a foreign jurisdiction.
Section 38 provides an exemption from the provisions of the Instrument for a person or company that (i) does not engage in the activities described in section 38 and (ii) does not have the status described in paragraph 38(2)(a) or 38(2)(b).
For example, a person or company that frequently and regularly transacts in derivatives to hedge business risk but that does not undertake any of the activities referred to in paragraphs 38(1)(a) to (e) may qualify for this exemption. It is also possible for a person or company to frequently engage in derivatives transactions for speculative purposes (i.e., for the purpose of gaining market returns) and qualify for the end-user exemption. Typically, in these cases, such a person or company would transact with a derivatives dealer who itself may be subject to some or all of the requirements of the Instrument.
General principle
Section 39 provides an exemption from the provisions of the Instrument for foreign derivatives dealers that are regulated under the laws of a foreign jurisdiction to conduct the activities it proposes to conduct with an eligible derivatives party in Canada that achieve comparable regulatory outcomes to the requirements in the Instrument.
Availability of the exemption
The exemption is available to foreign derivatives dealers whose head office or principal place of business is in a jurisdiction listed in Appendix A if the transaction is with persons or companies that are eligible derivatives parties and the foreign derivatives dealer otherwise satisfies the conditions in that section for relying on the exemption.
With respect to foreign derivatives dealers that are foreign banks whose home jurisdiction is listed on Appendix A and that operate a foreign bank branch in Canada (i.e., a Schedule III bank under the Bank Act (Canada)), this exemption will extend to its Canadian branches.
This exemption is only available where a foreign derivatives dealer complies with the laws of the foreign jurisdiction specified in Appendix A that are applicable to the dealer with respect to its derivatives activities with a derivatives party located in Canada. If a foreign derivatives dealer is not subject to laws in its 'home' jurisdiction with respect to its derivatives activities, including where it relies on an exclusion or an exemption (including discretionary relief) from those regulations in the foreign jurisdiction, the exemption in section 39 will not be available. If the foreign derivatives dealer relies on an exclusion or exemption in the foreign jurisdiction (or there is otherwise no regulatory regime that applies to its derivatives activities with a derivatives party) and is unable to rely on another exemption in the Instrument, it would need to apply to the relevant securities regulatory authorities for consideration of similar exemptive or discretionary relief to exempt the foreign derivatives dealer from the requirements of the Instrument.
For example, if a foreign derivatives dealer is licensed or registered in a foreign jurisdiction (e.g., is a CFTC registered swaps dealer), then we would expect that derivatives dealer to make use of this exemption for its derivatives activity with its counterparties that qualify as eligible derivatives parties and are located in a jurisdiction of Canada, unless the foreign derivatives dealer is relying on the exemption in section 37 [Exemption for foreign liquidity providers - transactions with derivatives dealers]), which is an outright exemption for transactions that take place with a local Canadian derivatives dealer. For greater certainty, because the U.S. is listed as a jurisdiction in Appendix A, then the expectation is that this exemption functions as an entity-level exemption -- that is, the foreign derivatives dealer is not expected to compare the rules of its home jurisdiction to the obligations found in the Instrument in order to rely on this exemption.
If, however, a foreign derivatives dealer is not registered, licensed or otherwise authorized in respect of its derivatives activity in its home jurisdiction, even if its home jurisdiction is listed in Appendix A, it will not be able to rely on the exemption provided in section 39 of the Instrument. Instead, the foreign derivatives dealer will have to rely on the other exemptions available to foreign derivatives dealers in the Instrument, if applicable, such as the exemption provided in section 37 of the Instrument for foreign liquidity providers or the exemption provided in section 44 of the Instrument for certain notional levels of derivatives activity. If the foreign derivatives dealer is unable to satisfy the requirements in the other available exemptions, then foreign derivatives dealer will have to either comply with the full requirements of the Instrument or apply to the relevant securities regulatory authorities for consideration of exemptive or discretionary relief.
Appendix A may be updated from time to time to include additional foreign jurisdictions once CSA Staff have had a chance to consider the regulatory regimes in these additional foreign jurisdictions. Industry associations, market participants, or foreign regulators with an interest in a particular jurisdiction that is not listed may make applications for exemptive relief or otherwise make submissions to CSA Staff in support of comparability assessments for jurisdictions that are not found in Appendix A for the purposes of future amendments to the Instrument.
Additional conditions
This exemption in section 39 is available if the foreign derivative dealer is dealing only with persons or companies that are eligible derivatives parties. The foreign derivatives dealer must comply with the conditions set out in subsection 39(2).
Foreign derivatives dealers are only expected to file one submission to jurisdiction form to the regulator. In other words, if a foreign derivative dealer files a Form 93-101F1 Submission to Jurisdiction and Appointment of Agent for Service with the regulator, this satisfies the filling requirement.
Section 41 of the Instrument includes an exemption from certain provisions in the Instrument that are listed in Appendix B for a derivatives dealer that is a dealer member of CIRO provided the derivatives dealer complies with the corresponding CIRO rules relating to a transaction with a derivatives party. We regard compliance with applicable CIRO procedures, interpretations, notices, bulletins and practices as relevant to compliance with the applicable CIRO rules.
A derivatives dealer cannot rely on this exemption unless (i) they are complying with the CIRO requirements that correspond to the provisions specified in Appendix B and (ii) notify the regulator of material non-compliance with the CIRO requirements that correspond to the provisions specified in Appendix B.
Section 42 of the Instrument includes an exemption from certain provisions in the Instrument that are listed in Appendix C for a derivatives dealer that is a Canadian financial institution that is prudentially regulated by OSFI provided the derivative dealer complies with the corresponding OSFI requirements or Bank Act (Canada) provisions relating to a transaction with a derivatives party. We regard compliance with applicable Bank Act, OSFI guidelines, rules, regulations, interpretations, advisory and practices of OSFI as relevant to compliance with the applicable OSFI requirements.
A derivatives dealer cannot rely on this exemption unless (i) they are complying with the OSFI requirements or Bank Act requirements that correspond to the provisions specified in Appendix C and (ii) notify the regulator of material non-compliance with the OSFI requirements or Bank Act requirement that correspond to the provisions specified in Appendix C.
Where a derivatives dealer enters into a transaction with a derivatives party on a derivatives trading facility or an analogous regulated platform or trading venue (i.e., a trading facility referred to and regulated as a swap execution facility under CFTC rules or a multilateral trading facility under E.U. rules and regulated in Canada as an exempt exchange), in certain limited circumstances, it may not be possible for the derivatives dealer to establish the identity of the derivatives party prior to entering into the transaction because of rules or regulations that prohibit such regulated marketplace from disclosing the identity of a counterparty prior to entering into the derivative. This exemption is intended to address this practical limitation that results from those regulations -- it is not intended to have broad use by any derivatives dealer outside this narrow context. We understand that such a trading facility would perform know-your-derivatives party diligence prior to accepting a derivatives party for trading on the platform, as well as provide trade confirmation to each counterparty to a transaction; accordingly, this section of the Instrument includes an exemption for the derivatives dealer in these circumstances, as well as other pre-transaction level requirements that cannot be fulfilled due to the fact that the identity of the derivatives party is unknown at the time the transaction is executed.
The types of rules that give rise to the context necessitating this exemption (e.g., the CFTC swap execution facility rules) do not permit non-eligible derivatives parties to transact on a derivatives trading facility. This exemption is not intended to be available if the transaction involves a non-eligible derivatives party.
Section 44 provides for exemptions (the notional amount exemptions) from the requirements in this Instrument, other than section 9 [Fair dealing], section 10 [Conflicts of Interest] and section 28 [Content and delivery of transaction information] if its aggregate notional amount of derivatives activity falls below certain financial thresholds. To rely on the notional amount exemptions, a derivatives dealer must either,
• have an aggregate month-end gross notional amount of derivatives outstanding in any of the previous 24 months that does not exceed CAD$250 million (subsection 44(1)) (the general notional amount exemption); or
• for derivatives dealers that deal solely in commodity derivatives, have an aggregate month-end gross notional amount of commodity derivatives outstanding in any of the previous 24 months that does not exceed CAD$10 billion (subsection 44(2)) (the commodity derivatives dealer notional amount exemption).
The calculation of the notional amount exemption threshold
For a local derivatives dealer, the "notional amount" referred to in subparagraphs 44(1)(c)(i) (i.e., the general notional amount exemption for local derivatives dealers) and 44(2)(d)(i) (i.e., the notional amount exemption for local physical commodity derivatives dealers) should be calculated by:
• determining the notional amount of all its transactions, minus inter-affiliate transactions; and
• adding the notional amount of all transactions of its affiliates that are a Canadian local counterparty, minus their inter-affiliate transactions.
For a foreign derivatives dealer, the "notional amount" in subparagraphs 44(1)(c)(ii) (i.e., the general notional amount exemption for foreign derivatives dealers) and 44(2)(d)(ii) (i.e., the commodity derivatives dealer notional amount exemption for foreign physical commodity derivatives dealers) should be calculated by:
• determining the notional amount of all its transactions with local counterparties, minus inter-affiliate transactions; and
• adding the notional amount of all transactions of its affiliates that are a local counterparty, minus their inter-affiliate transactions.
For greater certainty, local and foreign derivatives dealers exclude from their calculations all transactions of a foreign affiliate (provided the foreign affiliate is not a local counterparty, such as a guaranteed affiliate), regardless of who that affiliate is transacting with.
While in most cases, the notional amount for a particular derivative will be the monetary amount specified in the derivative, in some cases, the derivative may reference a non-monetary amount, such as a notional quantity (or volume) of an underlying asset. In these latter cases, calculating the monetary notional amount outstanding will require converting the notional quantity of the underlying asset into a monetary value. We expect the method that derivatives dealers use for determining how the monetary notional amount should be calculated is taken from the methodology specified in the Technical Guidance -- Harmonisation of critical OTC derivatives data elements (other than UTI and UPI) published in April of 2018 by the Committee on Payments and Market Infrastructures and the Board of the International Organization of Securities Commissions. It is commonly referred to as the CDE methodology.
The local counterparty nexus
The purpose of including the reference to "local counterparty" in this section of the Instrument is to clarify the scope of the derivatives activity that is included for the purposes of calculating the notional amount exemption thresholds.
While the "local counterparty" concept is based on the harmonized definition of "local counterparty" under National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives, as a practical matter, the term "local counterparty" as it is used in this section of the Instrument is essentially aligned with the "local counterparty" concept in the trade reporting rules (we note that the CSA's respective derivatives trade reporting rule contains a definition of "local counterparty" for the purposes of those rules; however, the definition in the trade reporting rules is not harmonized across jurisdictions).
Accordingly, the calculation of the "notional amount" is intended to capture transactions involving local counterparties under the trade reporting rules to be consistent with the derivatives data reported to a designated or recognized trade repository and collected by the CSA. Therefore, derivatives dealers that are reporting counterparties under the trade reporting rules can rely on the information they use to report transactions under those rules, for the purpose of calculating whether they are able to rely on a notional amount exemption. Similarly, we also expect that inter-affiliate transactions that are excluded from the calculation would generally be consistent with transactions that are reported as inter-affiliate transactions under the trade reporting rules.
Use of this exemption by certain foreign dealers
We expect most foreign derivatives dealers to rely on the exemptions in section 37 [Exemption for foreign liquidity providers -- transactions with derivatives dealers] and section 39 [Exemption for foreign derivatives dealers] of the Instrument in respect of their derivatives business in Canada in lieu of relying on the notional amount exemptions. However, there are certain circumstances where it may not be possible for a foreign dealer to rely on such exemptions. For example:
• if a U.S. derivatives dealer dealing solely in commodity derivatives is transacting with non-dealers in Canada that qualify as eligible derivatives parties, and the U.S. derivatives dealer is not registered with the CFTC, then the derivatives dealer is not able to rely on the exemption under section 39 [Exemption for foreign derivatives dealers]. Accordingly, it could potentially rely on a notional amount exemption (i.e., the commodity derivatives dealer notional amount exemption) provided the conditions for relying on the exemption are met.
The only requirements a derivatives dealer that relies on a notional amount exemption is subject to when they transact with eligible derivatives parties, are the following:
• section 9 [Fair dealing];
• section 10 [Conflicts of Interest]; and
• section 28 [Content and delivery of transaction information].
There are no other notice, filing or additional obligations imposed on derivatives dealers relying on a notional amount exemption.
Exemption not available to affiliates of derivatives dealers
As set out in paragraph 44(2)(c), the commodity derivatives dealer notional amount exemption is not an exemption that is available for a commodity derivatives dealer that is an affiliate of a derivatives dealer that is not itself solely a commodity derivatives dealer (e.g., is an affiliate of a bank). Rather, the commodity derivatives dealer notional amount exemption is intended to be exclusively available to derivatives dealers in commodities markets whose derivatives activity is ancillary to its physical commodities business.
The CSA will monitor the use and application of the notional amount exemptions, both generally and in commodity derivatives markets.
Section 45 contains an exemption from the requirements applicable to a derivatives adviser if advice does not purport to be tailored to the needs of the recipient.
In general, we would not consider advice to be tailored to the needs of the recipient if it
• is a general discussion of the merits and risks of a derivative or class of derivatives,
• is delivered through newsletters, articles in general circulation newspapers or magazines, websites, e-mail, internet chat rooms, bulletin boards, television or radio, and
• does not claim to be tailored to the needs and circumstances of any recipient.
This type of general advice can also be given at conferences. However, if a purpose of the conference is to solicit the audience and generate specific transactions in specific derivatives or class of derivatives, we may consider the advice to be tailored or we may consider the individual or firm giving the advice to be engaged in trading activity.
Under subsection 45(3), if an individual or a firm relying on the exemption has a financial or other interest in the derivative or class of derivatives it recommends, or in an underlying interest of the derivative, it must disclose the interest to the recipient when it makes the recommendation.
General principle
Section 46 provides, in respect of advice provided to a derivatives party, an exemption from the provisions in the Instrument for foreign derivatives advisers that are regulated under the laws of a foreign jurisdiction to conduct the activities it proposes to conduct with an eligible derivatives party in Canada that achieve comparable regulatory outcomes to the requirements in the Instrument.
There is a separate exemption in section 48 [Registered advisers under securities or commodities futures legislation] for derivatives advisers that are registered as an adviser under securities or commodity futures legislation.
Availability of the exemption
The exemption is available to foreign derivatives advisers whose head office or principal place of business is in a jurisdiction listed in Appendix D in respect of derivatives-related advice given to persons or companies that are eligible derivatives parties. Appendix D may be updated from time to time to include additional foreign jurisdictions once CSA Staff have had a chance to consider the regulatory regimes in these additional foreign jurisdictions. Industry associations, market participants, or foreign regulators with an interest in a particular jurisdiction that is not listed may make applications for exemptive relief or otherwise make submissions to CSA Staff in support of comparability assessments for jurisdictions that are not found in Appendix D for the purposes of future amendments to the Instrument.
This exemption is only available where a foreign derivatives adviser complies with the laws of the foreign jurisdiction specified in Appendix D that are applicable to the adviser with respect to its derivatives activities with a derivatives party located in Canada. If a foreign derivatives adviser is not subject to regulations in its 'home' jurisdiction with respect to its derivatives activities, including where it relies on an exclusion or an exemption (including discretionary relief) from those regulations in the foreign jurisdiction, the exemption in section 46 will not be available. If the foreign derivatives adviser relies on an exclusion or exemption in the foreign jurisdiction, it would need to apply to the relevant securities regulatory authorities for consideration of similar exemptive or discretionary relief from the Instrument.
Additional conditions
The foreign derivatives adviser must comply with each of the conditions set out in subsection 46(2). The disclosures provided in paragraph 46(2)(b) can be made by a derivatives adviser in account opening documentation.
The exemption is available to foreign derivatives sub-advisers whose head office or principal place of business is in a jurisdiction listed in Appendix E.
This exemption permits a foreign derivatives sub-adviser to provide advice to certain derivatives advisers (and derivatives dealers), without having to register as an adviser in Canada. In these arrangements, the derivatives adviser or derivatives dealer is the foreign derivatives sub-adviser's client, and it receives the advice, either for its own benefit or for the benefit of its clients. One of the conditions of this exemption is that the derivatives adviser or derivatives dealer has entered into an agreement with its client that it is responsible for losses that arise out of certain failures by the sub-adviser. We expect that a derivatives firm taking on this liability will conduct appropriate initial and ongoing due diligence on the sub-adviser and ensure the investments are suitable for their client. We also expect that the derivatives firm will maintain records of the due diligence conducted.
Registered advisers under securities or commodities futures legislation are exempt from the provisions listed in Appendix F of the Instrument. This exemption is available to registered advisers provided they comply with the corresponding requirements in NI 31-103 in respect of their derivatives activity.
This exemption is intended to allow registered advisers to extend their existing compliance systems to cover their derivatives activities with their clients for requirements related to for example, among other things, the suitability requirement and referral arrangements (section 15 [Suitability] and section 16 [Permitted referral arrangements]). The remaining provisions that apply to registered advisers in respect of their derivatives activity are principles based and therefore, we similarly expect for their existing compliance systems to accommodate the application of the core principles such as the fair dealing obligations.
See Appendix B of this Policy for an overview of the parts, divisions and sections in MI 93-101 that still apply to registered advisers relying on this exemption, as well as a summary of the parts, divisions and sections in the Instrument that do not apply to registered advisers that comply with the corresponding requirements in NI 31-103 in respect of their derivatives activity. Appendix B of this Policy also lists the provisions under NI 31-103 that are generally applicable in respect of a registered adviser's derivatives activity if such registered adviser is relying on this section 48 exemption.
With respect to risk disclosure found in section 14.2 [Relationship disclosure information] of NI 31-103, we expect registered advisers to review their risk disclosure statement to be certain that it adequately discloses the risks associated with derivatives. For example, registered advisers can consider whether a statement similar to the statement in paragraph 20(1)(c) [Pre-transaction disclosure] of the Instrument is appropriate given the use of derivatives by that registered adviser in relation to its client's account or client's portfolio.
Under the Instrument, a derivatives firm may qualify for specific exemptions where each of its derivatives parties is an eligible derivatives party. The transition provision is intended to provide derivatives firms with a substantial period of time, following the effective date of the Instrument, to re-paper a derivatives party as an "eligible derivatives party" as defined in the Instrument in their respective contracts and relationship documentation. Accordingly, in circumstances where the derivatives firm has received any one of the representations contemplated in this section prior to the date the Instrument takes effect in the applicable local jurisdiction, such as
• permitted client,
• non-individual accredited investor (in Ontario),
• accredited counterparty (in Québec),
• a qualified party (in a number of jurisdictions),
• an eligible contract participant (in the United States),
• a financial counterparty (in the European Union and the United Kingdom) or a non-financial counterparty above certain clearing thresholds (in the European Union and the United Kingdom, which is generally referred to by the acronym NFC+),
the derivatives firm can treat obtaining such representation as having obtained the required eligible derivatives party representation for purposes of the transition period (the Transition Representations). For greater certainty, for the purposes of the Transition Representations, the concept of financial counterparty and the concept of non-financial counterparty above certain clearing thresholds (i.e., NFC+) is also intended to include counterparties that are located in the United Kingdom that qualify as a financial counterparty, or as an NFC+ counterparty, as a result of United Kingdom legislation that onshores the European Market Infrastructure Regulation.
The transition period begins on the date the Instrument comes into force (the Effective Date) and expires 5 years thereafter.
If prior to the Effective Date, a derivatives firm has already obtained a Transition Representation from a derivatives party, including in documentation such as an ISDA agreement, account opening documentation, or an investment management agreement, the derivatives firm may treat the derivatives party as an eligible derivatives party for the purposes of the Instrument until the transition period expires. For example, if a derivatives firm enters into a derivatives transaction with a sophisticated derivatives party (such as a pension fund) following the Effective Date and the derivatives firm has already confirmed the derivatives party's status under an applicable Transition Representation in any of its documentation, the derivatives firm is able to treat the derivatives party as having represented to the derivatives firm in writing that the derivatives party is an eligible derivatives party for the purposes of the transition period.
For greater certainty, a deemed repetition of a Transition Representation with respect to a transaction entered into after the Effective Date still allows a derivatives firm to benefit from the transition provision under section 50 even if on a technical interpretation, such representation is made after the Effective Date.
After the Effective Date, if a derivatives firm is not able to rely on a Transition Representations in respect of a derivatives party, then the expectation is that a derivatives firm will confirm the derivatives party's status on the basis of the "eligible derivatives party" definition found in subsection 1(1) of the Instrument [Definitions and interpretation]. Practically, this means that unless the derivatives firm can rely on a Transition Representation, the derivatives firm has one year between when the Instrument is published in its final form and the Effective Date to obtain the necessary status representations from its counterparty or client in order to comply with the Instrument.
We understand that because of the registration exemption in subsection 35.1 (1) of the Securities Act (Ontario), certain Canadian banks may not have obtained "permitted client" status representations from their institutional counterparties; however, they may have obtained an "accredited investor" representation for the population of counterparties that would have otherwise qualified as "permitted clients" in relation to their over-the-counter derivatives activity. Accordingly, solely for the purposes of the transition period, the non-individual "accredited investor" status representation has been included as a Transition Representation since this population of counterparties would otherwise each qualify as a "permitted client" and "permitted client" is one of the Transition Representations.
The definitions of "permitted client" and "accredited investor" do not include an "eligible commercial hedger" concept. In any circumstance where a derivatives party is relying on the "eligible commercial hedger" category to qualify as an eligible derivatives party and is not able to rely on any of the Transition Representations in the local jurisdiction (e.g., "qualified party" or an "accredited counterparty" representation), the derivatives firm is required to confirm a derivatives party's status as an eligible derivatives party according to subsection 1(1) of the Instrument.
CSA Staff strongly encourage derivatives firms to update their internal compliance programs in anticipation of the Effective Date and as soon as practicable to begin the process of updating their documentation, as well as establishing a plan to conduct the necessary outreach to ensure the appropriate representations have been updated following the expiry of the transition period.
The fair dealing obligation (section 9 [Fair dealing]) applies to transactions executed prior to the Effective Date that remain in place in accordance with their original terms after the Effective Date (e.g., no material amendment or modification which would result in a significant change in the value of a derivative, differing cash flows, change to the method of settlement or creation of upfront payments). Derivatives are not point-in-time specific transactions. There are ongoing relationships and obligations between the parties following implementation of the Instrument.
With respect to pre-existing transactions with non-eligible derivatives parties (i.e., retail clients), following the Effective Date, all applicable provisions in the Instrument apply to the extent that it is reasonably practicable. We note that for the population of firms that are registered with CIRO and offer over-the-counter derivatives to retail clients, they are already subject to business conduct obligations under CIRO's regulatory regime. The Instrument will now overlay those obligations and we expect those firms will be relying on the exemption available to CIRO registered firms for complying with the relevant CIRO provisions.
Paragraph 8(2)(a) of the Instrument means that the additional protections in the Instrument are presumed to apply to eligible derivatives parties that are individuals or eligible commercial hedgers, unless they waive some or all of the additional protections in the Instrument. For the purposes of transitioning to the new regulatory framework, CSA Staff expect that it may take some time for a derivatives firm to obtain the necessary waivers from the population of clients that this provision may otherwise apply to. Accordingly, derivatives firms are given a period of one year following the Effective Date to obtain the waiver. During this period, the core obligations in the Instrument still apply. This transition period is intended to assist derivatives firms in circumstances where their client is an individual (and the waiver is still required to be obtained due to the application of paragraph 8(2)(a)), or where a client can only qualify as an eligible derivatives party on the basis of the eligible commercial hedger prong of the eligible derivatives party definition.
The Instrument comes into force on September 28, 2024 (the in-force date). Any transaction entered into by a derivatives firm from this date forward is subject to the terms of the Instrument.
In Saskatchewan, if the Instrument is filed with the Registrar of Regulations after the in-force date, the Instrument comes into force on the day on which they are filed with the Registrar of Regulations.
1. Identify any entities, business units, and/or individuals involved.
2. Provide details of the non-compliance, including:
a. describe the context (how and by whom the issue was identified, derivatives party complaints, internal testing or audit, other surveillance);
b. set out whether it relates to (a) a risk of material harm to a derivatives party, (b) a risk of material harm to capital markets, and/or (c) is part of a pattern of non-compliance.
3. Provide a timeline setting out the following:
a. when the non-compliance occurred,
b. when the non-compliance was discovered,
c. when the non-compliance was remedied, and
d. when the non-compliance was reported.
4. Provide details of what steps, if any, have been taken to address/remedy the non-compliance.
Relevant parts and divisions |
Sections that apply to registered advisers under MI 93-101 |
Sections registered advisers are exempt from under the Instrument if they are in compliance with the corresponding provisions of NI 31-103 with respect to their derivatives activities with a client |
Corresponding provisions of NI 31-103 that apply, as applicable, in respect of a registered adviser's derivatives activity for the purposes of relying on the exemption under section 48 |
|
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Part 1, Definitions and interpretation |
All sections, if applicable to derivatives advisers |
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Part 2, Application and exemption |
All sections, if applicable to derivatives advisers |
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Part 3, Dealing with or advising derivatives parties |
Section 9, Fair dealing |
Section 12, Handling complaints |
Section 13.15, Handling complaints |
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|
Section 10, Conflicts of interest |
Section 13, Tied selling |
Section 11.8, Tied selling |
|
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Division 1 -- General obligations towards all derivatives parties |
Section 11, Know your derivatives party |
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Part 3, Dealing with or advising derivatives parties |
None |
Section 14, Derivatives-party-specific needs and objectives |
Paragraph 13.2(2)(c) and Subsection 13.2(4), Know your client |
|
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Division 2 -- Additional obligations when dealing with or advising certain derivatives parties |
|
Section 15, Suitability |
Section 13.3, Suitability determination |
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Section 16, Permitted referral arrangements |
Section 13.8, Permitted referral arrangements |
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Section 17, Verifying the qualifications of the person or company receiving the referral |
Section 13.9, Verifying the qualifications of the person or company receiving the referral |
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Section 18, Disclosing referral arrangements to a derivatives party |
Section 13.10, Disclosing referral arrangements to clients |
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Part 4 -- Derivatives party accounts |
None |
Section 19, Relationship disclosure information |
Section 14.2, Relationship disclosure information |
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Division 1 -- Disclosure to derivatives parties |
|
Section 20, Pre-transaction disclosure |
Section 14.2, Relationship disclosure information |
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Subsection 21(2), Valuation Reporting |
Subsection 14.14(3) Account statements |
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Section 22, Notice to derivatives parties by non-resident derivatives dealers |
Section 14.5, Notice to clients by non-resident registrants |
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Part 4 -- Derivatives party accounts |
None |
Division 2, Derivatives party assets of Part 4, Derivatives party accounts |
Division 3, Client assets and investment fund assets of Part 14, Handling client accounts -- firms |
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Division 2 -- Derivatives party assets |
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Part 4 -- Derivatives party accounts |
None |
Section 29, Derivatives party statements |
Section 14.14 Account statements, Section 14.14.1 Additional statements |
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Division 3 -- Reporting to derivatives parties |
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Part 5 -- Compliance and recordkeeping |
Section 31, Policies and procedures |
None |
None |
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Division 1 -- Compliance |
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Part 5 -- Compliance and recordkeeping |
None |
Section 34, Derivatives party agreement |
Section 11.5, General requirements for records |
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Division 2 -- Recordkeeping |
|
Section 35, Records |
Section 11.5, General requirements for records |
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Section 36, Form, accessibility and retention of records |
Section 11.6, Form, accessibility and retention of records |
{1} For a list of authorized foreign banks regulated under the Bank Act and subject to OSFI supervision, see: Office of the Superintendent of Financial Institutions, Who We Regulate (available: http://www.osfi-bsif.gc.ca/Eng/wt-ow/Pages/wwr-er.aspx?sc=1&gc=1#WWRLink11).
{2} European Union, Economic and Financial Affairs, What is the euro area?, February 12, 2020, online: European Union (http://ec.europa.eu/economy_finance/euro/adoption/euro_area/index_en.htm).
{3} In the Instrument reference to "trade reporting rules" refers to the following instruments, as applicable: Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting; Manitoba Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting; Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting in Québec; and, Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan, and Yukon
{4} See https://www.globalfxc.org/fx_global_code.htm, which was facilitated by the Foreign Exchange Working Group operating under the auspices of the Bank of International Settlements Markets Committee.
{5} See section 14 of the Securities Rules, B.C. Reg. 194/97 [B.C. Regulations] under the Securities Act (British Columbia), R.S.B.C. 1996, c. 418 [B.C. Act]; section 75.2 of the Securities Act (Alberta) R.S.A. 2000, c.S-4 [Alberta Act]; section 33.1 of The Securities Act, 1988 (Saskatchewan), S.S. 1988-89, c. S-42.2 [Saskatchewan Act]; subsection 154.2(3) of The Securities Act (Manitoba) C.C.S.M. c. S50 [Manitoba Act]; section 2.1 of OSC Rule 31-505 Conditions of Registration; section 65 of the Derivatives Act (Québec), R.S.Q., c. 14.01 [Québec Act]; section 39A of the Securities Act (Nova Scotia), R.S.N.S. 1989, c. 418 [N.S. Act]; subsection 54(1) of the Securities Act (New Brunswick) S.N.B. 2004, c. S-5.5 [N.B. Act]; section 90 of the Securities Act (Prince Edward Island), R.S.P.E.I. 1988, c. S-3.1 [P.E.I. Act]; subsection 26.2(1) of the Securities Act (Newfoundland and Labrador), R.S.N.L.1990, c. S-13 [Newfoundland Act]; section 90 of the Securities Act (Nunavut), S.Nu. 2008, c. 12 [Nunavut Act]; section 90 of the Securities Act (Northwest Territories), S.N.W.T. 2008, c. 10 [N.W.T. Act]; and section 90 of the Securities Act (Yukon), S.Y. 2007, c. 16 [Yukon Act].
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06154301
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06026774
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06170951
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06076697, 06076683, 06076726, 06076705, 06076709
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06096976
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06038397, 06038402, 06038421
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06095024
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06145006
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06164460
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06119771
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing #06169251
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06183959
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06184973
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06065193
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06106649
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06135770
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06157655
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06172712
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06184294
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06130390, 06130351
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06098572
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Issuer Name:
Type and Date:
Offering Price and Description:
Underwriter(s) or Distributor(s):
Promoter(s):
Filing # 06185700
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Principal Regulator -- British Columbia
Type and Date:
Offering Price and Description:
Filing # 06182002
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06185543
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06185404
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Principal Regulator -- Alberta
Type and Date:
Offering Price and Description:
Filing # 06184672
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Issuer Name:
Principal Regulator -- Ontario
Type and Date:
Offering Price and Description:
Filing # 06099206
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Issuer Name:
Principal Regulator -- New Brunswick
Type and Date:
Offering Price and Description:
Filing # 06154417
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Type |
Company |
Category of Registration |
Effective Date |
|
|||
New Registration |
WGAM INVESTMENT SERVICES INC. |
Exempt Market Dealer |
17 September, 2024 |
|
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New Registration |
Tastytrade Canada Inc. |
Investment Dealer |
September 20, 2024 |
AGF Investments Inc. and AGF Credit Opportunities Fund
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from subsection 2.1(2) of NI 81-101 to file a prospectus more than 90 days after the date of the receipt for the preliminary prospectus.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1(2), 6.1.
VIA SEDAR
September 19, 2024
Blake, Cassels & Graydon LLP
Attention: Emilie Andrews
Re: |
AGF Investments Inc. (the Filer) |
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AGF Credit Opportunities Fund (the Fund) |
|
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Preliminary Simplified Prospectus dated June 6, 2024 |
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Exemptive Relief Application pursuant to Section 6.1 of National Instrument 81-101 General Prospectus Requirements (NI 81-101) |
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Application No. 2024/0544; SEDAR Plus Project No. 6184264 |
_______________________________________________________________________________________________________
By letter dated September 16, 2024 (the Application), the Filer, the manager of the Fund, applied to the Director of the Ontario Securities Commission (the Director) under section 6.1 of NI 81-101 for relief from the operation of subsection 2.1(2) of NI 81-101, which prohibits an issuer from filing a prospectus more than 90 days after the date of the receipt for the preliminary prospectus.
This letter confirms that, based on the information and representations made in the Application, and for the purposes described in the Application, the Director intends to grant the requested exemption to be evidenced by the issuance of a receipt for the Fund's prospectus, subject to the condition that the prospectus be filed no later than October 15, 2024.
Yours very truly,
Application File #: 2024/0544
SEDAR+ File #: 6184264