Written By Mark Powell, Simon Grant and Kevin Myson

The Canadian Securities Administrators (the CSA) have invited public comment on Proposed National Instrument 93-101 Derivatives: Business Conduct Rules (the Proposed Business Conduct Rules) which would apply to dealers in derivatives. The deadline for comment is March 21, 2022.

The Proposed Business Conduct Rules, which we wrote about in 2017 in CSA Proposes New Canadian Derivatives Business Conduct Rules and Provides Update on Derivatives Registration, were last published in 2018, along with the proposed derivatives dealer registration rules contemplated by Proposed National Instrument 93-102 entitled Derivatives: Registration (the Proposed Registration Rules). Together, the Proposed Business Conduct Rules and the Proposed Registration Rules provide a comprehensive regime for people and enterprises in the business of trading or advising in over-the-counter (OTC) derivatives.

The publication of the Proposed Business Conduct Rules represents a coordinated effort of all provincial and territorial securities regulators in Canada to fulfil Canada's G20 commitment to regulate derivatives in an effort to protect participants in the OTC derivatives markets, reduce risks, improve transparency, increase accountability and promote responsible business conduct in a manner consistent with the International Organization of Securities Commissions (IOSCO) standards.

The Proposed Business Conduct Rules will apply to any entity that meets the definition of "derivatives dealer" or "derivatives adviser," regardless of whether that entity is required to register as a derivatives dealer or derivatives adviser under the Proposed Registration Rules.

Further, the definitions of "derivatives dealer" and "derivatives adviser" are purposefully broad to capture entities that engage in, or hold themselves out as engaging in, the business of trading or advising others in respect of derivatives.

As a result, we have been discussing with many of our clients regarding the new rules to anticipate if, and how, they would fit into the new regime. The latest draft of the Proposed Business Conduct Rules and the commentary contained in the notice provide some additional guidance that clarifies the scope of the new rules. The new draft also contains a number of changes in response to the feedback obtained with the prior two consultations. We believe the latest draft is a significant move forward from its predecessor.

Finally, the CSA has announced that the Proposed Business Conduct Rules are to come into effect one year following the Proposed Business Conduct Rule being finalized. Assuming that the Proposed Business Conduct Rules will not be finalized before (a) the CSA issues its next draft of the Proposed Registration Rules; and (b) the public has an opportunity to comment on that draft, we expect that the new regime could be in place sometime in 2023 (at the earliest).

If you have any questions relating to the Proposed Business Conduct Rule, or would like to submit a response to the request for comments, please do not hesitate to contact Mark Powell, Simon Grant or Kevin Myson.

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