The Canadian securities regulatory authorities across multiple provinces have jointly introduced a new business conduct rule. This rule, aimed at regulating the activities of over-the-counter (OTC) derivatives dealers and advisers, seeks to establish a framework aligned with international standards. It aims to bolster transparency and accountability in the OTC derivatives market.

The newly adopted rule introduces a framework that places significant obligations on OTC derivatives dealers and advisers. These obligations are designed to align with global best practices and include mandates related to fair dealing, managing conflicts of interest, reporting non-compliance, and maintaining diligent recordkeeping.

Focusing on Accountability

In a statement, the regulators said that this rule is important in safeguarding the interests of the market participants by enhancing transparency, fostering accountability, and encouraging ethical practices within the OTC derivatives market in Canada.

The CSA's Chair and CEO of the Alberta Securities Commission, Stan Magidson, said: "Derivatives play a critical role in our financial system, and these robust standards provide valuable protections to participants in the Canadian OTC market. This key milestone could not have been achieved without our stakeholders' meaningful participation and commentary during the entire consultation process."

The final business conduct rule will become effective on September 28, 2024. The regulators have encouraged market participants, derivatives dealers, and advisers to familiarize themselves with the provisions of the new rule to ensure compliance . Dubbed the Multilateral Instrument 93-101 Derivatives, the regulators said the policy can be accessed through the participating CSA members' websites.

Canada Streamlines Derivatives Markets

The development of this business conduct rule was a process that spanned three stages of consultation involving public roundtables to address regulatory, implementation, and compliance concerns.

The feedback received during the most recent consultation phase streamlined the final rule to mitigate potential negative impacts on derivatives market liquidity and reduce the implementation burden. The streamlined approach enables firms to leverage their existing compliance systems effectively.

Furthermore, the British Columbia Securities Commission has indicated its intention to adopt similar rules. Besides that, the CSA Staff plans to convert Multilateral Instrument 93-101 into a National Instrument, further harmonizing derivatives regulation across Canada.

The CSA, representing the securities regulators of Canada's provinces and territories, is working to streamline and enhance regulations in the Canadian capital markets and to reinforce investor protection and market integrity.