On January 21, 2015, the securities regulators in Alberta, British Columbia, New Brunswick, Nova Scotia and Saskatchewan (the “Participating Provinces”) published for comment proposed Multilateral Instrument 91-101 Derivatives: Product Determination and Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (collectively, the “Proposed Instruments”), copies of which are available [here]. The 60 day comment period for the Proposed Instruments will expire on March 24, 2015.


In December 2012, the Canadian Securities Administrators Derivatives Committee (the “Committee”) released Consultation Paper 91-301 that set out model provincial rules dealing with product determination and trade reporting (collectively, the “Model Rules”). In June 2013, multi-province CSA Consultation Paper 91-302 was published with updated Model Rules. Also in June 2013, the securities regulators in Manitoba, Ontario and Québec published proposed province specific rules. Final rules became effective in these three provinces on October 31, 2014 (the “Current Provincial Rules”). In developing the Proposed Instruments, the participating securities regulators considered the comments received on the updated Model Rules, the proposed rules of Manitoba, Ontario and Québec and the Current Provincial Rules.

Multilateral Instrument 91-101 Derivatives: Product Determination (The “Proposed Scope Rule”)

The purpose of the Proposed Scope Rule is to define those instruments that are the type of derivatives that will be subject to Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (the “Proposed TR Rule”). Initially, the Proposed Scope Rule will only be relevant for this purpose. All other legislation, rules, notices or other policies applicable to derivatives will continue to apply. However, it is expected that the Proposed Scope Rule will, with some amendments, apply to future rules that address other aspects of derivatives regulation.

The Proposed Scope Rule designates certain instruments as derivatives primarily by defining those that are excluded from being a derivative. Instruments that are excluded derivatives include:

  • those regulated by gaming control legislation;
  • insurance, income or annuity contracts;
  • currency exchange contracts, provided that the contract settles, and is intended by the parties to be settled, by delivery of the contracted currency within two business days and does not permit roll-over;
  • commodity forward contracts where physical delivery is intended and the contract generally does not provide for cash settlement;
  • evidence of deposits issued by certain Canadian Financial institutions; and
  • those traded on certain stock exchanges (specifically excluding swap execution facilities from this exemption).

The Proposed Scope Rule sets out for each jurisdiction deeming rules with respect to whether certain types of contracts or instruments are derivatives or securities. Where the contract or instrument is a derivative, the Proposed TR Rule is applicable. In addition, there are certain circumstances where an instrument falling into both definitions will not be considered a derivative, including if the instrument is issued by an issuer or control person to compensate or incent the performance of a director or employee of the issuer or as a financing instrument to raise capital for the issuer.

The Companion Policy to the Proposed Scope Rule clarifies that contracts entered into for consumer, business or non-profit purposes that do not involve investment, speculation or hedging, such as employment contracts, guarantees, contracts for business purchase and sale transactions and
commercial sale arrangements, will not be considered derivatives for purposes of the Proposed TR Rule.

Multilateral Instrument 96-101 Trade Repositories And Derivatives Data Reporting (The “Proposed TR Rule”)

The Proposed TR Rule covers two matters: the requirements in order to become and operate as a recognized trade repository in the Participating Provinces and the establishment of derivative data reporting requirements.

For entities that wish to establish and operate a trade repository in one or more of the Participating Provinces, the Proposed TR Rule establishes the application process and addresses ongoing requirements relating to the general operations of a repository, including: governance; the board of directors; management roles and responsibilities; the chief compliance officer; fees; providing access to services; the acceptance of reporting; general communications; due process; data records, data security and confidentiality; risk management; and outsourcing.

The other part of the Proposed TR Rule addresses the reporting requirements with respect to derivative transactions. Under the Proposed TR Rule, detailed derivatives data for each derivatives transaction
involving a local counterparty is required to be reported to a recognized trade repository. Details on the data to be reported are included in Appendix A to the Proposed TR Rule. The Proposed TR Rule sets out two possible exemptions from trade reporting involving commodity trades (other than cash or currency):

  • where neither party is a derivatives dealer nor a Canadian financial institution and the aggregate notional exposure of each counterparty under its commodity derivatives trades is less than $250 million; or
  • where the local counterparty is not a derivatives dealer and it has outstanding commodity trades with an aggregate notional value of less than $500,000.

The Proposed TR Rule includes rules to determine which counterparty will have the obligation to report. The intention of the Proposed TR Rule is to facilitate data reporting by a single counterparty. Generally, the reporting counterparty will be the clearing agency for trades that are cleared through a recognized or exempted clearing agency, or a clearing agency not yet recognized or exempted that has provided a written undertaking to the applicable securities regulator to act as the reporting counterparty. If the transaction is not cleared, the following rules determine which counterparty must report:

  • in a transaction between a derivatives dealer and a non-dealer, the reporting counterparty will be the derivatives dealer;
  • in a transaction between a Canadian financial institution that is not a derivatives dealer and a party that is neither a derivatives dealer nor a Canadian financial institution, the reporting counterparty will be the Canadian financial institution;
  • in a transaction between two derivatives dealers, two Canadian financial institutions or two counterparties neither of which is a derivatives dealer nor a Canadian financial institution, the counterparty determined to be the reporting counterparty under a written agreement between the parties; and
  • in any other case, each local counterparty other than an individual.

A derivatives dealer is a person or company engaging in or holding itself out as engaging in the business of trading in derivatives as principal or agent; it is not necessarily a person or company that is already a registrant with a securities regulatory authority.

If a written agreement is entered into as referred to above, each local counterparty must keep a record of the agreement for seven years after the expiration or termination date of the transaction.

Under the Proposed TR Rule, the data that must be reported is categorized into creation data, life-cycle event data and valuation data. The report with respect to the initial creation of a reportable trade is required to be made in real time unless it is not technologically practicable to do so. In that case, it must be done, no later than the end of the next business day. Life-cycle event data with respect to an existing trade must be reported by the end of the business day on which the life-cycle event occurs. The timing for the reporting of valuation data depends upon the status of the reporting counterparty; derivatives dealers, reporting clearing agencies and Canadian financial institutions are required to report daily, whereas other reporting counterparties only report quarterly.

The trade repository has obligations to make certain trade data available to the securities regulators, the counterparties and the public. The trade repository must make trade data electronically available to the securities regulators on a direct, continuous and timely basis. The counterparties to a transaction are to be provided with timely access to all derivatives data relevant to the particular trade and each counterparty is deemed to have provided the consent required to release the data required to be reported. Derivatives data must be made available on a periodic basis to the public. The public will be able to access aggregate data on open positions, volume, number of transactions and price, as well as breakdowns, where applicable, by currency of denomination, geographic location of the reference entity or asset, asset class, product type, maturity and whether the transaction is cleared.

Major Differences Between the Proposed Instruments and the Current Provincial Rules

It is intended that the Proposed Instruments be consistent with the equivalent Current Provincial Rules in Manitoba, Ontario, and Québec. However, the following jurisdictional differences are proposed:

  • The definition of “local counterparty” in the Proposed TR Rule is narrower. In the Current Provincial Rules, a local counterparty includes any company or person registered as a derivatives dealer or equivalent, regardless of where that party is located. Under the Proposed TR Rule, however, a derivatives dealer will only be a local counterparty if that party is organized or has its head office or principal place of business in the jurisdiction or it has an affiliate in the jurisdiction that is responsible for the counterparty’s liabilities.
  • Under the Proposed TR Rule, a clearing agency that is not yet recognized or exempted from recognition in a jurisdiction may act as the reporting counterparty if it provides a written undertaking to the applicable securities regulator. This is consistent with the Current Provincial Rules in effect in Manitoba and Québec, but is different from the Ontario rule.
  • Similar to the Manitoba and Québec rules but unlike the Ontario rule, a Canadian financial institution that is not otherwise a derivatives dealer is designated as the reporting counterparty with respect to trades with a party that is neither a derivatives dealer nor a Canadian financial institution.
  • For trades that do not involve a clearing agency, a derivatives dealer or a Canadian financial institution, the parties can designate one party as the reporting counterparty under a written agreement. This is similar to the Current Provincial Rules in Manitoba and Québec; in Ontario the parties can agree to determine the reporting counterparty pursuant to the methodology published by ISDA.
  • The Proposed TR Rule suggests a possible exemption from the reporting obligation for trades of commodity derivatives between two commodity derivatives market end-users each with outstanding commodity transactions having an aggregate notion value of less than $250 million. This exemption does not exist in the Current Provincial Rules and is intended to reduce the regulatory burden on commodity derivatives market end-users.

We expect that the Proposed Instruments will have a significant impact on the business processes of
derivatives market participants and firms that are not already impacted by the Current Provincial Rules. An entity that trades derivatives in a Participating Province will need to consider whether the trade is required to be reported, whether it is a reporting counterparty under the Proposed TR Rule, how it will address its or its counterparty’s obligations under the Proposed TR Rule in the applicable agreements, and what systems and processes it should put in place to meet its obligations and, if applicable, to capture, process and verify all the required data. To date, reporting counterparties have built their reporting systems to comply with the rules as they are in force in Ontario. These participants will not want to further refine their operations to take into account provincial discrepancies.

Contact Us

If you have any comments or questions on either of the Proposed Instruments, please contact the authors of this alert or any other member of the BLG Derivatives Group.

BLG is ranked as the Number One Law firm in Canada for Derivatives by Derivatives Weekly and was named Canada Law Firm of the Year at Global Capital’s 2014 Americas Derivatives Awards. BLG’s Derivatives Group is a multi-disciplinary team of lawyers that cuts across several of our practice groups. The team is experienced in negotiating derivatives documentation with sell-side and buy-side market participants around the world. Our clients include financial institutions, investment dealers, futures commission merchants, market intermediaries, securitization conduits and a wide variety of derivative end-users, such as mutual funds, hedge funds, pension funds, other investment vehicles, commodity producers, real estate firms, insurance companies, risk management firms and other corporate end-users. Our advice covers derivative structuring and document negotiation, regulatory compliance, tri-party collateral control practices and close-out issues. We also advise on compliance and registration requirements relating to derivatives in Canada and the United States.


Melanie Bradley 

Carol E. Derk 


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