CSA Notice regarding Coordinated Blanket Order 93-930 Re Temporary exemptions for derivatives firms from certain obligations when transacting with certain investment funds and for senior derivatives managers from certain reporting obligations
July 25, 2024 Introduction On July 25, 2024, the Canadian Securities Administrators (the CSA or we) published temporary exemptions from specific requirements of National Instrument 93-101 Derivatives: Business Conduct (the Business Conduct Rule or the Rule) regarding derivatives firms dealing with or advising certain investment funds advised or managed by registered or authorized foreign advisers or investment funds managers, and reporting requirements for senior derivatives managers to facilitate transition to the new regime.
The CSA has coordinated the relief through local blanket orders that are substantively harmonized across the country entitled Coordinated Blanket Order 93-930 Re Temporary exemptions for derivatives firms from certain obligations when transacting with certain investment funds and for senior derivatives managers from certain reporting obligations (collectively, the Blanket Order).
The Blanket Order is being issued in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Québec, Saskatchewan, and Yukon.
We anticipate that, if the Business Conduct Rule is approved by B.C.’s Minister of Finance, the British Columbia Securities Commission will issue an order that will have the same substantive effect as the Blanket Order.
Background On September 28, 2023, the CSA published the Business Conduct Rule. The Business Conduct Rule comes into force on September 28, 2024 (the Effective Date).
We received submissions with respect to the following: (i) Uniform treatment of certain investment funds Some derivatives firms are concerned that the Business Conduct Rule might not be applied uniformly. The main issue relates to how the Rule applies to investments funds that are recognized as ‘eligible derivatives parties’ (EDPs). There is concern that the Rule does not explicitly categorize as EDPs investment funds advised by advisers, or managed by investment funds managers, that are registered or authorized outside Canada, such as those regulated by the U.S. Securities and Exchange Commission (SEC) or the U.S. Commodity Futures Trading Commission
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(CFTC). These firms noted that this could result in the Rule being applied unevenly to the same investment fund, since the application of the requirements in the Rule depends on whether a derivatives party is classified as an EDP or non-EDP.1
(ii) Extension of timing to deliver certain reports to the board of a derivatives dealer Derivatives firm requested that the CSA extend the deadline for senior derivatives managers of a derivatives dealer to submit the required reports to their board (the SDM compliance report). Specifically, they asked for this reporting to begin in the next calendar year rather than the current calendar year. The reason for this request is the brief period between the Rule’s Effective Date and the end of the 2024 year, combined with the operational challenges involved in meeting the current 2024 year-end deadline.
Description of the Blanket Order The purpose of the Blanket Order is to provide the following exemptions: (i) Exemption for a derivatives firm in respect of certain investment funds advised or managed by certain regulated foreign advisers
To align with the exemption framework in section 8 of the Business Conduct Rule [Exemptions from certain requirements in this Instrument when dealing with or advising an eligible derivatives party], a derivatives firm is exempt from certain Rule requirements, except for core obligations in subsection 8(3), when transacting with an investment fund managed or advised by a foreign equivalent to a Canadian registered or authorized investment fund manager or adviser. This exemption aims to create a level-playing field for both domestic- and foreign-advised or foreign-managed investment funds seeking EDP status.
(ii)
Exemption for a senior derivatives manager from the requirement to submit the SDM compliance report by year-end 2024
A senior derivatives manager is exempt from submitting the SDM compliance report to the board of the derivatives dealer by the current year-end deadline, as required in section 32(3) of the Rule. However, the period from the Effective Date to the end of 2024 must be addressed in the 2025 SDM compliance report.
Day on Which the Blanket Order Ceases to be Effective The Blanket Order is effective on September 28, 2024. It will cease to be effective in Ontario on March 28, 2026.
1 It was also submitted that this appeared to be inconsistent with paragraph (k) of the EDP definition, which applies in the context of managed accounts.
Questions Please refer your questions about this CSA Notice to any of the following: Dominique Martin Alison Beer Chair, CSA Derivatives Committee Senior Legal Counsel Senior Director, Market Activities and Derivatives, Trading & Markets Division Derivatives Ontario Securities Commission Autorité des marchés financiers abeer@osc.gov.on.ca 514-395-0337, ext. 4351 dominique.martin@lautorite.qc.ca
Leigh-Anne Mercier General Counsel Manitoba Securities Commission 204-945-0362 leigh-Anne.Mercier@gov.mb.ca
Michael Brady Deputy Director, Capital Markets Regulation British Columbia Securities Commission 604-899-6561 mbrady@bcsc.bc.ca
Amélie McDonald Manager, Policy – Securities Financial and Consumer Services Commission, New Brunswick 506-635-2938 amelie.mcdonald@fcnb.ca
Abel Lazarus Director, Corporate Finance Nova Scotia Securities Commission 902-424-6859 abel.lazarus@novascotia.ca
Brian Murphy Manager, Registration Nova Scotia Securities Commission 902-424-4592 brian.murphy@novascotia.ca
Janice Cherniak Senior Legal Counsel Alberta Securities Commission 403-355-4864 janice.cherniak@asc.ca
Graham Purse Legal Counsel Securities Division Financial and Consumer Affairs Authority of Saskatchewan 306-787-5867 graham.purse2@gov.sk.ca
Manitoba Securi�es Commission COORDINATED BLANKET ORDER 93-930 Cita�on: Re Temporary exemp�ons for deriva�ves firms from certain obliga�ons when transac�ng with certain investment funds and for senior deriva�ves managers from certain repor�ng obliga�ons
Date: July 25, 2024 Defini�ons 1. Terms defined in the Securities Act (Manitoba) (the Act), Na�onal Instrument 14-101 Definitions and Na�onal Instrument 93-101 Derivatives: Business Conduct (the Business Conduct Rule) have the same meaning in this Order.
Background 2. On September 28, 2023, the Manitoba Securi�es Commission (the Commission) published the Business Conduct Rule. The Business Conduct Rule comes into force on September 28, 2024 (the effec�ve date).
Certain investment funds advised or managed by registered or authorized foreign advisors or investment fund managers
3.
4.
5.
The Business Conduct Rule uses a two-�ered framework to regulate the conduct of deriva�ves firms:
(a)
(b)
certain obliga�ons as set out in subsec�on 8(3) apply to all transac�ons, whether a deriva�ves firm is transac�ng with an eligible deriva�ves party (an EDP) or a non-eligible deriva�ves party (a non-EDP) (the core obliga�ons);
certain addi�onal obliga�ons apply only when a deriva�ves firm is transac�ng with a non-EDP (the addi�onal obliga�ons).
The EDP designa�on in this framework func�ons as a status test to dis�nguish between deriva�ves par�es that are sufficiently sophis�cated or financially resourced (i.e., EDPs), and those that are not (i.e., non-EDPs). While transac�ons by deriva�ves firms with EDPs only require adherence to the core obliga�ons in the Business Conduct Rule, transac�ons with non-EDPs require adherence to both the core obliga�ons and the addi�onal obliga�ons.
A�er publica�on of the advanced no�ce of adop�on of the Business Conduct Rule on September 28, 2023, staff of the Commission received submissions from certain deriva�ves market par�cipants that the obliga�ons under the Business Conduct Rule risk being applied inconsistently to the same deriva�ves party. Specifically, certain investment funds that would qualify as EDPs under paragraph (l) of the EDP defini�on where they are managed or advised by a registered adviser or registered investment fund manager under the securi�es legisla�on of a jurisdic�on of Canada, would be treated as non-EDPs in circumstances where they are managed or advised by an adviser or investment fund manager that is registered or authorized to carry on business under
the legisla�on of a foreign jurisdic�on, including a foreign adviser or investment fund manager registered with or authorized by the United States Securi�es and Exchange Commission. This inconsistency does not align with paragraph (k) of the EDP defini�on in the context of managed accounts, which allows a deriva�ves party to be considered an EDP, regardless of whether it is managed by a registered or authorized adviser under the securi�es legisla�on of a jurisdic�on of Canada or a foreign equivalent adviser.
Timing of reporting responsibilities by senior derivatives managers 6. The Business Conduct Rule requires senior deriva�ves managers of deriva�ves dealers to submit the report referred to in paragraph 32(3)(a) (the SDM Compliance Report) in each calendar year to their board of directors (the Board). Since the effec�ve date of the Business Conduct Rule is September 28, 2024, in order to be in compliance, senior deriva�ves managers are required to submit a SDM Compliance Report to their Board in 2024.
7.
8.
Deriva�ves firms that are subject to the deriva�ves legisla�on of foreign jurisdic�ons have repor�ng obliga�ons in the foreign jurisdic�on that are similar to the repor�ng obliga�ons they have under the Business Conduct Rule (the Foreign Compliance Report).
Staff of the Commission received submissions from certain deriva�ves market par�cipants that deriva�ves firms obligated to submit both Foreign Compliance Reports and SDM Compliance Reports prefer to submit both reports concurrently, for the following reasons:
(a)
(b)
the �meline for submi�ng a SDM Compliance Report within the 2024 calendar year does not align with established �melines and internal processes for submi�ng Foreign Compliance Reports in the same calendar year; and
since the SDM Compliance Report would only cover the last quarter of 2024, requiring its submission to the Board would serve limited purposes and introduce unnecessary opera�onal burdens and complexi�es considering the short �meframe.
As a result, Staff of the Commission received a request to extend the 2024 deadline to submit the SDM Compliance Report to the Board.
Exemp�ve Relief 9. The proposed exemp�ons will (a) ensure that investment funds managed by an investment fund manager or advised by an adviser regulated in a foreign jurisdic�on have the same treatment as an investment fund managed by an investment fund manager or advised by an adviser regulated in Canada,
(b)
extend the deadline for senior deriva�ves managers to prepare and submit a 2024 SDM Compliance Report to the Board to the 2025 calendar year.
Order Certain investment funds advised or managed by registered or authorized foreign advisors or investment fund managers may qualify as EDPs
10.
(1) Considering that it would not be prejudicial to the public interest to do so, the Commission orders under subsec�on 20(1) of the Act that a deriva�ves firm is exempt from the provisions of the Business Conduct Rule, in rela�on to a transac�on with a deriva�ves party if the deriva�ves party is an investment fund that is
(a)
(b)
managed by the equivalent of a registered or authorized investment fund manager under the securi�es legisla�on or under the commodi�es futures legisla�on of a foreign jurisdic�on, or
advised by the equivalent of a registered or authorized adviser under the securi�es legisla�on or under the commodi�es futures legisla�on of a foreign jurisdic�on,
(2) The exemp�on in subsec�on 10(1) of this Order does 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)
(c)
sec�ons 24 [Interaction with other Instruments] and 25 [Segregating derivatives party assets];
subsec�on 28(1) [Content and delivery of transaction information];
(d) Part 5 [Compliance and recordkeeping]. Extended timeframe for submitting the SDM Compliance Report 11. Considering that it would not be prejudicial to the public interest to do so, the Commission orders under subsec�on 20(1) of the Act that a senior deriva�ves manager is exempt from the obliga�on under subsec�on 32(3) of the Business Conduct Rule to prepare and submit to the Board a SDM Compliance Report for the calendar year ending December 31, 2024, subject to all of the following condi�ons:
(a)
(b)
the deriva�ves firm is in compliance with all other applicable provisions of the Business Conduct Rule, including, for greater certainty, sec�on 33, which sets out the obliga�on of a deriva�ves dealer to report instances of material non-compliance to the applicable regulator or securi�es regulatory authority;
a senior deriva�ves manager relying on this exemp�on will submit a SDM Compliance Report in the 2025 calendar year that is inclusive of the period between September 28, 2024 and December 31, 2024.
Effec�ve Date 12. This Order comes into effect on September 28, 2024. For the Commission:
______________________________ Chris Besko Director Manitoba Securi�es Commission