Canadian securities regulators Friday published a consultation paper proposing an exemption, for companies that use derivatives to hedge business risks, from new regulatory requirements that are being developed for the over-the-counter derivatives market.

The latest consultation paper from the Canadian Securities Administrators sets out its recommendations for an exemption from the regulatory requirements that are being developed for the OTC derivatives market. The proposed end-user exemption is designed to allow qualifying businesses that use OTC derivatives as a risk management tool, rather than for speculative purposes, to be exempt from certain regulatory requirements.

The exemption aims to ensure that firms seeking to hedge business risks aren’t discouraged from using OTC derivatives. The paper sets out the position of the CSA Derivatives Committee on the application of the proposed exemption, such as what the qualifying criteria should be, the criteria that were considered but excluded, and what a qualifying end-user would need to do to rely on the proposed exemption.

“The CSA’s commitment to establish a comprehensive framework for OTC derivatives regulation must balance the need to meet international commitments with the needs of individual market participants in Canada,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission. “The proposed end-user exemption would permit a business that uses OTC derivatives to manage its own business risks to continue to use these products in a cost effective manner, without increasing risk to the overall market.”

This latest paper is one in a series of proposals designed to improve the regulatory oversight of OTC derivatives in Canada. Still to come this year are papers on a variety of issues, such as central counterparty clearing, registration, exchange trading, and capital and collateral.

Comments on the paper are due by June 15.