As part of its long-running effort to overhaul the supervision of over-the-counter (OTC) derivatives markets, the Canadian Securities Administrators (CSA) on Thursday published a revised set of proposals and second request for comment on regulating the conduct of dealers and advisors.
The revisions to proposed derivatives business conduct rules include a number of changes to address comments that were received following the publication of the CSA’s initial proposals in April 2017.
“Following a careful review of the submissions received with respect to our first consultation, we have revised the proposed instrument and introduced changes that enhance investor protection while preserving market liquidity and access,” says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.
Among other things, the revised proposals introduce a new category for commercial hedgers, change some of the proposed restrictions on derivatives party assets, and alters certain senior manager obligations.
They set out a comprehensive approach to regulating the conduct of dealers and advisors, including requirements relating to conflicts of interest, know-your-derivatives party obligations, compliance and recordkeeping requirements, and reporting and senior management duties.
“During the financial crisis of 2008, the inappropriate sale of financial investments led to major losses for retail and institutional investors,” the CSA states in a notice announcing the revised proposals.
Since the financial crisis, “there have been numerous cases of serious market misconduct in the global derivatives market, including, for example, misconduct relating to the manipulation of benchmarks and front-running of customer orders.”
The proposals aim to address these issues by establishing a robust investor protection regime that meets international standards, and is consistent with the approach being taken by other regulators.
“The proposed instrument will help protect participants in the OTC derivatives markets from unfair, improper or fraudulent practices and foster confidence in the Canadian derivatives markets,” the CSA states.
The proposals are designed to create a uniform approach to regulating conduct in the derivatives markets throughout Canada, ensure a level playing field for dealers and advisors and, provide consistent protections for market participants.
“The proposed rules are an important milestone for Canada,” adds Morisset. “They will help protect against market abuse and together, the proposed business conduct instrument along with the proposed registration instrument, will align us with international standards.”
The proposals are out for a 95-day comment period, until Sept. 17; which coincides with the comment period for the derivatives market registration regime proposed by the CSA in April of this year.
The CSA notes that individual regulators will also be holding roundtable meetings to explore the proposed business conduct regime. Details on those sessions will be published at a later date.
Separately, the Ontario Securities Commission (OSC) announced plans to hold a roundtable on both the conduct regime and the proposed new registration regime, on Sept. 20 in Toronto.
The agenda and panellists for the session will be released in August.
“Representatives of banks, pension funds and buy-side market participants have been invited,” the OSC says in a news release.