19 October 20236 minute read

Unregulated no more: Canadian Securities Administrators adopt business conduct rule for OTC ‎derivatives

On September 28, 2023, the Canadian Securities Administrators (“CSA”) announced the adoption of Multilateral Instrument 93-101: Derivatives: Business Conduct (“MI-93-101”) and Companion Policy 93-101CP: Derivatives: Business Conduct (“CP-93-101, together with MI 93-101, the “Instrument”). The Instrument is the culmination of a lengthy effort by the CSA to regulate over-the counter (“OTC”) derivatives in Canada and sets out a comprehensive regime for regulating the business conduct of dealers and advisers in the OTC derivatives market.


The Instrument was first published in April 2017. It was developed following the publication on April 18, 2013 of a CSA Consultation Paper 91-407 Derivatives: Registration, whereby the CSA outlined its proposed registration and business conduct regime for derivatives markets participants. The Instrument was subsequently published for second and third comment periods in June 2018 and January 2022. It is noteworthy that while the Instrument was adopted to regulate derivatives business conduct, the CSA’s proposed derivatives registration rule has yet to be adopted.

The Instrument was developed to meet the International Organization of Securities Commissions’ (“IOSCO”) international standards for derivatives intermediary regulation, and to align with similar regimes in other IOSCO jurisdictions with active derivatives markets.

MI 93-101

The Instrument is set to come into effect on September 28, 2024 in all provinces and territories in Canada except British Columbia. The British Columbia Securities Commission intends to adopt substantially similar rules at a later date, at which time the CSA intends to convert the Instrument to a National Instrument.

The Instrument applies to both “derivatives dealers” and “derivatives advisers” (collectively, “derivatives firms”) which are persons or companies engaging in or holding themselves out as engaging in the business of advising others in respect of derivatives, or any other person or company required to be registered as a derivatives dealer or adviser under securities legislation. The framework establishes fundamental obligations that include requirements related to fair dealing, conflicts of interest, suitability, reporting non-compliance, recordkeeping, among other requirements.

Some notable requirements under the Instrument include:

Fair dealing

  • A derivatives firm, and an individual acting on behalf of a firm, must act fairly, honestly and in good faith with a derivatives party.
  • Derivatives party means, in relation to a derivatives dealer, a person or company for which the derivatives dealer acts or proposes to act as an agent in relation to a transaction, or a person or company that is, or is proposed to be, a party to a derivative for which the derivatives dealer is the counterparty. In relation to a derivatives adviser, derivatives party means, a person or company to which the adviser provides or proposes to provide advice in relation to a derivative.

Conflicts of interests

A derivatives firm must:

  • Establish, maintain and apply reasonable policies and procedures to identify all material conflicts of interest between the firm and a derivatives party.
  • Respond to any conflicts of interest that have been identified under its policies and procedures.
  • Disclose the nature and extent of any conflict of interest to a derivatives party, if a reasonable derivatives party would expect to be informed of the conflict.

Know your client/derivatives party

A derivatives firm must:

  • Establish, maintain and apply reasonable policies and procedures to ensure that the firm verifies and establishes a derivative party’s identity, including, their creditworthiness and whether they are an insider of a reporting issuer, in certain circumstances.
  • Take reasonable steps to keep this information current and up to date.


A derivatives firm must:

  • Take reasonable steps to ensure, before it transacts in a derivative, that the derivative and the transaction are suitable for the derivatives party.
  • If the derivative is not suitable for the party, inform the party that the transaction is not suitable and not transact in the derivative unless the party, after being informed, instructs the firm to proceed with the transaction.

    In order to determine suitability for a party, the firm must obtain, and keep current, information pertaining to:

  • The derivative party’s needs and objectives.
  • Their financial circumstances.
  • Their risk tolerance.
  • If applicable, the nature of the party’s business and the operational risks it wants to manage.


  • Derivatives firms are required to disclose all important information about a derivative party’s relationship with the firm (including fees, compensation, material characteristics of the derivative transacted in, required statements, valuation reporting, etc.) and other documentation designed to inform the party about the types of derivatives and products offered to them.
  • Derivatives firms must promptly deliver confirmation of transactions to derivative parties. The confirmation must include specific information in certain circumstances.

Record-keeping and compliance

A derivatives firm must:

  • Establish, maintain and apply policies and procedures that establish a system of controls and supervision relating to employees and risk management.
  • Keep records of its transactions and advising activities for at least seven years.

Other restrictions/requirements

  • A derivatives firm, or an individual acting on behalf of the derivatives firm, must not impose undue pressure on or coerce a person or company to obtain a derivatives-related product or service from a particular person or company as a condition of obtaining another product or service from the firm.
  • Derivatives firms are restricted from entering into referral arrangements unless specific requirements are met.
  • Derivatives firms must comply with increased requirements regarding custody of derivatives party margin and assets.


Certain parties, such as derivatives end users, registered investment dealers and Canadian financial ‎institutions are exempt from some requirements under the Instrument, subject to certain conditions and ‎limitations. Additionally, “eligible derivatives parties”, who are not “eligible commercial hedgers”, may be ‎exempt from particular requirements and may waive other requirements. The concept of an eligible ‎derivatives party is similar to an accredited investor under securities legislation. These parties are ‎generally assumed to be sophisticated, and do not require some of the protections envisioned by the ‎Instrument. 


MI 93-101 creates numerous new requirements for those engaged in the trading and dealing of OTC derivatives. Derivatives industry participants should review their internal compliance policies to ensure their practices will comply with the incoming requirements. Contact a member of our Financial Services or Securities and Capital Markets groups for assistance in preparing your business for the implementation of the Instrument.