On September 28, 2023, the Canadian Securities Administrators (the "CSA") announced the adoption of Multilateral Instrument 93-101 Derivatives: Business Conduct (the "Multilateral Instrument") and its companion policy, Companion Policy 93-101 Derivatives: Business Conduct (the "Companion Policy") in all provinces and territories in Canada, except for British Columbia. For information regarding the Multilateral Instrument and its Companion Policy, please see CSA Finally Adopts Derivatives Business Conduct Rule.
On July 11, 2024, the British Columbia Securities Commission (the "BCSC") finally published an advance notice of adoption of National Instrument 93-101 Derivatives: Business Conduct (the "BC Rule"). The BC Rule will come into force concurrently with the Multilateral Instrument, being September 28, 2024, at which time it is expected that the Multilateral Instrument adopted by the other provinces and territories of Canada will become a national instrument.
The BC Rule incorporates various B.C.-specific changes to the Multilateral Instrument, which changes are generally intended to achieve a similar regulatory outcome as the Multilateral Instrument adopted by the other jurisdictions of Canada.
In addition to administrative changes to transition the Multilateral Instrument to a national instrument, the changes to the Multilateral Instrument and its Companion Policy reflected in the BC Rule can be summarized into three categories:
- Changes to Address legislative differences in British
Columbia.
- The BC Rule adapts certain provisions of the Multilateral Instrument to reflect requirements of the Securities Act (British Columbia) and existing elements of securities regulatory requirements in British Columbia. For example, under the BC Rule, the BCSC has taken the view that the obligation not to engage in specific "tied-selling" activities under Section 13 is not required as these matters are already covered by the Securities Rules (British Columbia) and the Securities Act (British Columbia).
- Changes to Exemption Requirements.
- The BC Rule modifies certain provisions of the Multilateral Instrument related to the conditions that need to satisfied in order to qualify for exemptions to the BC Rule.
- Most of these changes do not alter the scope of the exemptions available under the Multilateral Instrument, but rather clarify the specific conditions for such exemptions. For example, rather than impose a condition that certain derivatives firms regulated by the Office of the Superintendent of Financial Institutions ("OSFI") or the Québec Autorité des marches financiers ("AMF") comply with the guidelines of the applicable regulator, Section 24 of the BC Rule adopts specific conditions for the exemption based on the guidelines of OSFI and the AMF as set out in Appendix A.0.1 and Appendix A.0.2 of the BC Rule.
- One example where the scope of the exemption has been expanded by the BC Rule is the liquidity provider exemption. Under Section 37 of the BC Rule, the foreign liquidity provider does not need to be registered, licensed or authorized, or otherwise operate under an exemption or exclusion from a requirement to be registered, licensed or authorized under the securities, commodity futures or derivatives legislation of a foreign jurisdiction in which its head office or principal place of business is located. Accordingly, a foreign derivatives dealer only needs to comply with the conditions in paragraphs 37(a) and (c) of the Multilateral Instrument in order to qualify for the exemption.
- Changes to address requirements of firms and
managers
- Certain provisions of the BC Rule have been modified to provide greater specificity around the actions required to be taken by parties subject to the BC Rule. For example, rather than requiring the senior derivatives manager to address "material non-compliance" under Section 32 of the Multilateral Instruments, the B.C. Rule establishes the specific criteria when non-compliance needs to be addressed.
For further details on the BC-specific provisions introduced by the BC Rule, please see page 3 of the BCSC Advanced Notice of Adoption of National Instrument 93-101 Derivatives: Business Conduct and Changes to Companion Policy 93-101 Derivatives: Business Conduct Rule.
All in all, the BC Rule is, as expected, very similar to the Multilateral Instrument, save for those provisions which have been tailored to reflect legislative differences in British Columbia and provide greater specificity around the application of certain provisions.
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