The Canadian Securities Administrators released a consultation paper last week addressing the regulation of OTC derivatives markets. Specifically, the paper makes various recommendations regarding surveillance and monitoring, market conduct and enforcement that are intended to strengthen financial markets and manage specific risks related to OTC derivatives. The paper is one of a series of eight papers building on the high-level proposals found in Consultation Paper 91-401 released in November 2010.

Surveillance and Monitoring

Citing the limited market information currently available to regulators relating to the trading of OTC derivatives, the paper recommends that further study and research be undertaken on the development of a comprehensive surveillance system for monitoring OTC derivatives markets to supplement current market surveillance. According to the report, a comprehensive approach to surveillance and monitoring would include enabling regulator access to trading data and monitoring participant positions.

Market Conduct Rules

To address the perceived lack of consistency in market conduct rules applicable to OTC derivatives across Canadian jurisdictions, the CSA recommend extending certain regulations pertaining to securities markets to OTC derivatives markets. Such regulations would include record keeping and audit trail requirements and prohibitions to prevent market manipulation and fraud, misrepresentations and insider trading.


According to the CSA, compliance, investigation and enforcement powers currently found in securities legislation should also be extended to cover trading in OTC derivatives.

Comments on the proposals are being accepted until January 25, 2012. For more information, see CSA Consultation Paper 91-403 Derivatives: Surveillance and Enforcement.