OSC Rule 91-506 Derivatives: Product Determination
OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting

On November 14 2013 the Ontario Securities Commission published final OSC Rule 91-506 Derivatives: Product Determination and OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting. Once approved by the minister of finance, the rules will come into force on December 31 2013. Similar rules were also issued by the Autorité des marchés financiers and the Manitoba Securities Commission. These rules represent the first set of final rules issued by Canadian securities regulators addressing the regulation of over-the-counter (OTC) derivatives in Canada. This update focuses on the Ontario final rules.


In December 2012 the Canadian Securities Administrators Derivatives Committee released Consultation Paper 91-301, which sets out model provincial rules dealing with product determination and trade reporting. The model rules(1) are built, in part, on the committee's previously issued derivatives consultation papers. In June 2013 the Ontario Securities Commission published its proposed rules, the Autorité des marchés financiers and the Manitoba Securities Commission published their proposed province-specific rules and the Alberta Securities Commission, the British Columbia Securities Commission, the New Brunswick Securities Commission, the Nova Scotia Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan published a multi-province consultation paper containing updated model rules. Twenty-seven comment letters were received on the proposed provincial rules. The final Ontario rules reflect the committee's response to those comments and the harmonised charges made to the province-specific rules.

OSC Rule 91-506 Derivatives: Product Determination

The purpose of OSC Rule 91-506 Derivatives: Product Determination (the scope rule) is to define those instruments that are derivatives. Initially, the scope rule will be relevant only for purposes of OSC Rule 91-507. All other legislation, rules, notices or other policies applicable to derivatives will continue to apply. However, it is expected that the scope rule will apply to the rules that will address other aspects of OTC derivatives regulation. As these other regulations are published and finalised, consequential amendments may need to be made to the scope rule.

The scope rule determines which instruments are derivatives primarily by defining those that are excluded from being a derivative. Instruments that are not derivatives include:

  • those governed by gaming control legislation;
  • insurance or annuity contracts;
  • currency exchange contracts, provided that the contract physically settles (as opposed to cash settlement) within two business days (rolling spot, foreign exchange forwards and similar trades are expressly identified as derivatives);
  • commodity forward contracts where physical delivery is intended and the contract generally does not provide for cash settlement;
  • bank and similar deposits; and
  • those traded on certain stock exchanges (not including a derivatives trading facility).

For instruments that fall within the definition of both 'derivatives' and 'securities', generally, those that meet the definition of 'securities' only by reason of being an 'investment contract' or an 'option' are prescribed to be a derivative; otherwise, such instruments are prescribed not to be a derivative.

The companion policy to the scope rule further indicates that contracts entered into for consumer, business or non-profit purposes that involve no investment, speculation or hedging (eg, employment contracts, contracts for business purchase and sale transactions and commercial sale arrangements) are not derivatives.

While the scope rule is helpful in defining the universe of derivatives to be regulated by the proposed OTC derivatives regime, its limited initial application means that derivatives users must continue to consider the application of certain securities laws and instruments to their trades. However, the definition of 'derivative' under the scope rule does provide clarity to certain market participants, such as money services businesses and commodity risk management firms, that these businesses will be caught under the new OTC derivatives regime.

OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting

The trade repositories rule covers two subjects:

  • the requirements in order to become and operate a designated trade repository in Ontario, which become effective on December 31 2013; and
  • the requirements to report OTC derivatives trades, which generally become effective as of July 2 2014 (although the requirement of a reporting counterparty that is not a derivatives dealer to report data become effective only on September 30 2014 and transactions entered into before July 2 2014 that expire or terminate on or before December 31 2014 are not required to be reported).

For entities that wish to establish and operate a trade repository in Ontario, the trade repositories rule establishes the application process and addresses requirements relating to the general operations of a repository, including:

  • governance;
  • the board of directors;
  • management;
  • the chief compliance officer;
  • fees;
  • providing access to services;
  • the acceptance of data;
  • general communications;
  • due process;
  • data records, security and confidentiality;
  • risk management; and
  • outsourcing.

The other part of the trade repositories rule addresses the reporting requirements with respect to OTC derivatives trades. Subject to a narrow exemption for commodity trades other than cash or currency where the local counterparty is not a derivatives dealer and has less than C$500,000 in aggregate notional value under all outstanding transactions, detailed derivatives data for each OTC transaction must be reported to a designated trade repository. If there is no designated trade repository that accepts derivatives data in respect of a particular trade or asset class, then the data must be reported electronically to the Ontario Securities Commission.

The trade repositories rule includes rules to determine who has the obligation to report. Generally, the reporting counterparty will be the clearing agency for trades that are cleared through a recognised or exempt clearing agency or the derivatives dealer. For transactions between two derivatives dealers or between two local counterparties, neither of which is a derivatives dealers, both parties have an obligation to report the transaction, but they may delegate this obligation to avoid double reporting. The intention of the trade repositories rule is to facilitate data reporting by a single counterparty. Although the reporting counterparty is permitted to delegate this duty to the other party, it should have procedures or contractual arrangements in place to ensure that reporting occurs. The reporting obligation is expected generally to fall to the financial institution that is a party to the OTC derivative.

The report with respect to the initial creation of the trade is required to be made in real time, unless it is not technologically practicable to do so. Lifecycle event data with respect to an existing trade must be reported by the end of the business day on which the lifecycle event occurs. The timing for the reporting of valuation data depends on the status of the reporting counterparty: derivatives dealers and clearing agencies are required to report daily and other reporting counterparties are required to report quarterly. The scope of the aggregate data that is required to be reported is quite detailed and will impose an onerous reporting burden on financial institutions that write OTC derivatives trades.

The trade repository must make the trade data available to the Ontario Securities Commission on a direct, continuous and timely basis. In addition, the counterparties to a transaction are to be provided with access to all derivatives data that is relevant to the particular trade and each counterparty is deemed to have provided the consent required to release the data on such basis. Derivatives data is also to be made available on a periodic basis to the public. The public will be able to access aggregate data on open positions, volume and number and price, as well as breakdowns, where applicable, by currency of denomination, geographic location of the reference entity or asset, asset class, contract type, maturity and whether the transaction is cleared. Under the trade repositories rule, transaction level data reporting will not apply until December 31 2014. This six-month extension was a response to comments that the publication of transaction level data, even with the reporting delays provided for in the trade repositories rule, could cause harm to the Canadian derivatives market and market participants, due to the less liquid nature of the Canadian derivatives market relative to other major trading jurisdictions. The committee determined that a delayed effective date for this requirement would allow time to consider further the appropriateness of the timing of transaction level public disclosure.

The trade repositories rule is expected to have a significant impact on the business processes of derivatives market participants and firms that trade in currency exchange contracts that do not meet the criteria in the carve-out for such contracts. An entity that trades OTC derivatives in Ontario must consider:

  • whether the trade is required to be reported;
  • whether it is a reporting counterparty under the trade repositories rule;
  • how it will address its or its counterparty's obligations under the trade repositories rule in the applicable agreements; and
  • what systems and processes it should put in place to meet its obligations and, if applicable, to capture, process and verify all the required data.

As other provinces and territories in Canada adopt their trade repositories rule, market participants in Canada will need to work through the interaction of the rules in each Canadian jurisdiction and consider whether reporting must be made to the trade repository or securities regulator in more than one jurisdiction.

For further information on this topic please contact Carol E Derk, K Ruth Liu or Julie Mansi at Borden Ladner Gervais LLP by telephone (+1 416 367 6000), fax (+1 416 367 6749) or email (, or The Borden Ladner Gervais website can be accessed at


(1) See Borden Ladner Gervais's Derivatives Bulletin describing the key concepts in the model rules.

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