The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is pleased to have the opportunity to provide comments on the second notice and request for comment published by the Canadian Securities Administrators (CSA) titled Proposed National Instrument 93-101 – Derivatives: Business Conduct (NI 93-101) and Proposed Companion Policy 93-101CP – Derivatives: Business Conduct (the Consultation).
The 2017 consultation in respect of then-proposed NI 93-101 is referred to herein as the 2017 Proposal. All other capitalized terms used in this letter but not defined in this submission have the same meaning given to them in the Consultation.
PMAC represents investment management firms registered to do business in Canada as portfolio managers. PMAC’s over 250 members encompass both large and small firms managing total assets in excess of $1.8 trillion for institutional and private client portfolios.
PMAC advocates for the highest standard of unbiased portfolio management in the interest of the investors served by our members. PMAC consistently supports measures that elevate standards in the industry, enhance transparency, improve investor protection and benefit the Canadian capital markets as a whole.
In light of the many overlapping issues in the two instruments, this submission should be read conjunction with our contemporaneous submission on Proposed National Instrument 93-102 – Derivatives: Registration and Proposed Companion Policy 93-102 – Derivatives: Registration (NI 93-102 or the Registration Consultation).
Consistent with our submission with respect to the 2017 Proposal, PMAC supports the CSA’s aim to establish a robust investor protection regime that meets the International Organization of Securities Commissions’ (IOSCO) standards with respect to over-the-counter (OTC) derivatives.
PMAC supports the work of the CSA to ensure that all derivatives firms remain subject to certain minimum standards in relation to their business conduct towards both investors and counterparties. We also applaud the CSA for developing a harmonized derivatives registration and business conduct regime across Canada. We believe that the establishment of a national regime is a positive step for industry, the Canadian economy, and investors.
PMAC continues to believe that the Consultation and the Registration Consultation are primarily focused on addressing policy issues arising from dealing activities and do not identify specific investor or market protection issues with respect to the activities of advisers, particularly portfolio managers, vis-à-vis derivatives.
In particular, we look to the CSA’s anticipated benefits of NI 93-101 and note that, chief among them is a reduced likelihood of loss through inappropriate transactions, inappropriate sale of derivatives and market misconduct. We respectfully disagree with the CSA’s assessment in the Consultation that the costs of portfolio managers complying with the proposed derivatives regime are proportionate to the benefits to the Canadian market of implementing NI 93-101 and NI 93-102, as currently drafted.
We strongly believe that the imposition of additional, prescriptive and onerous requirements on portfolio managers is not an effective or efficient solution to the CSA’s stated policy concerns with respect to derivatives. For registered advisers, we continue to believe that the CSA’s laudable policy objectives of creating a uniform approach and protecting participants in the OTC derivatives markets from unfair, improper and fraudulent practices can be best achieved by leveraging National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and by providing an exemption from the derivatives registration and business conduct requirements for portfolio managers, all as more fully set out below and in our response to the Registration Consultation.
Our submission covers the following: 1) a summary of certain of PMAC’s key recommendations relating to NI 93-102 and NI 93-101; 2) Consultation Feedback; and 3) responses to certain Consultation questions. The questions are identified by the number assigned to them in the Consultation and, as such, their numbering is not consecutive.