The Portfolio Management Association of Canada (PMAC), through its Industry, Regulation & Tax Committee, is pleased to have the opportunity to provide comments on Proposed National Instrument 93-102 – Derivatives: Registration and Proposed Companion Policy 93-102 – Derivatives: Registration (NI 93-102, and collectively, the Consultation) published by the Canadian Securities Administrators (CSA).
All other capitalized terms used in this letter but not defined in this submission have the same meaning given to them in the Consultation.
In light of the many overlapping issues in the two instruments, this submission should be read in conjunction with our contemporaneous submission on Proposed National Instrument 93-101 – Derivatives: Business Conduct and Proposed Companion Policy 93-102 – Derivatives: Business Conduct (NI 93-101 or the Business Conduct 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.
Consistent with our submission with respect to the 2017 Business Conduct Consultation, 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. We applaud the work of the CSA to develop and adopt 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 supports the CSA’s efforts to ensure that all derivatives firms remain subject to certain minimum standards in relation to their business conduct towards both investors and counterparties. PMAC is also supportive of requiring registration of certain firms in this respect. However, we believe that the registration category of portfolio manager, coupled with general derivatives-specific proficiency and risk management requirements, is sufficient to meet or exceed such standards, as set out in greater detail below.
PMAC continues to believe that the Consultation and the Business Conduct 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 also respectfully disagree with the CSA’s assessment in the Consultation that the costs of portfolio managers complying with NI 93-102 are proportionate to the benefits to the Canadian market of implementing the Consultation, as currently drafted.
We are not aware of any significant enforcement action involving a portfolio manager advising in derivatives or derivatives strategies. 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 concerns. 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 requirement for portfolio managers, all as more fully set out below.
Our submission covers the following: 1) a summary of PMAC’s key recommendations; 2) Consultation feedback; 3) responses to specific Consultation questions; and 4) other comments. The questions are identified by the numbers assigned to them in the Consultation and, as such, their numbering is not consecutive.