Osler Hoskin Harcourt LLP Proposed Derivatives Registration Rule

Osler, Hoskin & Harcourt LLP Proposed Derivatives Registration Rule (NI 93 -102) and Business Conduct Rule (NI 93 -101) OVERVIEW AND COMMENTARY Lisa Mantello February 2019

PROPOSED DERIVATIVES REGISTRATION RULE (NI 93 -102) AND BUSINESS CONDUCT RULE (NI 93 -101) Overview of Proposed Registration Rule Registration categories and requirements Firm registration categories • • Derivatives dealers Derivatives advisers Individual registration categories • • • Derivatives dealing representative Derivatives advising representative Derivatives ultimate responsible person Derivatives chief compliance officer Derivatives chief risk officer • • Key registrant compliance requirements • • 2 Maintain excess capital Control and supervision system over risk management and regulatory compliance programs/functions Counterparty trade confirmation, valuation and dispute resolution processes Annual portfolio reconciliation Exemptions • Dealer registration exemption Adviser registration exemption • • • Foreign dealers and advisers exemptions • Total notional < $ 250 M in last 24 months OSFI/AMF regulated FIs and IIROC members (promptly notify securities regulator of each material breach of equivalent OSFI/AMF/ IIROC rules) Advising generally (not tailored for recipient) Dealers on transaction being advised Licensed in and complies with requirements of foreign jurisdiction May not advise, solicit or transact with or for a non-eligible derivative party in Canada (i. e. nonsophisticated investors) Promptly notifies the securities regulator each instance of material non-compliance in the foreign jurisdiction

PROPOSED DERIVATIVES REGISTRATION RULE (NI 93 -102) AND BUSINESS CONDUCT RULE (NI 93 -101) Industry concerns about Proposed Registration Rule • Proposed non-compliance self-reporting requirements will – Conflict with federal statutory requirements on sharing supervisory information – Greatly exceed most home jurisdiction requirements foreign firms – Greatly exceed self-reporting requirements for securities firms • Proposed registration exemptions may not be feasible nor available to some foreign firms • Extra-territorial effects of registration requirements may be significant and differs from CFTC’s newly proposed approach towards foreign parties • All derivatives dealers and advisers that are appropriately registered or exempt from registration in any foreign jurisdiction should be exempt (with limitations) from registration in Canada

PROPOSED DERIVATIVES REGISTRATION RULE (NI 93 -102) AND BUSINESS CONDUCT RULE (NI 93 -101) Overview of Proposed Business Conduct Rule Obligations and duties Owed to all derivative parties Owed to non -Eligible Derivative Parties (non-EDPs) • • • Other duties • 4 Fair dealing Establish, maintain and apply conflicts of interest policies Know your derivative party (KYDP) Assess counterparty suitability Restrictions on referrals Ban on tied selling Pre-trade disclosures Segregation of counterparty assets Certain post-trade disclosure (e. g. confirmations, quarterly statements) Assign one derivatives senior manager to supervise each derivatives business unit Reporting all instances of material non-compliance to the regulator Exemptions • Foreign derivative dealers and advisers • • • Other exemptions • • Similar to Proposed Registration Rule, however not clear if substitute compliance jurisdictions and rules will be the same May not advise, solicit or transact with non-EDPs Promptly notify securities regulator of any material non-compliance in foreign jurisdiction Substituted compliance for IIROC members and OSFI/AMF regulated FIs Providers of general advice (not tailored to needs of recipient) Trades on trading facilities exempt from KYDP and certain post-trade disclosures

PROPOSED DERIVATIVES REGISTRATION RULE (NI 93 -102) AND BUSINESS CONDUCT RULE (NI 93 -101) Industry concerns about Proposed Business Conduct Rule • Proposed Business Conduct Rule may apply even when a firm is not required to register under the Proposed Registration Rule • Substituted compliance criteria may be different from the Proposed Registration Rule 5

PROPOSED DERIVATIVES REGISTRATION RULE (NI 93 -102) AND BUSINESS CONDUCT RULE (NI 93 -101) Thank you and Q&A Lisa Mantello Partner Osler, Hoskin & Harcourt LLP 100 King Street West Toronto, Ontario M 5 X 1 B 8 Tel: 416. 862. 6790 Fax: 416. 862. 6666 Email: lmantello@osler. com 6