The Pension Investment Association of Canada is raising concern about the impact on pension plan sponsors of a new regulation related to derivatives and a companion policy proposed by the Canadian Securities Administrators.
In a letter to securities regulators this week, the association noted its concern about language including “directly or indirectly carrying on the activity with repetition, regularity or continuity,” and “transacting with the intention of being compensated,” as aspects involved in defining a person or company as a “derivatives dealer” or “derivatives adviser.”
The association worries the language is too broad and could accidentally cause pension plans or plan sponsors to fall under those categories.
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As a result, the letter requests an overt exemption for pension plans and their sponsors, since the regulation could capture certain activities they undertake, such as hiring third-party investment managers, as derivatives advice. “In this context, plan sponsors and their affiliates may be making asset allocation decisions and exercising discretion in selecting specific derivatives trading strategies, such as tactical asset allocation overlay and hedging programs,” the association noted in its letter.
“PIAC is concerned that these types of activities could trip the ‘business trigger’ underlying the definition of ‘derivatives adviser’ if the discretion exercised and the investment guidelines provided are broadly considered to be derivatives advice.”