Proposal for Canadian cooperative capital markets regulator: the Provincial Capital Markets Act

Ramandeep K. Grewal and Paul Burd

On October 9, 2015, the Canadian federal government’s latest initiative to develop a cooperative capital markets regulatory regime continued to progress with the addition of Prince Edward Island as the fifth province to join in on this proposal.

We have previously discussed the infrastructure and governance proposed for the “Capital Markets Regulatory Authority” (CMRA) that would be created under the proposed cooperative regime. As detailed in that post, the CMRA would administer the federal Capital Markets Stability Act (CMSA) as well as the uniform provincial/territorial Provincial Capital Markets Act (PCMA), which would be adopted by each participating province or territory. In this post we take a closer look at the proposed PCMA.

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Canadian rules on trade repositories and data reporting - Where we are on the eve of reporting

Margaret Grottenthaler -

The trade reporting rules of the securities regulatory authorities in Ontario, Manitoba and Quebec will require reporting beginning October 31. A number of changes to the rules have been made since they were first published in June 2013. On the eve of these rules coming into force, we thought it a good time to republish our article from earlier this year, but incorporating developments since then. Other provinces have still not announced any rules or instruments dealing with trade reporting, but rules are expected in the near future from many of them.

The OTC Derivatives Committee of the Canadian Securities Administrators published model provincial rules with respect to trade reporting for comment in December 2012 and Ontario, Quebec and Manitoba each published proposed harmonized rules in June 2013. The final rules in these three provinces came into force on December 31, 2013, but with staggered implementation of reporting obligations over the course of this following year and next. The initial reporting deadline of July 2, 2014 was extended in all three jurisdictions to October 31, 2014. There have also been further changes to the rules to limit dual reporting by incorporating the ISDA reporting logic. We will refer to Rule 91-507 (or in Quebec Regulation 91-507) as the TR Rule. At the end of this article you will find links to the amended TR Rules.

We have focused our comments on the data reporting and dissemination aspects of the rules.

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Quebec AMF release final trade reporting amendments

Alix d'Anglejan-Chatillon -

The Quebec Autorité des marchés financiers (AMF) has published, in English and French, an amended version (the Regulation Amendment) of the Regulation to amend Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting and the related Policy Statement (Regulation 91-507), which requires that all over-the-counter (OTC) derivatives transactions involving a local counterparty be reported to a recognized trade repository. The Regulation Amendment is expected to come into force by October 31, 2014, when the first derivatives trade reporting obligations for clearing houses, derivatives dealers and Canadian financial institutions become effective in Quebec.

The amendment proposals were first published by the AMF on July 3 and were followed by the issuance on July 31 of the AMF’s Decision No. 2014-PDG-0084Blanket decision regarding exemption from reporting obligation under Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (available in French only) (the AMF Blanket Decision). The stated purpose of the decision was to permit the use of the reporting counterparty determination methodology developed by the International Swaps and Derivatives Association, Inc. (ISDA) by exempting the counterparty that is not the reporting counterparty under that methodology from the reporting obligation under Regulation 91-507 under certain conditions. According to the AMF, the decision was intended to ensure that the implementation of Regulation 91-507 would be harmonized with similar amendments to the TR Rules in Ontario and Manitoba.

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Derivatives Dealer Registration and Disclosure under amended Alberta Securities Act - In force October 31

Margaret Grottenthaler -

On October 31, amendments to the Alberta Securities Act will come into force that expressly deal with derivatives, including by modifying the registration requirement with respect to derivatives dealers. This article will focus on the aspects of the Act that are relevant to dealer registration and prospectus requirements. 

Currently in Alberta, an OTC derivative meets the definition of “future” and, consequently, they are “securities”, meaning that dealers in them are prima facie subject to the same registration and prospectus requirements that apply to securities. Blanket Order 91-505 Over-the Counter Derivatives Transactions, however, exempts from the registration and prospectus regimes OTC derivatives between “qualified parties” and all physical commodity contracts.

Under the amended Act, the registration requirement will apply to “derivatives” dealers, but until the CSA rules on derivatives dealer registration are developed, a replacement Blanket Order 91-706 (the Replacement Order) will provide a broadly similar qualified party and commodity contracts exemption. The draft Replacement Order is out for comment until October 17, but is expected to also come into effect on October 31. While the combined effect of the changes and the Replacement Order will generally be to maintain the status quo, there are some significant differences of which to take note.

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Proposal for Canadian cooperative capital markets regulator: Infrastructure and regulatory authority

Margaret Grottenthaler, Ramandeep K. Grewal and Alex Colangelo

As we recently discussed, the federal government, Ontario, B.C., Saskatchewan and New Brunswick have agreed to implement a cooperative capital markets regulatory system intended to foster more efficient Canadian capital markets, increase investor protection and manage systemic risk.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Federal legislation, meanwhile, would address criminal matters and systemic risk across the country in respect of national capital markets and data collection.

A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions, while a Council of Ministers (CoM) would oversee the CMRA and be accountable to participating jurisdictions for the exercise of the CMRA’s regulatory powers.

Below, we take a closer look at the cooperative system’s structure and governance framework.

Cooperative Capital Markets Regulator chart

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CSA decide not to reduce early warning threshold to 5%

The Canadian Securities Administrators today announced that they will not be moving forward with plans to reduce the early warning reporting threshold from 10% to 5% as previously proposed.

As discussed on our securities blog in March 2013, the CSA last year proposed amendments to the reporting threshold, triggers and related disclosure requirements under Canada’s early warning reporting regime intended to “provide greater transparency about significant holdings of issuers’ securities”. While the most significant change under the 2013 proposal would have been to decrease the reporting threshold from 10% to 5%, the CSA also proposed a number of other significant reforms, including greater transparency through reporting of “equity equivalent derivatives” in order to address issues such as “hidden ownership” and “empty voting”.

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First trade repository designations granted

The Ontario Securities Commission (OSC) and Quebec's Autorité des marchés financiers (AMF) today issued parallel orders designating the Chicago Mercantile Exchange Inc., DTCC Data Repository (U.S.) LLC and ICE Trade Vault, LLC as trade repositories in each province. The Manitoba Securities Commission also confirmed today that it had received corresponding applications for designation as trade repository from those three entities and that it would coordinate with the OSC and the AMF in reviewing and finalizing the designations. The orders are expected to be similar in nature to those issued by the OSC and the AMF.

As we've previously discussed, under each province's respective Rule 91-507, over-the-counter derivatives transactions involving counterparties in the province must be reported to a designated trade repository. Each of the three trade repositories applied for designation this past summer. The first phase of reporting obligations becomes effective on October 31.

OSC publishes trade reporting FAQ

The Ontario Securities Commission today published answers to frequently asked questions concerning compliance with Ontario derivatives trade reporting requirements.

Topics discussed include, among other things, the types of transactions and data that need to be reported, the treatment of hybrid instruments under the product determination rule, the time of data reporting, the treatment of dealers not registered in Ontario, deemed compliance, and the use of legal entity identifiers.

As we've previously discussed, clearing agencies and dealers must begin trade reporting on October 31, 2014, while all other OTC derivatives market participants are required to report beginning on June 30, 2015. The requirement for trade repositories to make transaction-level reports publicly is effective April 30, 2015.

Proposal for Canadian cooperative capital markets regulator released

The federal Department of Finance this week announced that the federal government, Ontario, British Columbia, Saskatchewan and New Brunswick have signed a Memorandum of Agreement setting out the terms and conditions of a Cooperative Capital Markets Regulatory System. As we discussed in July, the Finance Minister had recently stated that the new regulator could be in operation by next year.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Complementary federal legislation would address criminal matters and systemic risk in national capital markets and data collection. Federal legislation would apply across the country, regardless of whether a jurisdiction participated in the new capital markets regime. Meanwhile, a common regulator, the Capital Markets Regulatory Authority, would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions. 

A backgrounder setting out the key features of the cooperative system was also released, as were consultation drafts of the proposed federal Capital Markets Stability Act and the proposed provincial Capital Markets Act, as well as commentary on the governance and legislative framework. Comments are being accepted until November 7, 2014.

Summer readin' happened so fast...

Margaret Grottenthaler -

I can honestly say that every novel I read this summer was more entertaining than any of the OTC Derivatives Rules. Yes, even the Trade Reporting Rule. So here is my annual review of favourite (and not so favourite) reads, if you are looking for some distraction: 

The Goldfinch – Donna Tartt

The Marriage Plot – Jeffrey Eugenides

The Truth About the Harry Quebert Affair: A Novel – Joel Dicker

The Goldfinch is a best seller about a boy and a priceless painting that he sorta mistakenly stole that will no doubt win some of the biggie book awards this year. Nevertheless, I was initially reluctant to pick it up. I mean, actually physically pick it up, because it was over 700 pages and weighed about two pounds. But I’m glad I did make the effort. The characters are highly developed, colourful, and likeable (even the depraved ones), the prose is beautiful, and the plot is original. Many longish novels make you ask, “did this guy have an editor”, but not this one. Other than the last sort of preachy 10 pages, I was not bored. So pick it up (if you can).

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