CSA adopt amendments to short-term debt and short-term securitized products prospectus exemptions

Last week, the Canadian Securities Administrators released amendments to prospectus exemption rules relating to the short-term debt and short-term securitized products prospectus exemptions.

Ultimately the changes will, among other things, (i) change the requirements that short-term debt securities must satisfy in order to be distributed under the short-term debt prospectus exemption; (ii) make the short-term debt prospectus exemption unavailable for securitized products such as asset-backed commercial paper; and (iii) introduce a new short-term securitized products prospectus exemption. The new requirements for reliance on the amended short-term debt exemption include the imposition of a new “modified split rating condition”, which will require that, in addition to satisfying the rating threshold condition (that the short-term debt has at least one credit rating at or above the prescribed threshold), the short-term debt not have any rating that is below those prescribed.

As we've previously discussed, these focused changes in respect of short-term securitized products are a retreat from the more comprehensive proposals to establish a new framework for the regulation of securitized products proposed in 2011

Assuming Ministerial approvals, the changes will come into force on May 5, 2015. Notably, the CSA has also announced changes to the accredited investor and minimum amount investment prospectus exemptions. 

CSA propose rules for mandatory derivatives clearing

Margaret GrottenthalerAlix d’Anglejan-Chatillon and Keith Chatwin -

The Canadian Securities Administrators yesterday released proposed rules setting out mandatory requirements for central counterparty clearing of certain standardized over-the-counter derivatives transactions. The rule is in the form of a National Instrument, so harmonization across Canadian jurisdictions should be better than it is under the trade reporting rules. In addition to setting out clearing requirements, proposed National Instrument 94-101 also contains rules related to how regulators will determine which derivatives are subject to mandatory clearing. Ultimately, the proposal is intended to enhance market transparency and mitigate systemic risk.

As we previously discussed, the CSA previously proposed model rules in regards to central counterparty clearing in December 2013. We took a closer look at those rules in January 2014. The proposed NI 94-101 is based on the draft model provincial rule, with revisions based on comments received from stakeholders.

The CSA are accepting comments on the proposal until May 13, 2015.

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Proposed TSX Company Manual amendments create tailored listing regime for non-corporate issuers

Darin Renton and Junaid Subhan - 

On January 15, 2015, the Toronto Stock Exchange (TSX) published for comment proposed public interest amendments to the TSX Company Manual (the Manual) in respect of Non-Corporate Issuers, comprising Exchange Traded Products (ETPs), Closed-end Funds and Structured Products, by introducing a new Part XI to the Manual and amending Part I of the Manual (the Amendments). The proposed Amendments relate to the listing of and transactions undertaken by Non-Corporate Issuers.

Many of the Amendments codify existing TSX practice. 

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CSA publish consultation paper on OTC derivatives trading facilities

The Canadian Securities Administrators yesterday released a consultation paper in which they proposed a framework for the regulation of over-the-counter derivatives trading facilities in Canada. 

Ultimately, the paper sets out the CSA Derivative Committee's recommendations in respect of such things as: (i) a definition of derivatives trading facilities; (ii) the regulatory framework for such facilities; (iii) organizational requirements, which would be comparable to the extent appropriate to those established for marketplaces under NI 21-101; (iv) execution methods; (v) pre-trade and post-trade transparency; and (vi) determining whether certain OTC derivatives should be mandated to trade exclusively on an authorized derivatives trading facility.

The consultation paper is the seventh in a series building on the high-level proposals found in Consultation Paper 91-401 released in November 2010.

The CSA invite comments on the paper, including in respect of a series of specific questions, until March 30, 2015. For more information, see Consultation Paper 92-401.

CSA issue guidance on structured notes filings

Darin Renton and Jeffrey Elliott

The Canadian Securities Administrators yesterday issued a notice setting out the views of CSA staff concerning the offering of structured notes under the shelf prospectus system.

Structured (or linked) notes are specified derivatives whose prices are determined by reference to the value of an underlying interest unrelated to the issuer of the structured note. The CSA regulates such notes through their review of prospectus supplements, and yesterday's notice provides issuers with a guide in respect of CSA staff's expectations while conducting the review process.

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Securities regulators propose derivatives reporting rules

Securities regulators in Alberta, British Columbia, New Brunswick, Nova Scotia and Saskatchewan today published for comment proposed rules intended to create a derivatives reporting regime in these provinces substantially harmonized with the rules recently adopted in Ontario, Manitoba and Quebec.

Specifically, proposed Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting sets out the requirements trade repositories would have to meet to be designated or recognized as entities to which market participants could report their trades. Proposed MI 96-101 also outlines the reporting obligations of derivatives market participants. Meanwhile, proposed  Multilateral Instrument 91-101 Derivatives: Product Determination would set out the products that would be treated as derivatives (and those to be excluded from the definition) for the purposes of MI 96-101. Notably, the hierarchy to determine the reporting counterparty under the proposed rules would follow that of Quebec and Manitoba.

As we've previously discussed, the OTC Derivatives Committee of the Canadian Securities Administrators published model provincial rules for comment in December 2012. The rules adopted by Ontario, Quebec and Manitoba, meanwhile, required reporting to begin on October 31, 2014, with staggered implementation over the current year.

Comments on the proposed instruments are being accepted until March 24, 2015.

TSX proposes new listing regime for closed-end funds and exchange traded and structure products

Philip Henderson and Darin Renton - 

The regulatory landscape for structured products in Canada continues to evolve with the Toronto Stock Exchange proposing new and tailored listing requirements last week for various types of structured entities and products.

Specifically, the amendments to the TSX Company Manual would facilitate the listing of three distinct new categories of issuers or products referred to in the proposal as "closed-end funds", "exchange traded products" and "structured products". The requirements would include tailored minimum listing requirements as well as requirements associated with the general issuance of securities, supplemental listings, management fees, security holder approvals, terminations and voluntary delistings, and continued listing requirements.

Citing the fundamental differences in the trading, liquidity and ability to raise additional funds among the three different product categories, the TSX is proposing certain differing standards for each, such as a minimum market capitalization or IPO raise of $1 million for exchange traded and structured products, and $20 million for closed-end funds.

Comments on the proposals are being accepted until March 16, 2015.

Regulations under proposed provincial Capital Markets Act to be published next spring

On December 5th, Canadian regulators participating in the Cooperative Capital Markets Regulatory System provided an update in respect of the preparation of initial regulations to be enacted under the proposed provincial Capital Markets Act (PCMA). Specifically, the participating regulators expect to published the draft regulations for comment in the early spring of 2015. Draft regulations had initially been expected this month.

According to the regulators, the proposed regulations will be based on existing provincial rules, including harmonized national instruments, and will include proposed changes to current rules only as needed to eliminate differences in requirements and fit them under the PCMA.

Proposed regulations to be adopted under the federal Capital Markets Stability Act will be published separately.

Quebec is first province to propose cash collateral regime

Sterling Dietze  -

As previously reported in our post of November 28, 2014, the Quebec Minister of Finance presented Bill 28 to the National Assembly on November 26, 2014. The proposed legislation includes provisions in respect of cash collateral, and would make Quebec the first Canadian province to propose legislative modifications in order to facilitate cash collateral. The purpose of this post is to provide some background as to the necessity of these new provisions as well as an overview of the specific rules before proceeding to give examples of application.

Background

Historically, it has been a challenge for Canadian entities to offer a first priority security interest on cash to their counterparties. By contrast, in the United States, a debtor may grant a first priority security interest over cash in a deposit account by way of control pursuant to the provisions of Article 9 of the Uniform Commercial Code. The same is not currently the case in Canada for cash not in a securities account. If a secured party is granted a security interest in cash, the traditional view is that valid security under the laws of the jurisdiction of the grantor’s location needs to be obtained, the security needs to be perfected by registration, a search of the relevant register needs to be undertaken and estoppels, subordinations or waivers from competing or prior ranking creditors need to be obtained. This may be a costly and time-consuming exercise and ultimately may not be successful.

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Canadian regulators propose new rules for clearing agencies

On November 27, the CSA published for comment proposed harmonized rules respecting clearing agencies that would set out certain requirements in relation to the application process for seeking recognition as a clearing agency (or an exemption from the recognition requirement), as well as the ongoing requirements for recognized clearing agencies that act as central counterparties, central securities depositories or securities settlement systems.

The requirements under proposed National Instrument 24-102 Clearing Agency Requirements and its Companion Policy are generally based on the Principles for Financial Market Infrastructures (PFMI) developed by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Board of the International Organization of Securities Commissions (IOSCO). The PFMI set out in the April 2012 CPSS/IOSCO consultative report are considered to be minimum international standards for payment, clearing and settlement systems which must be implemented globally to strengthen core financial infrastructures and markets (including derivatives markets) and critical market infrastructures, and to limit systemic risks. 

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