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.


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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Quebec proposes Cash Collateral Provisions and modifications to Security Agent Provision

Sterling Dietze -  

On November 26, 2014, the Quebec Minister of Finance presented Bill 28 to the National Assembly. The proposed legislation includes provisions in respect of cash collateral as well as modifications to the provision for security in favour of a security agent. Once the bill is adopted, the cash collateral provisions are proposed to come into effect on a later date determined by the Quebec government. The basic conceptual building block for cash collateral is the notion of control similar to that applicable to granting a first priority security over security entitlements. The provisions also compare favorably in important respects to the security-interest regime applicable to deposit accounts under Article 9 of the Uniform Commercial Code. We will be posting, in the next little while, further discussion in respect of the cash collateral provisions.

CFTC extends swap reporting relief applicable to Canadian dealers

On November 24, the U.S. Commodity Futures Trading Commission issued a no-action letter to extend, by up to a year, current relief from certain swap reporting rules applicable to certain non-U.S. swap dealers, including those established in Canada.

The relief to Canadian dealers, originally provided in CFTC Staff Letter No. 13-75 and set to expire no later than December 1, 2014, has now been extended until the earlier of (i) 30 days following the issuance of a comparability determination with respect to swap data reporting rules in Canada, and (ii) December 1, 2015.

For more information, see CFTC Staff Letter No. 14-141.

Sliver of light appears for issuers and noteholders in key UK negligence decision

Patrick Mc Guigan and Jeffrey Keey -

In a recent decision, the English High Court has held that a valuer was liable in relation to its negligent valuation of a property that was collateral for a securitised loan.  The judgment in Titan Europe 2006-3 plc v Colliers International UK plc (in liquidation) , will be of interest to investors, issuers and other participants in the CMBS industry that may be contemplating negligence claims against valuers.

The case arose out of a complex structured finance transaction.  The valuation concerned a property in Germany (the Property) which was owned by a company called Valbonne.  Credit Suisse identified the Property as suitable for a CMBS transaction.  The Property was subsequently valued at 135m Euro by Colliers and Credit Suisse agreed to lend 110m Euro to Valbonne based on the valuation.

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Overview of regulatory framework for Canadian asset managers

Alix d'Anglejan-Chatillon and Jeffrey Elliott 

The last few years have seen the development and implementation of various regulatory initiatives affecting the Canadian asset management industry, including amendments to the dealer, adviser and investment fund manager registration framework.

As such, we have recently drafted an overview of the Canadian regulatory framework for asset managers for the third edition of The Asset Management Review. The publication, released by Law Business Research, is also available as an e-book.