Canadian mandatory central counterparty clearing proposal limited to significant market participants

Margaret Grottenthaler -

The Canadian Securities Administrators (CSA) second version of proposed National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives (the Clearing Rule) and proposed Companion Policy 94-101 (the Clearing CP) limit their application to direct clearing participants (and their affiliates) and major swap market participants.   For a rule directed primarily at reducing systemic risk, this is a sensible and welcome approach, and one that recognizes that the Canadian market comprises a relatively small part of the global market. Initially, the products mandated to clear will be certain interest rate derivatives. In this post we review the main features of the Clearing Rule.

The Clearing Rule will require a “local counterparty” to clear a “mandatory clearable derivative” if both counterparties meet certain criteria, and it sets out the process for determining which derivatives will be mandated for clearing.  

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Saskatchewan Securities Act amended to incorporate derivatives regulation framework

Margaret Grottenthaler -

On February 10, 2016, the amendments to the Securities Act (Saskatchewan) (the SSA) that incorporate a framework for derivatives regulation were proclaimed into force. 

Derivatives, not exchange contracts or futures contracts

In introducing the concept of a “derivative” and deleting references to “exchange contracts” and “futures contracts”, Saskatchewan adopts similar amendments previously made in respect of the Securities Act (Alberta).  The previous situation in Saskatchewan was that the definition of securities included “futures contracts” which in turn were defined widely enough to cover many over-the-counter derivatives transactions.  This resulted in securities dealer registration and prospectus requirements potentially applying to over-the-counter derivatives.  To deal with this, the Saskatchewan Financial Services Commission issued General Order 91-907 Over-The-Counter Derivatives (General Order 91-907) in November 2009 exempting certain derivatives (those between qualified parties, certain commodity derivatives) from the registration and prospectus requirements. Now derivatives are dealt with as a separate category of instrument (the term “derivative” is explicitly excluded from the definition of a “security”) as they are in Ontario and Alberta. 

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Derivatives product determination rule to be adopted by remaining provinces on May 1, 2016

Margaret Grottenthaler and William Scott -

Members of the Canadian Securities Administrators (CSA) from the provinces and territories of Canada other than Ontario, Manitoba and Quebec recently published their product determination rule, Multilateral Instrument 91-101 Derivatives: Product Determination (MI 91-101), which specifies the types of over-the-counter derivatives that will be subject to the new derivatives data reporting rule applicable in their jurisdictions.   We previously discussed the new derivatives data reporting rule, Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (MI 96-101), in detail here

In addition, these members of the CSA have stated that they expect MI 91-101 to specify the types of OTC derivatives that will be subject to future rules relating to OTC derivatives.  MI 91-101 is expected to come into force on May 1, 2016 together with MI 96-101.

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Final rule for derivatives trade reporting proposed in remaining Canadian jurisdictions

William Scott and Margaret Grottenthaler -

Securities regulators in all the remaining provinces and territories of Canada have now published final rules in the form of Multilateral Instrument 91-101 Derivatives: Product Determination (MI 91-101) and Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (MI 96-101) and related Companion Policies for their proposed derivatives trade reporting regime.  As we wrote in January 2015, these regulators are proposing a regime that is harmonized with but separate from the regime that has been adopted in Ontario, Manitoba and Quebec.

MI 96-101 sets out the requirements trade repositories have to meet to be recognized as entities to which market participants can report their trades and outlines the reporting obligations of derivatives market participants in respect of transactions which are in scope for reporting under MI 91-101.  While MI 96-101 is quite similar to the existing trade reporting rules in Ontario, Manitoba and Quebec, there are some noteworthy differences.  It is also anticipated that further amendments will be made to MI 96-101 to align it with amendments currently proposed in Ontario, Manitoba and Quebec.  These amendments are expected to come into effect at the same time as reporting under MI 96-101 comes into effect. 

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CSA publishes revised draft segregation and porting rules for customer collateral in cleared derivatives

William Scott and Margaret Grottenthaler -

As part of a series of developments in the area of derivatives regulation, the Canadian Securities Administrators (CSA) proposed a rule, on January 21, 2016, aimed at ensuring that clearing is carried out by clearing intermediaries and clearing agencies in a manner that protects customer collateral and positions and improves the ability of a derivatives clearing agency to withstand a clearing member default.  The rule will allow for different clearing models (principal to principal or FCM) and is broadly aligned with principles adopted in the US and other jurisdictions.  Comments are due by April 19.

Two types of entities are the focus of Proposed National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (NI 94-102): clearing intermediaries (CI) and regulated clearing agencies (RCA). 

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Quebec's AMF proposes an omnibus package of amendments to the Derivatives Regulation

Alix d’Anglejan-Chatillon -

The proposals would expand the exemption for trades in non-Canadian futures and introduce a new hedger certification requirement for OTC derivatives transactions

On January 14, 2016, the Autorité des marchés financiers (AMF), Quebec’s financial markets regulator, published a package of proposed amendments to the Derivatives Regulation (the Proposed Amendments) made under the Derivatives Act (Quebec) (QDA).  The Proposed Amendments are open for comments for a period of 30 days to February 13, 2016. 

The Proposed Amendments address a number of miscellaneous but important areas of the Derivatives Regulation (the Regulation) and would introduce certain material new requirements. In a follow-up press release issued on January 18, 2016, the AMF notes that the amendments are intended to adapt the Regulation to the rapid evolution of derivatives markets.

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TSX provides FAQ guidance on normal course issuer bids

William Scott and Laura Levine

On January 15, 2016, the Toronto Stock Exchange (TSX) issued Staff Notice 2016-0001 (the Staff Notice) which answers questions on the application of sections 628 and 629 of the TSX Company Manual (the Manual) to normal course issuer bids (NCIBs) by listed issuers. While some of the guidance underscores information from the Manual, a number of points have been helpfully clarified.

Intersection between TSX and ATS purchases

Notably, the TSX has drawn a clear distinction between securities purchased through the facilities of the TSX and those purchased on other exchanges or alternative trading systems (ATSs). Issuers and their buying brokers making purchases on ATSs or any other marketplace must satisfy themselves that they are properly relying on, and in compliance with, an exemption from the issuer bid rules under applicable securities laws. In particular, under the Securities Act (Ontario) and under Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, separate exemptions from the issuer bid rules are found for purchases made through the facilities of a “designated exchange”, which includes the TSX, and for purchases made on a “published market”, which would generally include an ATS, and the requirements of these exemptions differ. The Staff Notice further reminds issuers that they must properly disclose in their notice to the TSX and press release where securities are being purchased, including that purchases may be made on ATSs, if applicable. Where an issuer has publicly disclosed that NCIB purchases will only be made through the facilities of the TSX, the issuer should ensure that its buying broker is aware of the limitation, particularly as many brokers may use smart order routers which direct purchases to multiple marketplaces. Purchases made on other marketplaces and ATSs will not be subject to TSX rules. However, such securities will be included for the purposes of calculating an issuer’s annual NCIB limit under the TSX rules.

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Canada's new electronic travel authorization program

As of March 15, 2016, certain foreign nationals travelling to Canada will require a new electronic travel authorization prior to boarding flights to Canada.  The new entry requirement may also affect foreign nationals that are already in Canada on work or study permits issued before August 1, 2015.  For further details, please see the post on our Canadian Employment & Pension Law blog prepared by our colleagues in the Employment and Labour practice group.

A little more notice please! Amendments to Ontario PPSA debtor location rules effective December 31 may require additional registrations

Margaret Grottenthaler and Kelly Niebergall -

It was recently announced that amendments to the Ontario Personal Property Security Act (the Ontario PPSA) that were passed way back in 2006 will become effective on December 31, 2015. This matters to the structured finance community because these amendments change the test for determining the debtor’s “location”. For participants in derivatives, futures, securities lending and repo markets, the debtor’s location is relevant to cash collateral and security interests in contractual and other intangible rights (such as futures contracts and rights against clearing houses). As outlined below, the changes mean that creditors who have taken steps to perfect by registration in the jurisdiction of the debtor’s chief executive office will have to consider whether they should file a financing statement in an additional jurisdiction if the debtor’s registered office turns out to be in a different jurisdiction. Also, where new security is taken, filing in both jurisdictions may be required or at least prudent.

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Investment funds lawyers co-author Canada chapter in asset management publication

Stikeman Elliott lawyers Alix d’Anglejan-Chatillon and Jeffrey Elliott have contributed the chapter on Canada The Asset Management Review. This publication provides a business-focused overview and analysis of regulation and market developments in asset management across 33 jurisdictions worldwide. This article was first published in The Asset Management Review, 4th edition (published in September 2015 – editor Paul Dickson) by Law Business Research Ltd., London.  www.lbresearch.com