Yukon joins Cooperative Capital Markets Regulatory System

The Canadian Department of Finance announced yesterday that Yukon has now joined the Cooperative Capital Markets Regulatory System. The project now includes British Columbia, Ontario, Saskatchewan, New Brunswick, and Prince Edward Island, Yukon and the federal government.

The Department of Finance also announced the members of the nominating committee that will recommend candidates for the initial board of directors to the Capital Markets Regulatory Authority. Participating jurisdictions also intend to release updated consultation draft federal, provincial and territorial capital markets legislation and draft initial regulations this summer.

For more information on the proposed regime, see our posts on the infrastructure of the proposed new regime, the proposed provincial acts, and the effects of the proposals on derivatives regulation.

The Investment Funds Practitioner published for April 2015

The Investment Funds and Structured Products Branch of the Ontario Securities Commission today released the April 2015 issue of The Investment Funds Practitioner, which provides an overview of recent issues arising from applications for discretionary relief, prospectuses and continuous disclosure documents filed by investment funds.

In respect of prospectuses, the Practitioner discusses concerns with respect to dual class structures of flow-through limited partnerships. The Practitioner also discloses OSC Staff's expectation that redemptions by ETFs that offer periodic redemptions of their securities at a price determined with reference to the closing market price of those securities be capped at NAV and that disclosure regarding market price redemptions include a statement to that effect. Dealing with mutual funds specifically, concerns include setting the payment of distributions in the form of reinvested units or shares as the default option if securityholders do not specifically request distributions in cash. Further, the Practitioner discusses when additional prospectus disclosure may be requested of the offering expenses of split share companies, and concerns with disclosure in closed-end fund prospectuses that suggest the closed-end fund would be permitted to do certain activities that are now contrary to the amended NI 81-102.

The Practitioner also discusses issues with past performance presentation in Fund Facts and public inquiries in regards to the rehypothecation of collateral for OTC derivatives.

IIROC proposes adjusting margin requirements for agency lending agreements

The Investment Industry Regulatory Organization of Canada yesterday proposed amendments to Dealer Member Form 1 intended to address concerns that current rules do not set out specific margin requirements for agency cash and security borrowing and lending arrangements, as well as the fact that current rules do not have the same margin requirements for arrangements with acceptable counterparties versus regulated entity counterparties.

The concerns are especially relevant considering the recent trend involving dealers entering into borrowing and lending arrangements with custodians that act as agents for counterparties. According to IIROC, the risk of such agreements is equivalent to comparable "principal" arrangements. However, since Dealer Member Form 1 does not cover these types of agency agreements, dealers are currently required to provide additional margin in these cases. 

To address these concerns, the amendments are designed to ensure that agency arrangements are treated for margin purposes in the same way as equivalent principal arrangements between dealers and custodians. As such, the counterparty credit risk classification of the custodian would determine the level of margin required. Custodians that are active in the security borrowing and lending business are typically financial institutions that meet the definition of "acceptable institutions" and are considered low credit risk clients.

Proposals to amend the margin requirements were first published last year, and yesterday's release takes into account comments received from stakeholders. IIROC is accepting comments on its revised proposal until May 27, 2015. For more information, see IIROC Notice 15-0053.

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.