Amendments to derivatives trade reporting rule to lessen burden on local end-user counterparties

The Ontario Securities Commission, among other regulators, released amendments today to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the TR Rule). The amendments are intended to lessen the burden on local end-user counterparties, while also delaying the effective date of reporting obligations under the rule.

As we discussed last week, the CSA recently announced a delay in implementation of reporting obligations. Specifically, clearing agencies and dealers will now have to begin trade reporting on October 31, 2014, while all other OTC derivatives market participants will be required to report beginning on June 30, 2015. The requirement for trade repositories to make transaction-level reports publicly available will also be delayed to April 30, 2015.

The amendments also repeal provisions of the rules that established a fall-back mechanism requiring local non-dealer counterparties to monitor the transaction reporting of foreign dealer reporting counterparties. The amendment is intended to relieve a significant burden on local end-user counterparties.

Meanwhile, Quebec’s AMF today stated that it intends to formalize the delay in implementation dates by publishing a blanket exemption to be effective as of July 2, 2014. Further, it also intends to propose amendments to the TR Rule in order to “maintain a harmonized national oversight and reporting regime for OTC derivatives markets”, in the near future. The AMF advises that it therefore seeks to specify that reporting counterparties that are dealers, clearing houses or financial institutions will be required to report derivatives data pursuant to Part 3 of the TR Rule as of October 31, 2014.

Check back for an updated version of our previous article to reflect the recent amendments.

CSA extend time for OTC derivatives trade reporting

The CSA announced today that they are pushing back the date for the implementation of OTC derivatives trade reporting obligations. Clearing agencies and dealers will now have to begin trade reporting on October 31, 2014, while all other OTC derivatives market participants will be required to report beginning on June 30, 2015.

The extension is intended to provide more time for trade repositories currently engaged in the designation or recognition process to develop reporting infrastructure and accept market participants onto their systems.

Bank Act amendments would add derivatives regulation-making powers

Last week, the federal government introduced Bill C-31 Economic Action Plan 2014 Act, No. 1, which, among other things, would amend the Bank Act to give the Governor in Council the authority to make regulations respecting a bank's activities in relation to derivatives and benchmarks. It is not yet clear when these amendments, if adopted, would take effect.

AMF publishes webinar outlining new derivatives reporting requirements

Last week, Quebec's Autorité des marchés financiers published a webinar and related slide presentation summarizing recently adopted derivatives reporting requirements. As we discussed last year, final versions of Rule 91-507 came into force in Quebec, Ontario and Manitoba at the end of last year, with staggered implementation scheduled over the course of 2014.

Ultimately, the online presentation outlines the objectives of reporting, the circumstances that trigger reporting, the use of unique transaction identifiers (legal entity identifiers), data dissemination and access, and the effective dates associated with the various obligations.

While the global legal entity identifier (LEI) system is not yet operational, market participants can request a pre-LEI from an approved local operating unit.

CSA sharpen focus on short term securitized products

Mark McElheran -

As previously noted in our post of January 24, the Canadian Securities Administrators have published for comment proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions. These amendments represent a significant retreat from the more comprehensive set of amendments that were originally proposed by the CSA in 2011. Insofar as both the public and private term markets are concerned, status quo is the happy result. This is a sensible and welcome result and credit to the CSA for taking into consideration the feedback received from the industry consultation on the 2011 proposals.

Given that the only troubling issues in the asset-backed securities market during the financial crisis occurred in the asset-backed commercial paper (ABCP) market (albeit in the non-bank sponsored portion of the market), it is not surprising to see the CSA retain some semblance of heightened regulation over this sector. Consistent with the approach taken in 2011, the CSA have (thankfully) chosen not to impose some of the more substantive (and controversial) requirements on transactions that are being implemented in other jurisdictions (such as mandatory risk retention) but instead have chosen to impose additional requirements (that are largely disclosure-based) on ABCP conduit issuers in order for them to be able to access the prospectus-exempt market. 

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Further thoughts on proposed customer clearing and protection of customer collateral rules

Margaret Grottenthaler -

As we discussed last month, the Canadian Securities Administrators released model provincial rules and related guidance in January in regards to customer clearing of OTC derivatives and the protection of customer collateral and positions. Specifically, the Model Customer Clearing Rule sets out the requirements for the treatment of customer collateral by clearing members (CMs), clearing intermediaries (CIs) and derivatives clearing agencies (DCAs). The Model Rule includes:

  • requirements relating to the segregation and use of customer collateral for cleared transactions intended to ensure that customer collateral is protected particularly in the case of financial difficulties of a CM or CI;
     
  • detailed record-keeping, reporting and disclosure requirements intended to ensure that each customer’s collateral and positions are readily identifiable; and
     
  • requirements relating to the transfer or porting of customer collateral and positions intended to ensure that, in the event of a CM default or insolvency, customer collateral and positions can be transferred to one or more non-defaulting CMs without having to liquidate and re-establish the positions. 

For a closer look at the proposal, see our attached paper.

Feds propose regulation-making authority for banks re: OTC derivatives

According to the federal budget announced yesterday (see page 130), the federal government intends to amend the Bank Act to create an explicit regulation-making authority for banks in regards to over-the-counter derivatives. The amendments will facilitate the integration and consolidation of OTC derivatives regulations with the proposed federal-Ontario-B.C. cooperative capital markets regulator. It will also make it easier for foreign regulators, who apply a rules based system of oversight, to assess the Canadian principles-based regulatory framework in their equivalency determinations, which will benefit Canadian banks when transacting with foreign counterparties.

The precise nature of the amendments is not yet known.

CSA propose changes to current short-term debt exemption and new rules for exempt trading of short-term securitized products

The CSA yesterday released proposed two sets of amendments to National Instrument 45-106 Prospectus and Registration Exemptions that would introduce a bifurcated approach to how they will treat asset-backed commercial paper (ABCP) as opposed to commercial paper (CP). 

With respect to CP,  the proposed amendments would remove the current “split rating condition” that requires CP to have a designated rating at or above the designated ratings thresholds, and if a second rating is obtained, require that it not be below any of the same designated rating thresholds. Instead, a “modified split rating condition” is proposed that would require that CP not having any rating below a different (and generally lower) set of designated rating thresholds. Among other things, this is intended to remove the disincentive for issuers of commercial paper to seek additional ratings. According to the CSA, the modified condition would also provide for consistent treatment of commercial paper issuers with similar credit risk and maintain the current credit quality of commercial paper distributed under the exemption.

Meanwhile, the CSA announced that since securitization activity in Canada, with the exception of non-bank ABCP, does not raise systemic risk or investor protection concerns, they do not intend to proceed with their 2011 proposals to introduce a new framework for the regulation of securitized products. However, more targeted amendments focusing on short-term securitized products were included as part of the proposal released yesterday. (For more comprehensive commentary on the various aspects of the earlier proposals, see our Canadian Structured Finance Law blog posts from 2011)

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A look at proposed rules for mandatory clearing of derivatives

Margaret Grottenthaler -

As we discussed in December, the CSA recently released proposed model rules on mandatory central counterparty clearing of derivatives. The proposed model rule is in two parts. The first relates to mandatory central counterparty clearing, including proposed end-user and intra-group exemptions. The second relates to determining the types of derivatives subject to mandatory clearing. The CSA has stated that "to the greatest extent appropriate" the determination process will be coordinated between the local provincial regulators to be consistent across Canada and will be consistent with international standards.

There is, as yet, no indication of the transactions that will be subject to mandatory clearing. These will eventually be listed in Appendices A and B of the rule.

Provincial securities (or in the case of Quebec derivatives) statutes set out the basic regulatory authority to mandate the clearing of derivatives. 

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CSA release model rules concerning customer clearing of OTC derivatives

The Canadian Securities Administrators today released model provincial rules and related guidance in regards to customer clearing of OTC derivatives and the protection of customer collateral and positions.

Specifically, the proposal sets out requirements in regards to the treatment of customer collateral,  recordkeeping, reporting and disclosure, and the transfer of positions. Ultimately, the intention of the CSA is to ensure that customer clearing proceeds in a manner that protects customer collateral and positions, and improves clearing agencies' resilience in the case of a clearing member default.

The proposal follows the publication of a number of consultations and proposals concerning OTC derivatives, including the recent publication of proposed model rules respecting mandatory central counterparty clearing of derivatives, as well as the February 2012 CSA consultation paper on segregation and portability in OTC derivatives clearing.

The CSA is accepting comments on today's proposal, including responses on a number of specific question, until March 19, 2014. For more information, see CSA Notice 91-304.