AMF extends comment period on draft derivatives data reporting regulation AMF extends comment period on draft derivatives data reporting regulation

The period to provide comments on Quebec’s draft Regulation to amend Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting, which was initially set to expire on August 2, 2014, has been extended until August 21. As we reported last month, Quebec’s Autorité des marchés financiers (AMF) published the draft amending regulation on July 3. 

The extension is intended to allow interested parties to consider the amending regulation in light of the AMF’s Decision No. 2014-PDG-0084 – Blanket decision regarding exemption from reporting obligation under Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (available in French only) that was rendered on July 31.

The stated purpose of the decision is to permit the use of the reporting counterparty determination methodology developed by the International Swaps and Derivatives Association, Inc. (ISDA) by exempting the counterparty that is not the reporting counterparty under that methodology from the reporting obligation under Regulation 91-507 under certain conditions. According to the AMF, the decision is intended to ensure that the implementation of Regulation 91-507 will be harmonized with Ontario and Manitoba. As previously discussed, the Ontario Securities Commission incorporated the ISDA methodology through amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting, which received Ministerial approval on August 14. The rule in Manitoba was similarly amended effective July 2.

ASC proposes rule amendments related to derivatives regulation

Last week, the Alberta Securities Commission proposed amendments to various national instruments and certain Alberta Commission Rules intended to harmonize terminology with recently adopted (but not yet proclaimed into force) changes to the province's derivatives regulatory scheme under the Securities Act. The proposal would, for example, change references to "exchange contract" to the term "derivative".

As we've previously discussed, various provinces are currently in the process of adopting legislative changes to provide their securities regulators with the authority to regulate derivatives trading. Securities regulators have responded by developing regulatory proposals intended to utilize that authority while attempting to achieve a level of national harmonization.

The ASC is accepting comments on the proposals until August 23, 2014. The changes would come into force once the amendments to Alberta's Securities Act come into force.

First applications for trade repository designation submitted

The Ontario Securities Commission yesterday published the applications submitted by the Chicago Mercantile Exchange, DTCC Data Repository and ICE Trade Vault to become designated as trade repositories in the province, as well as draft orders for each applicant. The submissions each set out how the respective applicant will comply with OSC rules.

As we've previously discussed, under the recently adopted OSC Rule 91-507, over-the-counter derivatives transactions involving Ontario counterparties must be reported to a designated trade repository. The first phase of reporting obligations become effective on October 31. The OSC is accepting comments on the applications and draft orders until August 30.

Meanwhile, Quebec’s Autorité des marchés financiers published applications filed by DTCC Data Repository and ICE Trade Vault for recognition as trade repositories in Quebec under Regulation 91-507. Consultation on the Quebec submissions ends on September 2.

CSA release list of Canadian qualifying central counterparties

Earlier this week, the Bank of Canada and securities regulators in Alberta, Quebec, B.C., Manitoba and Ontario released a list of Canadian central counterparties that can be considered qualifying central counterparties (QCCP) under the applicable Basel standard.

Specifically, the Basel standard defines a QCCP as 

…an entity that is licensed to operate as a CCP (including a license granted by way of confirming an exemption), and is permitted by the appropriate regulator/overseer to operate as such with respect to the products offered. This is subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMIs).

In Canada, CDS Clearing and Depository Services Inc., Canadian Derivatives Clearing Corporation, ICE Clear Canada, Inc., and Natural Gas Exchange Inc. have been designated or recognized by at least one of the regulators above.

For more information, see CSA Multilateral Staff Notice 24-311.

CSA intend to publish national rule for clearing agencies

Alix d'Anglejan-Chatillon -

The Canadian Securities Administrators yesterday released an update on the proposed local rules designed to set out certain requirements in relation to the application process for seeking recognition as a clearing agency (or an exemption from the recognition requirement), which were published in December 2013.

As we discussed late last year, the proposed rules were published in substantially the same form by the Ontario Securities Commission, Quebec's Autorité des marchés financiers and the Manitoba Securities Commission, while the securities regulators in British Columbia, Alberta, Saskatchewan, New Brunswick and Nova Scotia announced an intention to develop a materially similar multilateral rule in the future.

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AMF proposes amendments to derivatives trade reporting regulation

Alix d'Anglejan-Chatillon -

On July 3, Quebec’s Autorité des marchés financiers (AMF) published for comment the Draft Regulation to amend Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (the “Draft Regulation”). Regulation 91-507, which requires that all over-the-counter (OTC) derivatives transactions involving a local counterparty be reported to a recognized trade repository, came into force in Quebec on December 31, 2013, with reporting obligations becoming effective for the various market participants over the course of 2014 and 2015. The AMF is proposing the Draft Regulation in furtherance of its previously stated intent to make consequential amendments to Regulation 91-507 “to maintain a harmonized national oversight and reporting regime for OTC derivatives markets”.

As part of the changes proposed in the Draft Regulation, section 25 of Regulation 91-507, which imposes the reporting requirement on the dealer, would be amended to explicitly add Canadian financial institutions to the determination of the reporting counterparty. The reason for the addition is that Canadian financial institutions engaging in derivatives trading on their own behalf might not need to be registered as derivatives dealers under the Quebec Derivatives Act. For purposes of transaction reporting under Regulation 91-507, a Canadian financial institution would be the most technologically sophisticated counterparty.

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OSC changes to derivatives data reporting intended to alleviate reporting obligations

Margaret Grottenthaler -

The OSC announced the anticipated further amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the TR Rule) to incorporate reporting in accordance with the Canadian Transaction Reporting Requirements issued by ISDA April 4, 2014 where transactions are between two dealers or two non-dealers, thus avoiding (hopefully) double reporting. In order to rely on the ISDA methodology: (i) each party to the transaction must agree to a multilateral agreement administered by and delivered to IDSA and under which the process set out in the ISDA methodology is required to be followed; (ii) the ISDA methodology process must be followed in determining the reporting counterparty in respect of that transaction; and (iii) each party to the transaction must consent to the release to the OSC by ISDA of information relevant in determining the applicability of the first two conditions. 

As we discussed in April, amendments were also recently announced to delay the effective date of reporting obligations under the rule and to lessen the burden on local end-user counterparties.

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Investment fund modernization: Phase 2 implementation to start in September of 2014

The Canadian Securities Administrators today announced the adoption of final amendments that will implement certain aspects of Phase 2 of the Modernization of Investment Fund Product Regulation Project.  The mandate of Phase 2 involved generally addressing the regulatory gap between non-redeemable investment funds and mutual funds by focusing on imposing certain core operational requirements on publicly offered non-redeemable investment funds that are generally analogous to the requirements applicable to mutual funds.

The final amendments to be adopted as of September 22, 2014 stem from proposed amendments published last year, and will involve the imposition of core investment restrictions for non-redeemable investment funds while also enhancing disclosure requirements regarding securities lending activities by investment funds.  The following is a summary of some of the final amendments that are set to come into force, which we will review in further detail in subsequent posts.  

Notably, the final amendments do not extend to the creation of a more comprehensive alternative funds framework (planned to be effected through an overhaul of National Instrument 81-104 Commodity Pools).  As previously announced by the CSA,  the “alternative funds proposals” have been deferred to allow for further review, along with related restrictions that were proposed with respect to investments in physical commodities, short selling, the use of derivatives and borrowing cash.

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OSFI releases expectations for pension plans considering longevity risk hedging

On June 9, the Office of the Superintendent of Financial Institutions released a policy advisory to provide guidance to administrators of federally regulated defined benefit pension plans that are considering entering into longevity risk hedging contracts.

While OSFI considers longevity risk hedging contracts to be permissible investments and pension plans are not required to inform plan members of the existence of such contracts, the advisory stresses that such investments must comply with legal regulations and the terms of the relevant pension plan.

The advisory also discusses the potential risks to pension plans and sets out the issues that a plan administrator should review when considering such contracts, including cost, acceptability under the law and terms of the plan, administrative complexity, duration, liquidity and actuarial valuation implications.

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ISDA releases FAQ for end-users on Canadian derivatives trade reporting obligations and standardized representations

Alix d'Anglejan-Chatillon and Margaret Grottenthaler -

As a follow-up to our earlier posts, the International Swaps and Derivatives Association, Inc. (ISDA) has developed, in consultation with industry participants in the ISDA Canada Working Group, a number of useful tools for buy-side participants, including asset managers, fund managers and other non-dealer market participants or “end-users” in the Canadian OTC derivatives markets.  On May 23, ISDA published a FAQ for Non-Dealers on Canadian Trade Reporting Obligations which outlines key regulatory requirements relating to the reporting of derivatives transaction data and the procedures developed by the derivatives industry to facilitate dealer and end-user compliance with the new requirements under Rule 91-507 as adopted by the Ontario Securities Commission (OSC), the Manitoba Securities Commission (MSC) and the Autorité des marchés financiers (AMF). 

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