CSA Proposes Market Conduct Rule for Derivatives Dealers and Advisors

Alison Beer

On April 4, 2017, the Canadian Securities Administrators (CSA) published a notice and request for comment on their proposed business conduct rule that sets out a regime for regulating the conduct of dealers and advisers in over-the-counter derivatives markets.  The CSA’s Proposed National Instrument 93-101 Derivatives: Business Conduct, along with Proposed Companion Policy 93-101 Derivatives: Business Conduct (together the proposed rule), is aimed at protecting parties using over-the-counter derivatives products by requiring derivatives firms to meet certain minimum standards in relation to their business conduct towards their customers and counterparties. The types of measures proposed will be familiar to dealers and advisers in securities markets, albeit with modifications tailored to the nature of the OTC derivatives market. The introduction of this proposed rule is the first of two highly anticipated regulatory developments in the Canadian OTC derivatives space, with the second being the derivatives registration rule, which is expected to be published in the summer of this year. Comments on the proposed rule are being accepted until September 1, 2017.

A separate regime for market conduct and derivatives registration

The CSA’s decision to separate the market conduct rule (which will apply to a certain extent to federal financial institutions) from the derivatives registration rule may foreshadow that federal financial institutions will be exempt from the registration rule. The proposed rule is intended to establish a robust derivatives market conduct regime that is harmonized across Canada and is consistent with IOSCO’s international standards.  The regime would apply as a baseline standard to “help protect investor, reduce risk, improve transparency and accountability and promote responsible business conduct” in the OTC derivatives markets in the wake of the global financial crisis and what the CSA note have been “numerous cases of serious market misconduct in the global derivatives market including, for example, misconduct relating to the manipulation of benchmarks and alleged front running of customer orders”.

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OSFI offers some flexibility for timing to comply with Variation Margin Rules

Alison Beer

OSFI published a letter on February 24, 2017 allowing for a transition period in limited circumstances to facilitate compliance with the requirements in Guideline E-22 on the exchange of variation margin. This is welcome news for those in the midst of negotiating credit support documentation in order to comply with the new margining requirements for non-cleared derivatives.

Scope of the Transitional Measure

OSFI indicated that federally regulated financial institutions (FRFIs) should prioritize their compliance efforts “based on the size of and risk inherent in the credit and market risk exposures presented by each counterparty,” with full compliance by March 1, 2017 required for in-scope transactions between FRFIs and counterparties to whom they have “significant exposures.” For other in-scope transactions, transitional relief from the March 1 deadline is available until September 1, 2017.  OSFI, however, stated that they still expect FRFIs to meet the variation margin requirements as soon as possible following the March 1deadline.

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New Light on Shadow Banking: The FSB's New Report on Rehypothecation of Client Assets

 Margaret Grottenthaler

The Financial Stability Board has been considering the possible harmonization of rules relating to rehypothecation of client assets in securities financing transactions (such as securities loans, repo and margin loans) for several years. On January 25, 2017, it released a report entitled Transforming Shadow Banking into Resilient Market-based Finance, which summarizes the findings of its Rehypothecation and Re-use Experts Group.

Regulatory Approaches to Shadow Banking

Those of you who want to know more about how this aspect of so-called “shadow banking” works will find the new report very informative. Specifically, it explains:

  • What rehypothecation is;
  • Why it is important to the efficient functioning of lending markets;
  • What systemic risks it poses;
  • How those risks are currently addressed by regulation and market practice; and
  • The possibilities for harmonizing regulatory approaches.
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Quebec derivatives scope rule expanded to cover CCP clearing and customer clearing instruments

Tara Mandjee

The Autorité des marchés financiers (AMF), Quebec’s financial services regulator confirmed yesterday that, subject to necessary approvals, (i) Regulation 94-101 respecting Mandatory Central Counterparty Clearing of Derivatives (Regulation 94-101) and (ii) Regulation 94-102 respecting Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (Regulation 94-102) will come into force respectively on April 4, 2017 and on July 3, 2017.

Regulation 94-101 sets out mandatory requirements for central counterparty clearing of certain standardized over-the-counter derivatives transactions. It aims at reducing counterparty risk in the derivatives market and enhancing market transparency. Regulation 94-102 sets out requirements related to segregation and portability of customer collateral and positions. It aims at protecting a local customer’s positions and collateral and improving derivatives clearing agencies’ resilience to a default by a clearing intermediary. For a detailed overview of these rules and their impact on the OTC derivatives market, we refer you to Margaret's post.

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Final Customer Collateral Rule Published by CSA

Margaret Grottenthaler

On January 19, the Canadian Securities Administrators (CSA) published the final form of the segregation and portability rule relating to customer collateral for cleared derivatives.  This National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (Customer Collateral Rule) is 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. This rule comes into effect on July 3, 2017.

Two types of entities are the focus of the Customer Collateral Rule: clearing intermediaries (CI) and regulated clearing agencies (RCA).

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CDIC publishes guidance note on bank resolution

Margaret Grottenthaler - 

While reading the provisions of the Canada Deposit Insurance Corporation Act dealing with member institution resolution regimes is excellent brain exercise, you might prefer to read the much less challenging and newly published guidance note from CDIC.  The Guidance on Exercise of Eligible Financial Contracts Close-out Rights in a Resolution Scenario very helpfully explains how CDIC anticipates that the regulatory powers of CDIC and the Finance Ministry – particularly those new powers added in the June amendments – would in practice be exercised in relation to eligible financial contracts, including derivatives and securities financing arrangements, when a member financial institution is financially distressed.

The strong message in the Guidance is that the intention of the amendments is to implement the Financial Stability Board’s Key Attributes of Resolution Regimes for Financial Institutions (FSB Key Attributes).  The FSB Key Attributes require that termination rights triggered by resolution events – such as bail-in measures or transfers to a bridge institution or creditworthy third-party purchasers – be suspended so as not to compromise the effectiveness of those measures, but that termination rights otherwise be enforceable or only temporarily suspended.  The part of the Guidance that best explains the overall effect of the resolution regime is the following:

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Compromise cash collateral proposal recommended - Ontario seeking input

Margaret Grottenthaler - 

Ontario’s Business Law Advisory Committee, which advises the province’s Ministry of Government and Consumer Services, is proposing a compromise solution to the issue of perfecting security interests in cash collateral.  As those following the cash collateral saga know, the sticking point with amending the regime to allow perfection by control (and a first priority based on control) for cash collateral has been the statutory priority that pension plans enjoy over “accounts” with respect to contributions owed by the debtor employer. As a result of the Sun Indalex case, the potential priority liability includes unfunded liabilities in defined benefit plans. The Committee’s proposed solution is to allow perfection by control for all accounts while subordinating the pension plan priority under the PPSA if and only if the obligations secured relate to “derivatives”. 

While it’s easy to appreciate the need for some form of compromise, it is not going to be all that easy to implement this proposal. Among the many issues that will need to be addressed are the following:

  • How will “derivative contract” be defined?  The report seems to suggest that this refers only to OTC derivatives, but futures will also have to be included.
  • Why not securities loans and repos, which also need certainty in order to qualify for capital relief?  Including them would be consistent with the federal insolvency laws.
  • How will this affect rights of set-off under section 40 with respect to other types of obligations?  It would be a shame if this proposal were implemented in a way that compromised the section 40 rights that should apply to title transfer collateral arrangements used in many lending markets, not just derivatives. 
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Notice issued to help interpret product determination and trade reporting rules in Canadian jurisdictions governed by MI 96-101

Alison Beer - 

On September 29, 2016, the securities regulators of Alberta, British Columbia, New Brunswick, Newfoundland & Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon (the Participating Jurisdictions) published CSA Multilateral Staff Notice 91-305. This Notice answers specific questions about how certain aspects of the product determination and trade reporting rules (and related companion policies) should be interpreted.[1]

The Notice will be a useful reference for those who haven’t already spent a lot of time considering the rules. However, while it provides useful clarification on a number of points, it isn’t a substitute for a close reading of the rules, which (as always) are full of nuances and subtleties that can significantly influence the analysis of a real-world fact situation.

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CSA adopts recovery guidance for recognized clearing agencies

The CSA has adopted amendments to the Companion Policy (CP 24-102) to National Instrument 24-102 Clearing Agency Requirements (NI 24-102) effective June 3, 2016.  The amendments are intended to help clearing agencies develop recovery plans before the end of 2016.

On December 3, 2015, the CSA published for comment proposed amendments to CP 24-102.  The amendments to CP 24-102 provide supplementary guidance on the recovery and orderly winding-down planning of domestic recognized clearing agencies which are also subject to oversight by the Bank of Canada.  These Canadian authorities expect those clearing agencies to meet the standards related to recovery and orderly wind-down set out in a report published by the Bank of International Settlements Committee on Payments and Market Infrastructure entitled Principles for Financial Market Infrastructures.  The supplementary guidance can be found in Annex 1 to CP 24-102.

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Canadian Bank Bail-in Amendments Affecting Netting Laws Passed and In Force

Margaret Grottenthaler -

Bill C-15, including the proposed amendments to the Canada Deposit Insurance Corporation Act (CDIC Act) passed and received Royal Assent on June 22.  Other than certain provisions relating to domestically systemically important institutions the amendments are now in force. The changes enhance the resolution powers of CDIC and are intended to make Canada a Protocol-Eligible Regime under the ISDA 2015 Universal Stay Protocol. It’s now time to update those netting opinions to address the changes to the eligible financial contracts safe-harbour (EFC exemption). What follows is a brief summary of the changes relevant to eligible financial contracts, which largely repeats our earlier post on this subject.

CDIC Can Make Broader Range of Orders

The CDIC Act restructuring regime allows CDIC to make a broader range of orders under s.39.13 with respect to an insolvent member institution (an Order), including, in the case of domestic systemically important banks, an order to convert its prescribed shares and liabilities to common shares (see our earlier related post by Peter Hamilton here).

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Consultation Draft #2 of the Capital Markets Stability Act Loses Weight

The revised consultation draft of the federal Capital Markets Stability Act (CMSA) significantly scales back jurisdiction over market infrastructure and participants from the prior draft published in the fall of 2014 (see our previous post). The purposes of the CMSA continue – albeit in this newly slimmed-down form – to be to ensure the stability of Canada’s financial system through the management of certain types of systemic risk and to protect capital markets investors and others from “financial crimes”.

This post will review the main features of this new version of the CMSA as they relate to derivatives markets. Comments are due by July 6, 2016. 

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Newly Introduced Canadian Bank Bail-In Amendments Affect Netting Laws

Margaret Grottenthaler - 

Proposed amendments to the Canada Deposit Insurance Corporation Act (CDIC Act) introduced in Bill C-15 enhance the resolution powers of CDIC and are intended to make Canada a Protocol-Eligible Regime under the ISDA 2015 Universal Stay Protocol. I am happily contemplating updating all of our capital netting opinions in light of the proposed changes, some of which affect the operation of the Act’s eligible financial contracts safe-harbour (EFC exemption). Those of you who read capital netting opinions for pleasure (or because you must in order to keep your jobs) will be most interested in the following features of the Bill.

UPDATE: With a few exceptions, the Bill C-15 amendments are in force as of June 22. Please see our updated post.

CDIC Can Make Broader Range of Orders

The CDIC Act restructuring regime allows CDIC to make a broader range of orders under s.39.13 with respect to an insolvent member institution (an Order), including, in the case of domestic systemically important banks, an order to convert its prescribed shares and liabilities to common shares (see the related post by Peter Hamilton here).

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Government of Canada introduces Bill to implement TLAC requirement and Bail-In Regime for D-SIBs

Peter Hamilton - 

New federal legislation will implement a total loss-absorbing capacity (TLAC) requirement and a bail-in capital regime for Canada’s Domestic Systemically Important Banks (D-SIBs). The legislation, which is contained in the Budget Implementation Act, 2016, No. 1 (Bill C-15), was introduced in the House of Commons on April 20, 2016. It also includes major amendments to the resolution regime for all deposit-taking banks under the Canada Deposit Insurance Corporation Act (CDIC Act).

The new legislation provides for a statutory power to designate D‑SIBs (none of Canada’s banks are Global Systemically Important Banks (G-SIBs)). It should be noted, however, that OSFI has already designated Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank as D-SIBs, and one would assume that these existing designations will carry forward under the new legislation. From January 1, 2016, D-SIBs are subject to a Common Equity Tier 1 surcharge equal to 1% of risk-weighted assets (RWA). The 1% capital surcharge is to be periodically reviewed in light of national and international developments. 

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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.

CFTC recognizes Montréal Exchange and Ice Futures Canada as Foreign Boards of Trade

Alix d’Anglejan-Chatillon

On August 28, Montréal Exchange Inc. (MX), the leading Canadian derivatives exchange, and ICE Futures Canada, Inc. (ICEFC), Canada’s largest agricultural derivatives platform, received Orders of Registration from the U.S. Commodity Futures Trading Commission (CFTC) as Foreign Boards of Trade (FBOTs).  The FBOT approvals permit MX and ICEFC to provide their identified members or other participants located in the U.S. with direct access to their electronic order entry and trade matching systems.

MX and ICEFC previously provided direct access on the basis of no-action letters issued by CFTC staff.  The no-action letters were automatically withdrawn upon the issuance by the CFTC of the FBOT orders.  MX will offer direct access for futures contracts on interest rates and certain broad-based security indices, as well as options on futures contracts based on the Canadian overnight repo rate average (CORRA) and ten-year Government of Canada bonds.  ICEFC will offer direct access for futures and options contracts on milling wheat, canola, durum wheat, and barley.

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Modernizing Ontario's Business Law: expert panel releases its "Wish List"

Andrew S. Cunningham and Brian Lynch - 

The following post originally appeared on our M&A blog. The structured finance community will be particularly interested in the part about possible changes to the cash collateral rules under the Ontario PPSA. We plan to publish a post dealing more specifically with the PPSA issues in the coming days.

On February 15, 2015, Ontario’s Minister of Government and Consumer Services asked a 13‑member panel of legal practitioners and academics to survey the province’s business law landscape and provide recommendations on reforming laws to modernize the province’s business environment. In June, 2015, the panel submitted a comprehensive report with 16 recommendations for legislative reform that would promote the following key objectives:

  • Making Ontario a leading jurisdiction for business;
  • Updating legislation dealing with commercial activity, including the PPSA; and
  • Creating an environment with more certainty and efficiency to support market activity and small business growth.
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Québec counterparties will be able to grant pledges over cash collateral starting January 1, 2016

Sterling Dietze

Our post of December 9, 2014 introduced the proposed modifications to the Civil Code of Québec (Civil Code) in Bill 28 to permit, among other things, pledges over cash collateral. The proposed modifications were adopted in final form on April 21, 2015 and will come into force on January 1, 2016.

There were some important last-minute modifications to Bill 28 which clarify a number of rules:

  • the consent required for a Québec counterparty to grant a pledge to a creditor that is also the debtor of the monetary claim need not be in writing;
  • Control agreements also do not need to be in writing;
  • A secured party will be able to obtain control of a financial account by becoming the account holder and this will give it priority over other secured creditors that may have control;
  • the realization regime for these pledges will not require registration at the Québec central registry in any practical realization scenario; and
  • the applicable Quebec conflict of laws rules have been clarified to harmonize them with those applicable under Article 9 of the Uniform Commercial Code (United States) (UCC).
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OSC, AMF and MSC propose relief to end users from trade reporting for certain inter-affiliate trades

The Ontario Securities Commission, the Autorité des marchés financiers and the Manitoba Securities Commission have announced that “end users” will not be required to comply with derivatives trade reporting requirements in respect of trades between an end user and an affiliate in certain circumstances. An “end user” is essentially a reporting counterparty that is not a derivatives dealer, a clearing agency, or, in Quebec and Manitoba, a Canadian financial institution.

End users are subject to the trade reporting obligation as of June 30, 2015 under local trade reporting rules adopted in these three provinces. However, the AMF and the MSC have granted temporary relief for end users in respect of certain inter-affiliate trades pending codification of this relief in their respective local rules. The OSC has indicated in its staff notice that it intends to propose amendments to the local Ontario trade reporting rule to provide similar relief.

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"No sale": B.C. court holds that a purported acquisition of scrap metal was in substance a financing deal rather than a true sale

Andrew Cunningham -

A recent British Columbia Supreme Court case took a fresh look at the old question of how to tell a true sale from a financing or loan transaction. The ruling in Coutinho & Ferrostaal GmbH v. Tracomex (Canada) Ltd. is a welcome addition to the relatively sparse body of case law on this topic, as it reaffirms and applies a number of the principles set out in the 2003 Ontario decision in Metropolitan Toronto Police Widows and Orphans Fund v. BC Tel Communications Inc. (Widows and Orphans).

The facts of Coutinho are too complicated (and, truthfully, too boring) to recount in detail. Suffice it to say that various players in the scrap metal industry were interested in a stockpile of old railroad rails located just outside Vancouver. The dispute was ultimately about who owned the rails after a series of transactions had taken place among parties of various nationalities who, by the end, all seemed to be accusing one other of various forms of duplicity. The court eventually (and wisely) decided the ownership issue in favour of the plaintiff, Coutinho & Ferrostaal (C&F), which appears to have been the most innocent of the dramatis personae.

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Revisiting the "specified derivatives" rulebook for Canadian investment funds - an old idea whose time has come

Alix d'Anglejan-Chatillon  -

As previously reported, staff of the Ontario Securities Commission (OSC) has issued welcome guidance in the absence of clearly articulated restrictions on the re-hypothecation of collateral supporting specified derivatives transactions in portfolios of prospectus-qualified investment funds.  The guidance, however, also serves to highlight some of the challenges faced by portfolio managers, their counterparties and legal advisers when it comes to managing these derivatives portfolios on a basis that is both compliant with the very technical rulebook governing transactions in “specified derivatives” under National Instrument 81-102 Investment Funds (81-102) and consistent with standard market terms and practices in the broader OTC derivatives industry.

OTC derivatives markets reform is gradually taking shape in the major global derivatives markets.  As the contours of this new regulatory order begin to settle in the United States and Europe, the Canadian Securities Administrators (CSA) and federal regulators continue to piece together a made-in-Canada framework of rules that will mandate, among other changes, derivatives trade data reporting, central counterparty clearing, registration, trading and custody of OTC derivatives and enhanced custody and collateral requirements for non-cleared derivatives.  Here, as in other markets, these new ground rules are being specifically developed to address systemic, counterparty, liquidity, credit and other key risks in the Canadian and cross-border OTC derivatives market and to make that market more transparent, liquid and safe

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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.

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. 

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.

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.

Comment period on cooperative capital markets regime extended to December 8

Canadian jurisdictions participating in the cooperative capital markets regulator project announced today that the consultation period in respect of the draft Provincial Capital Markets Act (PCMA) and Capital Markets Stability Act (CMSA) has been extended to December 8, 2014. The comment period had been originally scheduled to end on November 7, 2014.

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.

Proposal for Canadian cooperative capital markets regulator: the Provincial Capital Markets Act

Ramandeep K. Grewal and Paul Burd

On October 9, 2015, the Canadian federal government’s latest initiative to develop a cooperative capital markets regulatory regime continued to progress with the addition of Prince Edward Island as the fifth province to join in on this proposal.

We have previously discussed the infrastructure and governance proposed for the “Capital Markets Regulatory Authority” (CMRA) that would be created under the proposed cooperative regime. As detailed in that post, the CMRA would administer the federal Capital Markets Stability Act (CMSA) as well as the uniform provincial/territorial Provincial Capital Markets Act (PCMA), which would be adopted by each participating province or territory. In this post we take a closer look at the proposed PCMA.

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Proposal for Canadian cooperative capital markets regulator: Infrastructure and regulatory authority

Margaret Grottenthaler, Ramandeep K. Grewal and Alex Colangelo - 

As we recently discussed, the federal government, Ontario, B.C., Saskatchewan and New Brunswick have agreed to implement a cooperative capital markets regulatory system intended to foster more efficient Canadian capital markets, increase investor protection and manage systemic risk.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Federal legislation, meanwhile, would address criminal matters and systemic risk across the country in respect of national capital markets and data collection.

A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions, while a Council of Ministers (CoM) would oversee the CMRA and be accountable to participating jurisdictions for the exercise of the CMRA’s regulatory powers.

Below, we take a closer look at the cooperative system’s structure and governance framework.

Cooperative Capital Markets Regulator chart

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CSA decide not to reduce early warning threshold to 5%

The Canadian Securities Administrators today announced that they will not be moving forward with plans to reduce the early warning reporting threshold from 10% to 5% as previously proposed.

As discussed on our securities blog in March 2013, the CSA last year proposed amendments to the reporting threshold, triggers and related disclosure requirements under Canada’s early warning reporting regime intended to “provide greater transparency about significant holdings of issuers’ securities”. While the most significant change under the 2013 proposal would have been to decrease the reporting threshold from 10% to 5%, the CSA also proposed a number of other significant reforms, including greater transparency through reporting of “equity equivalent derivatives” in order to address issues such as “hidden ownership” and “empty voting”.

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Thoughts on Finance Canada's recently issued consultation paper on bail-in capital

Peter E. Hamilton

Last month, Canada’s Department of Finance published a consultation paper outlining a proposed taxpayer protection and bank recapitalization (bail-in) regime. The implementation of such a regime is intended to avoid the “unacceptable costs to the economy” that would result were a domestic systematically important bank to fail. The proposed regime is thus intended to reduce the likelihood of failure and, in the unlikely event of such failure, ensure the restoration of a bank’s viability with minimal taxpayer exposure to loss.

Below are some of my thoughts on the proposal.

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