The Canadian Securities Administrators is seeking public comment on its proposal to encourage swaps trading on electronic trading facilities in Canada. Among other things, CSA seeks to develop a regulatory framework for “derivatives trading facilities”—organized trading platforms for swaps—and to require certain swaps to trade exclusively through a DTF. As proposed, all DTFs would have to (1) be authorized by the relevant securities authority in the province it operates (or be exempt); (2) provide facilities for the trading of both swaps required to be traded on a DTF as well as swaps optionally traded; (3) be regulated like an exchange in Canada (e.g., have rules governing conduct of participants and to prevent fraud and manipulative acts); and (4) be subject to additional requirements (e.g., duty to act fairly) if it exercises discretion in the execution of transactions. (Operators of DTFs exercise discretion when they determine (1) when to place an order for a participant or to retract it or (2) which orders or RFQs are matched with other orders or quotes and the order and timing of such matching.) DTFs would be permitted to employ a variety of execution methods, including continuous or period order book, request for quote, request for stream, voice, or hybrid voice-electronic methods. CSA specifically seeks comments on whether certain execution methods should be prohibited for products that are mandated to be traded (e.g., no exercise of operator discretion). CSA proposes that it, after consultation with other Canadian authorities and with the public, should determine when certain swap contracts should be mandated to be traded on a DTF. In making such determination, it should consider whether the swap is (1) subject to a clearing mandate, (2) sufficiently liquid and standardized, (3) subject to a similar trading mandate in other jurisdictions, or (4) already trading through another DTF or foreign trading platform. CSA proposes that foreign-based DTFs (such as an US-designated swap execution facility) may apply for an exemption in Canada. Comments are due by March 30, 2015.
My View: CFTC Commissioner Giancarlo, the CSA. The CSA, Commissioner Giancarlo.