On October 1, 2015, the Alberta Securities Commission (ASC) published Blanket Order 24-504 Exemption from Clearing Agency Recognition (Blanket Order 24-504). Blanket Order 24-504 temporarily exempts a firm carrying on business as a clearing agency in Alberta from the prohibition under section 67 of the Securities Act (Alberta) from acting as a clearing agency without recognition by the ASC.
Blanket Order 24-504 extends the relief originally granted by ASC Blanket Order 24-502 Exemption from Mandatory Recognition of Clearing Agencies which expires on October 31, 2015, to December 31, 2016. The relief is intended to apply pending the adoption by the Canadian Securities Administrators of a harmonized rule regarding the clearing agency recognition requirement. According to the ASC, proposed National Instrument 24-102 Clearing Agency Requirements, initially published for comment in November 2014, is expected to be published in final form in November 2015 and will be implemented by December 2016.
The ASC has advised clearing agencies that are currently carrying on business in Alberta, or that expect to do so, to ensure that they file applications for recognition well in advance of December 31, 2016. Blanket Order 24-504 follows ASC Notice 24-701 - Regulation of Clearing Agencies Carrying on Business in Alberta (ASC Notice 24-701) which was published in June 2015 and which provides guidance to clearing agencies seeking to be recognized by the ASC. The term “clearing agency” is defined in section 1(f) of the Securities Act (Alberta) to be a person or company that:
- in connection with trades in securities,
- acts as an intermediary in paying funds or delivering securities, or both,
- provides centralized facilities through which trades in securities are cleared, or
- provides centralized facilities as a depository of securities,
- in connection with trades in derivatives, provides centralized facilities for the clearing and settlement of trades in derivatives and that, with respect to a contract, instrument or transaction,
- enables each party to a derivatives trade to substitute, through novation or otherwise, the credit of the clearing agency for the credit of the parties,
- arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from a derivatives trade, or
- otherwise provides clearing services or arrangements that mutualize or transfer among participants in the clearing agency the credit risk arising from derivatives trades;
ASC Notice 24-701 states staff’s view that a clearing agency whose clearing activities have a real and substantial connection to the Alberta capital markets should be regulated by the ASC on the basis that it is carrying on business in Alberta. A clearing agency that would have “a real and substantial connection to Alberta” includes one that is: (i) systemically important to the Alberta capital market; (ii) based in Alberta; (iii) provides direct clearing services in Alberta; or (iv) provides direct or indirect clearing services for an exchange recognized in Alberta, if the ASC is the lead or joint regulator of the exchange.
A clearing agency carrying on business in Alberta may be granted an exemption from recognition, for example, where it is based outside of Alberta and is regulated and under the direct oversight of another regulatory authority with a regulatory regime comparable to Alberta’s.