The Ontario Securities Commission (OSC), Quebec's Autorité des marchés financiers (AMF) and the Manitoba Securities Commission earlier this week published for comment proposed local rules that would set out certain requirements in relation to the application process for seeking recognition as a clearing agency (or an exemption from the recognition requirement) under local rules, as well as the ongoing requirements for recognized clearing agencies that act as central counterparties, central securities depositories or securities settlement systems.
The requirements under proposed Rule 24-503 Clearing Agency Requirements in Ontario and Manitoba andRegulation 24-503 respecting Clearing House, Central Securities Depository and Settlement System Requirementsin Quebec are generally based on the Principles for Financial Market Infrastructures (PFMI) developed by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Board of the International Organization of Securities Commissions (IOSCO). The PFMI set out in the April 2012 CPSS/IOSCO consultative report are considered to be minimum international standards for payment, clearing and settlement systems which must be implemented globally to strengthen core financial infrastructures and markets (including derivatives markets) and critical market infrastructures, and to limit systemic risks.
The Canadian regulators note that implementation of the principles is an integral part of their efforts to develop a comprehensive regulatory framework for the trading of derivatives in Canada and is crucial to satisfying Canada’s G20 commitments for OTC derivatives market regulatory reforms.
To that end, the proposed rules incorporate the PFMI "to the extent possible" and include requirements in respect of, among other things, (i) governance; (ii) credit risk; (iii) collateral; (iv) margin; (v) liquidity risk; (vi) settlement finality; (vii) money settlements; (viii) physical deliveries; (ix) central securities depositories; (x) participant default rules and procedures; (xi) segregation and portability; (xii) general business risk; (xiii) custody and investment risks; (xiv) operational risks; (xv) access, participation and due process requirements; (xvi) efficiency and effectiveness; and (xvii) transparency.
The proposals include additional guidance provided by the PFMI Coordinating Group made up of staff of the OSC, the AMF, the British Columbia Securities Commission and the Bank of Canada on the application of the PFMI in the Canadian market context.
The securities regulators in British Columbia, Alberta, Saskatchewan, New Brunswick and Nova Scotia intend to develop a materially similar multilateral rule in the future.
The proposals are open for comments until March 19, 2014, with a planned adoption of the rules by June 30, 2014.
The regulators further intend to implement specific requirements over the next two years, with all requirements expected to come into force by January 1, 2016.