On April 10, 2014, Canadian regulators announced that the effective dates for derivatives trade reporting obligations will be postponed. This announcement addresses uncertainty as to whether systems required to allow market participants to comply with the trade reporting requirements would be ready for the originally planned implementation date of July 2, 2014 in light of the fact that no trade repository (TR) that can accept trade reports for all derivative asset classes has yet been approved by the regulators. The postponement means that derivatives dealers will be required to report new over-the-counter derivatives transactions involving counterparties in Ontario, Quebec or Manitoba (Applicable Provinces) beginning on October 31, 2014 and non-dealers will be required to comply with any applicable reporting obligations by June 30, 2015.

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On November 14, 2013, securities regulators in each of the Applicable Provinces published harmonized derivatives trade reporting rules (Rules). The adoption of the Rules marked an important milestone in Canada fulfilling its G20 commitments made in November 2010 with respect to the regulation of global over-the-counter derivatives markets. Regulators in Alberta, British Columbia, New Brunswick, Nova Scotia and Saskatchewan also participated in the development of these harmonized rules and are expected to adopt a multilateral instrument implementing the Rules in due course.

The Rules are intended to give regulators access to all relevant derivatives trade information as collected by designated TRs in order to facilitate regulatory oversight and allow regulators to monitor and address issues in derivatives markets, including systematic risk. In addition, in order to increase market transparency, designated TRs will be required beginning in 2015 to make certain derivatives trading data publicly available, including aggregate trading statistics as well as trade-level reports that  provide pricing information but do not disclose the identities of the specific counterparties to transactions.

The Rules consist of a “product determination” rule (referred to as the Scope Rule) which sets out the types of transactions that are specified to be derivatives subject to reporting requirements (Reportable Derivatives) and the TR Rule which sets out market participants’ trade reporting and record retention obligations, the rules for public dissemination of trade data and a TR recognition and compliance regime.

The definition of “derivatives” is very broad under applicable provincial laws. The main types of transactions and instruments that are excluded from the category of Reportable Derivatives are:

  • exchange-traded futures and options
  • spot FX transactions that are intended to be physically settled within two business days
  • commodity derivatives which are intended to be physically settled
  • bonds, notes, deposit instruments, stock options and convertible securities that are regulated as “securities” (as well as deposit instruments of federally regulated financial institutions that are outside the scope of securities regulation)
  • compensation products linked to the share price of an issuer or its affiliate
  • gaming and insurance contracts regulated under Canadian or equivalent foreign regulatory regimes


The TR Rule includes a reporting hierarchy to indicate which parties to a derivatives transaction will be required to report a trade. The reporting hierarchy for a Reportable Derivatives transaction involving one or two “local counterparties” is as follows:

  1. for transactions cleared through a recognized or exempt clearing agency, the clearing agency is the sole reporting counterparty
  2. otherwise, if a transaction is between derivatives dealers, both derivatives dealers are required to act as reporting counterparties
  3. otherwise, if the transaction is between a derivatives dealer and a counterparty that is not a derivatives dealer, the derivatives dealer is the sole reporting counterparty
  4. in any other case, each local counterparty to the transaction is required to act as a reporting counterparty

Derivatives dealer registration obligations are currently not generally applicable in Canada, and, where applicable, registration exemptions are typically available. However, the determination of whether or not a party to a transaction is a “derivatives dealer” for the purposes of the TR Rule reporting hierarchy set out above does not depend on registration status but rather is determined based on whether or not the party is “engaged in the business of trading in derivatives” in the relevant province as principal or agent (or holds itself out as being engaged in such business). Moreover, a foreign entity may be deemed to be a derivatives dealer in an Applicable Province for the purposes of the TR Rule and therefore be obliged to report trades with a local counterparty in compliance with Canadian rules even if the foreign entity has not registered with authorities in Canada and does not have any place of business or operations in Canada.

The test for whether a party to a transaction is a “local counterparty” in an Applicable Province, and therefore triggers the reporting obligation in such province, is based on whether the party is incorporated in the province or has its headquarters or principal place of business in the province. As noted above, a party that is registered as a derivatives dealer in an Applicable Province is also a “local counterparty” in such province. In addition, a counterparty may be a “local counterparty” if it has an affiliate in an Applicable Province that is generally responsible for its liabilities. The International Swaps and Derivatives Association (ISDA) has published a Canadian Representation Letter which is intended to be used to solicit from counterparties the information required to determine in which province or provinces a counterparty may be considered to be a “local counterparty.”

In some cases, the TR Rule reporting hierarchy set out above requires both parties to the transaction to act as reporting counterparties. ISDA has recently published a provisional Canadian reporting delegation rule which parties may adopt in order to determine which counterparty to a derivatives transaction will assume trade reporting obligations if the TR Rule reporting hierarchy would otherwise require both parties to act as the reporting counterparty. However, under the current TR Rule, a party that delegates reporting responsibilities remains responsible for ensuring the timely and accurate reporting of all required derivatives data. Since delegation currently does not eliminate this regulatory compliance burden, many derivatives dealers may choose to report all trades they enter into, which would lead to inefficient duplicative reporting.


A reporting counterparty is under a duty to report all specified “derivatives data” including “creation data,” “life-cycle event data” and “valuation data.” Creation data must be reported “in real time” or as soon as technologically practicable following execution of the transaction; life-cycle event data must be reported by the end of the business day on which the life-cycle event occurs and valuation data must be reported to a designated TR on a daily basis if the reporting counterparty is a clearing agency or derivatives dealer (and on a quarterly basis for all other reporting counterparties). Every transaction report must include unique identifiers in the form of identification codes for: (1) each trade counterparty (in the form of an approved legal entity identifier); (2) each derivative transaction (assigned in accordance with the designated TR’s own methodology or by incorporating a previously assigned identifier); and (3) the relevant class of derivative product (assigned in accordance with international or industry standards).


A narrow substitute compliance provision is contemplated in the TR Rule. It will only become relevant if and when non-Canadian dealers begin to register in Canada as derivatives dealers. By registering in an Applicable Province as a derivatives dealer, a non-Canadian dealer will be deemed to be a “local counterparty” in the province and as a consequence Canadian trade reporting obligations will apply to the dealer’s worldwide derivatives trading activities. For trades with entities that are not located in an Applicable Province, the substituted compliance rule may permit the non-Canadian registered dealer to report in compliance with foreign rules instead of complying with Canadian reporting requirements if certain conditions are met.