With just four months to go before derivative trade reporting is required in some of the provinces of Canada, the Ontario Securities Commission (the Commission) released a second set of amendments on June 26, 2014 to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the Trade Reporting Rule) that will, among other things, allow parties to designate a single reporting party for dealer to dealer trades and for non-dealer to non-dealer trades. It is expected that the trade reporting rules in the other provinces will include similar provisions. The amendments to the Trade Reporting Rule, if approved by the Minister of Finance, will come into force September 9, 2014.
As part of ongoing Canadian and international over-the-counter (OTC) derivatives reform, the Commission enacted the Trade Reporting Rule on December 31, 2013 in order to regulate and oversee trade repositories and mandate derivatives data reporting requirements by counterparties to derivatives transactions. At the same time, the Commission also enacted OSC Rule 91-506 Derivatives: Product Determination, the purpose of which is to define the types of derivatives that will be subject to reporting requirements under the Trade Reporting Rule (and to other relevant Commission rules governing derivatives once such rules are enacted). The Trade Reporting Rule was first amended on April 17, 2014. As a result, trade reporting was delayed until October 31, 2014 and the local counterparty “fall-back” reporting requirement was removed.
On June 26, 2014, the Commission released further amendments to the Trade Reporting Rule (the Amendments) [available here]. Under the Trade Reporting Rule, if a transaction is between two dealers or between two local counterparties neither of which is a dealer, both parties have a reporting obligation. The Amendment allows parties to voluntarily agree to the Canadian Transaction Reporting Party Requirements published by ISDA (the Reporting Party Rules), which provides for a single party reporting obligation in these two circumstances, with the following reporting counterparty hierarchy: (i) swap dealer; (ii) major swap participant; (iii) dealer which is neither a swap dealer or major swap participant; or (iv) local counterparty that is neither a swap dealer, major swap participant or dealer. One should note that under the Reporting Party Rules, the term “dealer” includes any counterparty that has elected in its ISDA Canadian Representation Letter to be deemed a dealer for purposes of the Reporting Party Rules. If agreed to by the parties, the recognition of the Reporting Party Rules in the Trade Reporting Rule allows a party to assume the “dealer” designation only for purposes of trade reporting and the hierarchy set out in the Reporting Party Rules. Parties that voluntary adopt the Reporting Party Rules will also need to become a party to an ISDA multilateral agreement, which contemplates the release of certain information to the Commission so that the Commission can identify the parties that will rely on the Reporting Party Rules.
The Amendment also allows certain OTC derivative participants that currently report pursuant to the CFTC swap data reporting rules to benefit from substituted compliance under the Trade Reporting Rule. It is important to note that the ability to rely on substituted compliance is dependent upon compliance with certain conditions that are set out in the Trade Reporting Rule. In addition, the Amendment includes some changes to the data fields that need to be included in the reports made under the Trade Reporting Rule.