Proposed amendments to NI 94-101 will clarify the instrument’s scope to exclude certain investment funds and trusts and entities with a trading volume of less than CAD $1 Billion and remove certain types of products for which clearing services are not available. The Canadian Securities Administrators published the amendments for comment on October 12, 2017 with comments due January 10, 2018.

Background

The Mandatory Clearing Rule currently applies only to participants in a regulated clearing agency (RCA). The implementation of the two other categories of in-scope local counterparties has been delayed until August 20, 2018 in order to address some issues arising from the inadvertent application of the clearing requirement to investment funds and trusts that may be affiliated by virtue of having a common trustee. These amendments are intended to address these issues and deal with a few other matters.

Application to Investment Funds and Trusts

The two other categories are:

  • Affiliated Entity. Affiliated entities of a participant in an RCA that meet a CAD $1B month-end gross notional amount threshold[1],and
  • Major Swap Counterparties. Local counterparties that meet a CAD $500B threshold including Canadian affiliated entity transactions in that calculation.
  • The amendment would exclude investment funds (as defined in NI 81-106) and trusts from both categories. In addition, the Canadian affiliated entity transactions included in the calculation would exclude those entered into by investment funds and trusts.

CAD$1 Billion Threshold Exception

Because the threshold calculations include affiliate transactions, it would be possible for the rule to apply to a Canadian entity because it had an affiliate that was a major market participant, even though its own trades were not material (systemically speaking that is). Consequently, the amendments provide that the major swap counterparty category will not apply to an entity that does not meet the CAD $1B threshold. Is it ok to call a ONE BILLION DOLLAR threshold a de minimus exception? I think so. It’s notional amounts after all!

Removal of Certain Transaction Types

Appendix A will also be amended to remove overnight index swaps with variable notional type and forward rate agreements with variable notional type from the list of mandatory clearable derivatives as no RCA currently clears them.