Friday may be hockey night in Canada, but this Friday, October 31, 2014, is also the deadline for end users that trade over-the-counter (OTC) derivatives to deliver certain information and agreements to their Canadian dealers to comply with Canadian reporting requirements. To provide the necessary information and agreements to Canadian dealers, the International Swaps and Derivatives Association (ISDA) has developed a Canadian representation letter. Failure to deliver the Canadian representation letter by Friday, October 31, is more than a five-minute major penalty; it may prevent swaps end users and other counterparties from trading with Canadian dealers after the deadline.
On November 14, 2013, the Ontario Securities Commission, Québec Autorité des marchés financiers and Manitoba Securities Commission collectively published rules for product determination, trade repositories and derivatives data reporting (the Canadian reporting rules). The Canadian reporting rules determine the type of derivative transactions that must be reported, provide a hierarchy for which counterparty must report the transaction and set forth the trade reporting requirements.
The Canadian reporting rules apply to OTC derivative transactions regardless of whether they are cleared or uncleared. The reporting rules do not apply to spot foreign exchange transactions or to listed futures and options contracts traded on designated exchanges. However, the rules do apply to derivatives traded on a swap execution facility or a derivatives trading facility.
A swap end user will not typically be the reporting party. The reporting party will be the local counterparty. A local counterparty is (i) a Canadian derivatives dealer or (ii) a Canadian company or entity or a responsible affiliate of such Canadian person.
The Canadian reporting rules are similar to the U.S. Commodity Futures Trading Commission’s (CFTC’s) real-time public reporting of swap data, swap data repository and recordkeeping requirements and “historical” swap data reporting rules. Both the CFTC and Canadian reporting rules require similar creation data, life-cycle event data and valuation data to be reported, as well as each counterparty’s Legal Entity Identifier (LEI). The CFTC has not yet approved any comparability determinations that would permit substituted compliance with the Canadian reporting rules.
What End Users Need to Do
Swap end users should complete the Canadian representation letter available on the ISDA website. The Canadian representation letter requires counterparties to represent whether they are (i) a Canadian derivatives dealer, (ii) a Canadian person or (iii) a responsible affiliate of a Canadian person. Finally, an end user must consent to disclosure of its information to regulators and trade repositories and provide its LEI.
Considering that cross-border derivatives regulation can be as difficult to handle as a Sidney Crosby slap shot, end users with offices or operations in Canada should contact one of the authors or their regular McGuireWoods lawyers with any questions.
Click here for a link to ISDA’s Canada page with the Canadian representation letter and more information on Canadian reporting rules.