The Manitoba Securities Commission (MSC), the Ontario Securities Commission (OSC) and the Quebec Autorité des marches financiers (AMF) published for comment proposed amendments to their rules on derivatives data reporting and the companion policies related thereto.  The securities commissions of these provinces, being the only provinces that have adopted a trade data reporting rule, have requested that any comments be submitted by February 3, 2016.

MSC Rule 91-507 Trade Repositories and Derivatives Data Reporting, OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting and Quebec Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (collectively, the Trade Reporting Rules) are each proposed to be amended in order to achieve a number of objectives.

The most significant changes for market participants are two amendments dealing with inter-affiliate transactions which may provide relief from the trade reporting obligation.  A new section 41.1 will provide an exemption from reporting obligations under the Trade Reporting Rules for end-user local counterparties that have completed trades with their end-user affiliates that are also local counterparties.  An end-user is a party that is not a derivatives dealer or a recognized or exempt clearing agency or an affiliated entity of either of these entities (or, in Manitoba and Quebec, a Canadian financial institution or reporting clearing agency).  The exemption applies for a counterparty that is a local counterparty in any jurisdiction of Canada.  Because the exemption requires both parties to be local counterparties in a Canadian jurisdiction which has a Trade Reporting Rule, it will not be useful for groups where the treasury function is managed by a non-Canadian affiliate.  So far the only Canadian jurisdictions which have  Trade Reporting Rule are Manitoba, Ontario and Quebec, but five others will have such rules once Multilateral Instrument 96-101 Trade Repositories and Data Reporting is finalized.

However, amendments are proposed to section 26(5) of the Trade Reporting Rules which would allow end-user local counterparties to benefit from substituted compliance in respect of derivatives transactions entered into with their foreign affiliates.  Substituted compliance is available so long as the transaction must be reported pursuant to the law of a specified foreign jurisdiction (for example EMIR and CFTC reporting requirements).  A key condition is that the reporting counterparty must instruct the designated trade repository to which the transaction is reported to provide the Manitoba, Ontario or Quebec securities regulatory authority, as applicable, with access to the derivatives data that it is required to report pursuant to the applicable Trade Reporting Rule. The reporting must also be to a trade repository that is designated in the local jurisdiction.  Therefore, it will not apply if a foreign affiliate is reporting to a DTCC affiliate, for example.

The securities commissions have also proposed additional amendments dealing with legal entity identifiers.  Under the proposed amendments, all local counterparties would be under a direct obligation to acquire a legal entity identifier.  Where a counterparty is not eligible to receive a legal entity identifier, the reporting counterparty is required to identify that counterparty with an alternative identifier and the designated trade repository must identify the counterparty with the same alternative identifier.

Finally, the Trade Reporting Rules are proposed to be amended to modify the types of data and asset classes required to be publicly disseminated from July 29, 2015 onward.  The securities commissions have acknowledged the risks inherent in public dissemination of such data and have noted that the transaction details be subject to publication delays and “additional anonymity precautions” to avoid prejudicing market participants.  The types of data and asset classes are set out in a new Appendix C to the Trade Reporting Rules.

On a related note, Quebec Regulation 91-506 respecting Derivatives Determination  (Regulation 91-506) is proposed to be amended to clarify the scope of its application.  Quebec Regulation 91-506 currently states that the QuebecTrade Reporting Rule does not apply to certain contracts or instruments.  It will be amended to state that Regulation 91-506 applies to: (i) the Quebec Trade Reporting Rule; and (ii) derivatives that are not traded on an exchange and to derivatives that are traded on a derivatives trading facility.

Comments are due on February 3, 2016.  For further information, please consult the OSC Notice and Request for Comment, MSC Notice 2015-43 and the AMF’s notice of draft regulation.