CSA introduces two new sets of rules for the OTC derivatives market

The new measures represent part of Canada’s effort to meet its G20 commitments to reform global OTC derivatives markets in the wake of the global financial crisis, the CSA says. In order to co-ordinate with these global efforts, both rules provide certain exemptions for foreign firms that comply with similar laws in the U.S. or the European Union.

“These national instruments are designed to align with international standards and provide safeguards in the Canadian market for counterparties transacting in over-the-counter derivatives while fostering a flexible and competitive market for clearing service providers,” says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.

The CSA’s new rules will impose mandatory central counterparty clearing of certain standardized OTC derivatives in an effort to reduce counterparty risk and to increase financial stability.

Separately, the customer-clearing rule will establish requirements — including those on the segregation and portability of customer collateral and positions, along with record-keeping, reporting and disclosure requirements — designed to ensure that clearing of a local customer’s OTC derivatives “protects the customer’s positions and collateral and improves derivatives clearing agencies’ resilience to default.”

Assuming that required ministerial approvals are obtained, the mandatory central counterparty-clearing rule will take effect April 4, and the customer-clearing rule will come into force on July 3.

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