From the Regulators

The revised scope of application addresses concerns of market participants regarding indirect clearing

By James Langton |

Canadian securities regulators are proposing a revised rule that would mandate central counterparty (CCP) clearing in over-the-counter (OTC) derivatives markets, which aims to limit the impact of the proposed requirements.

The Canadian Securities Administrators (CSA) on Wednesday published an updated version of proposed rules that seek to reduce systemic risk and enhance financial stability by introducing CCP clearing requirements for certain OTC derivatives transactions.

The initiative, which represents part of the G20's effort to reform financial market regulation and oversight in the wake of the financial crisis, would define the list of derivatives that will be subject to mandatory clearing requirements, and establishes the obligation to submit these trades to a recognized CCP.

The original version of the proposed rules was published for comment back in February 2015. The CSA indicates that it has made changes in response to the comments received, including that it would now only apply to firms that subscribe to the services of a regulated clearing agency for a mandatory clearable derivative; and, to local counterparties with a month-end gross notional amount of outstanding OTC derivatives above $500 billion.

"The revised scope of application addresses concerns of market participants regarding indirect clearing," it notes, adding that regulators intend to reassess the scope of the rule "when more market participants reasonably have access to clearing services for OTC derivatives."

The CSA indicates that it intends to harmonize the list of derivatives subject to mandatory clearing requirements both within Canada, and with international practices.

"This proposed instrument further advances the CSA's work to meet international objectives regarding mandatory clearing of OTC derivatives and underscores our commitment to further ensure the soundness of derivatives markets," says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a statement.

"The derivatives market reform we are undertaking, of which this proposed instrument forms part, is intended to protect market participants, improve transparency and eliminate opportunities for regulatory arbitrage," he adds.

Earlier this year, the CSA also issued proposals on clearing agency and collateral requirements, which also relate to CCP clearing — the CSA suggests that these proposals should be considered together. The proposals issued today are out for a 90-day comment period, ending May 24.

See: CSA proposes new rules for OTC derivatives markets