From the Regulators

Margin requirements for agency cash and security borrowing and lending arrangements modified

By James Langton |

The Investment Industry Regulatory Organization of Canada (IIROC) has republished a revised set of reforms to its rules regarding margin requirements for certain types of borrowing arrangements.

Last year, IIROC proposed changes to its rules to address concerns that the existing rules do not set out specific margin requirements for agency cash and security borrowing and lending arrangements; and, that they do not impose the same margin requirements on arrangements with ‘acceptable counterparties' versus ‘regulated entity' counterparties, Following some material changes to the proposals, in response to comments received on the original proposals (including comments from staff of the Canadian Securities Administrators (CSA), IIROC is putting the proposals out for a second comment period.

The proposed amendments aim to ensure that borrowing and lending agreements between a dealer and either an ‘acceptable counterparty', or a ‘regulated entity', are subject to margin requirements that reflect the risk of loss, and are comparable; and, that agency security borrowing and lending agreements are also subject to the margin requirements that reflect the risk of loss.

The notice spelling out the revised proposals indicates that, under the new rules, dealers "will benefit from enhanced clarity and certainty in the calculation of credit risk margin and credit risk concentration margin for exposures resulting from the execution of cash and security borrowing and lending arrangements."

The proposals are out for comment until May 27.