As part of the ongoing effort to step up oversight of the over-the-counter (OTC) derivatives markets, Canadian securities regulators have proposed a new framework for shifting more trading of OTC derivatives onto exchanges.

The Canadian Securities Administrators (CSA) Thursday published CSA Consultation Paper 92-401 Derivatives Trading Facilities, which proposes a framework for regulating facilities that bring together multiple buyers and multiple sellers of OTC derivatives. The paper also proposes that OTC derivatives that meet certain criteria may be required to trade exclusively on such regulated facilities.

In terms of mandating derivatives to be traded on exchanges, the paper indicates that regulators should review trading and clearing data to determine which derivatives are sufficiently liquid and standardized for exchange trading; and, whether they are subject to a similar requirement in other jurisdictions, or are already trading on a platform in another market. It also proposes pre- and post-trade transparency requirements for these sorts of derivatives.

As for derivatives trading venues, the paper proposes a regulatory framework that includes registration/exemption requirements; it would require trading facilities to have conduct rules designed to ensure adherence to the law, and to prevent fraud and manipulative trading; and, an ability to monitor compliance and impose discipline on market participants. It also sets basic organizational requirements, including measures relating to transparency, record-keeping, market data, and systems requirements and controls, among other things.

Existing marketplaces that wished to provide a platform for trading in OTC derivatives would be required to apply for authorization to trade these instruments, it notes.

“The goal of this proposed framework is to develop rules for OTC derivatives trading in the Canadian market that conform to international commitments,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “In addition to developing harmonized policies and rules for Canada, the proposed framework will align with international practices to the extent appropriate.”

At the G20 summit back in 2009, global policymakers agreed to encourage more exchange trading in derivatives markets, among various other reforms to OTC markets. Today’s paper from the CSA, which is the seventh in a series of OTC market reform proposals, aims to fulfill that aspect of those pledges.

The comment period for the paper is open until March 30.