Stacked white books on rules and regulations

The Ontario Securities Commission’s (OSC) approach in regulating the clearing business puts domestic firms in this space at a competitive disadvantage compared with their foreign counterparts, TMX Group Ltd. says.

The OSC published an order on Thursday granting London, U.K.-based LME Clear Ltd. an exemption from the requirement to be recognized as a clearing agency. Along with the order, the OSC also published a summary of the comments it received from TMX Group, which doesn’t oppose granting the exemption but does criticize the regulators’ overall approach to the regulation of clearing agencies.

The OSC’s summary indicates that TMX Group argues that domestic clearing firms, such as its subsidiary, CDS, are subject to prescriptive requirements from Canadian regulators that puts these firms at a competitive disadvantage with foreign clearing firms that are granted exemptions from the requirements.

The OSC indicates in its response to TMX Group’s comments that it grants exemptions to foreign clearing firms “only when we are satisfied that doing so would not pose a significant risk to our capital markets, and that the foreign entity is subject to an appropriate and comparable regulatory oversight regime in their home jurisdiction and we have a cooperating relationship with their home regulator(s).”

According to the OSC’s summary, TMX Group also suggests that a more principles-based approach “would more effectively leverage the expertise and experience of the domestic clearing agencies while enabling regulators to maintain the necessary oversight over systemically important domestic financial market infrastructures.”

In response, the OSC says it will “continue to be responsive to market evolution while ensuring that its mandate to provide protection to investors and to contribute to the stability of the financial system and the reduction of systemic risk is maintained.”