(September 12 – 12:25 ET) – The Ontario Securities Commission has finalized its rule concerning over-the-counter derivatives.

The rule was published for comment on January 7. It received one comment from the Canadian Bankers Association.

The OSC says the CBA restated its view that the OTC derivatives market doesn’t need a rule. The CBA believes that OTC derivatives are an integral part of the business of banking and are subject to federal, not provincial jurisdiction.

The OSC responds that it “continues to believe that the Rule has been carefully tailored to focus on investor protection in the retail market and is therefore designed to protect those least able to protect themselves. It is not aimed at ensuring the financial soundness of financial institutions, the subject matter and primary concern of federal legislation pertaining to derivatives.”

The CBA also reiterated a concern that the rule would make Ontario uncompetitive on the world derivatives scene. The OSC rejects this view, too, insisting that the large number of exemptions to the rule will keep this from happening.

The rule deals with the regulation of transactions consisting of OTC derivatives. The most common derivatives products used in the OTC market are swaps, options and forwards on a variety of underlying securities. The rule provides complete exemptions from Ontario securities law for some transactions and provides exemptions from the registration and prospectus requirements of the Act for other transactions.

Changes to the rule include:

    schedule III banks have been added to the list of qualified parties;

  • insurance companies that are licensed to do business in Canada no longer need a minimum paid up capital and surplus in excess of $25 million;
  • corporations have had their minimum capital threshold changed to $25 million in revenue or assets; and
  • individuals can now include the net worth of a spouse as part of the $5 million threshold.

The final rule was delivered to the Minister of Finance on September 8. It will take effect December 1, assuming the minister approves it.
-IE Staff