The Canadian Securities
Administrators yesterday published a consultation paper
on over-the-counter derivatives regulation in Canada intended to
address "some of the deficiencies that have become apparent in
the OTC derivatives market". Specifically, the consultation
paper provides background on the need for regulation and provides a
number of specific proposals. Among other things, the report
central clearing of OTC derivatives that are determined to be
appropriate for clearing and capable of being cleared, such as
reporting of all derivatives trades by Canadian counterparties
to a trade repository;
electronic trading of OTC derivative products; and
in accordance with the recommendations of the Basel II Accord,
imposing capital requirements proportionate to the risks that an
The focal point of the proposal, being the central clearing of
OTC derivatives, reflects the approach taken by the Dodd-Frank
Act. With respect to trade reporting to a
trade repository, while the report makes no recommendation
regarding a specific time requirement for reporting it does state
that real-time reporting will ultimately be required. The report
further recommends that provincial regulators obtain authority to
conduct surveillance on OTC derivatives markets, develop robust
market conduct standards and obtain authority to investigate and
enforce against abusive practices.
The report also recommends that defined categories of end-users
be exempted from these proposals but acknowledges that this
approach requires further study to determine, among other things,
applicable conditions and thresholds. A number of other issues are
also identified as requiring further study and analysis, including
the segregation of capital in the OTC derivatives context, the
location and type of central counterparty clearing house (referred
to as a "CCP"), including assessment of the use of
international CCPs vs. a Canadian solution. Registration
requirements and exemptions from such requirements are also not
covered in the report but will reportedly be the subject of future
The report specifically notes that clear jurisdictional
authority and specific rule-making powers will need to be set out
in provincial securities and derivatives legislation to address all
of the subject areas addressed. The CSA will also need to develop
information sharing and co-operation agreements with international
regulators, foreign trade repositories and CCPs.
The Committee has set out a number of specific questions
pertaining to its recommendations and is accepting comments on the
consultation paper until January 14, 2011. The Committee is working
under Canada's G20 commitment to meet a 2012 deadline and will
continue to move forward by developing legislative proposals and
drafting proposed rules.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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