While this post addresses Ontario specifically, the rules will
be essentially the same in other jurisdictions in Canada.
Proposed OSC Rule 91-506 Derivatives: Product
Determination has been tightened up in a number of significant
ways and clarified by additional commentary in the Companion Policy
The CP deals specifically with a number of questions raised by
commenters with respect to the effect of netting provisions and
standard close-out provisions and book-out practices on the ability
to rely on the exclusion for cash settled currency spot contracts
and commodity contracts, by clarifying that these terms and
practices in and of themselves would not indicate an intention to
The settlement period for the currency contract exclusion is
extended beyond two days if it is settling in conjunction with a
related securities transaction that settles beyond two
Insurance contracts and gaming contracts regulated in foreign
jurisdictions (not just Canada as under the Draft Model Rule) have
been added to the list of excluded transactions (subject to some
The CP clarifies that intangible commodities, such as emissions
allowances, are covered by the exclusion.
Meanwhile, proposed OSC Rule 91-507 Trade Repositories and
Derivatives Data Reporting has also changed in some material
ways, but not all recommendations were accepted.
By narrowing the definition of "local counterparty",
it has a much narrower extra-territorial scope than the Draft Model
Rule. It no longer includes any person simply on the basis of being
a registrant or reporting issuer in Ontario, or negotiating or
executing the transaction in Ontario, or being a subsidiary of a
local counterparty. A local counterparty is an Ontario-based
entity or a derivatives dealer doing business in Ontario. It also
includes affiliates of either (but only if the local counterparty
has guaranteed most of its liabilities).
End-users are not exempt from reporting requirements, and if
they are the local counterparty and their dealer counterparty is
not, they remain on the hook for the disclosure.
TRs will only have to confirm accuracy of data with their
participants, not other counterparties.
It limits the type of data to report for pre-existing trades to
accommodate the fact that not all data field information would have
been collected for those trades.
Only "reporting counterparties" must retain
transaction records, but the OSC confirmed that it is for the life
of the transaction plus seven years, not five.
It reduces the type of data for public dissemination in
response to comments that there was insufficient protection of
No amendment to deal specifically with block trades was made in
response to comments that the rule did not allow sufficient time to
hedge. The OSC will consider exemptions on a case-by-case
It now excludes inter-affiliate trades from public data
dissemination requirements, but not disclosure requirements
Although a TR is not allowed to publicly disclose the identity
of counterparties, it isn't clear that it is permitted to
withhold dissemination of trade data if that disclosure could
indirectly disclose the parties' identities given the ability
to make pretty good educated guesses in our smaller Canadian
market. It isn't, according to the CP, obligated to make
that assessment, but it may have the discretion to do so.
For a more detailed review of the draft rules, see our attached paper.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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