Canada: Canadian Regulators Provide Temporary Exemptions For Swap Execution Facilities

Securities regulators in Ontario, Quebec, Alberta and Manitoba have temporarily exempted swap execution facilities, or SEFs, from recognition as exchanges. This temporary exemption comes as a result of the recently established U.S. regulatory framework for a new type of marketplace for trading swaps.

REGULATION OF SEFS IN THE UNITED STATES

The regulatory framework for registering and operating SEFs was established by the U.S. Commodity Futures Trading Commission (CFTC) as a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This framework creates registration, operation and compliance requirements for SEFs. An SEF is a standardized electronic platform defined as "a facility, trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system, through any means of interstate commerce, including any trading facility that: (A) facilitates the execution of swaps between persons; and (B) is not a designated contract market."

The CFTC's final SEF rule, adopted on May 16, 2012, required all electronic platforms for trading swaps to register by October 2, 2013. Previously, swaps were traded exclusively in over-the-counter markets with very little transparency or oversight.

REACTION OF THE U.S. MARKET

The introduction of the SEF regulatory regime was met with uncertainty by market participants, largely due to the gap between the SEF registration date (October 2, 2013) and the date on which the most common types of derivatives are required to be traded on the SEFs (which will most likely fall during the first quarter of 2014). A number of existing trading platforms thought they had until the latter date to register. After a flurry of requests from SEFs, the CFTC issued temporary approvals at the beginning of October 2013. The CFTC also gave existing SEF platforms an extra month to sign up market participants and two months to begin reporting data on certain swaps.

INTERIM EXEMPTIONS PROVIDED BY THE CANADIAN REGULATORS

The Securities Act (Ontario) requires any entity carrying on business as an exchange in Ontario to be recognized by the Ontario Securities Commission (OSC), unless exempted from recognition. OSC Staff Notice 21-707 Swap Execution Facilities – Exemption from Requirement to be Recognized as an Exchange, published on October 10, 2013, states that SEFs are considered exchanges under Ontario securities law and are subject to the recognition requirement if they provide access to participants in Ontario. The OSC provided interim orders on October 1, 2013, exempting 13 SEFs from recognition as an exchange. The interim orders terminate no later than October 2, 2014, and require the SEFs to file a full application for an exemption no later than January 31, 2014. A unusual aspect of these orders is acknowledgment by the SEFs that the OSC may change the scope of the relief or the terms and conditions to the relief as a result of the OSC's monitoring of developments in international and domestic capital markets or the SEF's activities, or as a result of any changes to Ontario law affecting trading in derivatives or securities.

Similar interim orders were provided by the l'Autorité des marchés financiers in Quebec, the Alberta Securities Commission and The Manitoba Securities Commission, also terminating no later than October 2, 2014. The Quebec and Manitoba orders also require the SEFs to file an application by January 31, 2014, while the Alberta orders do not impose a specific deadline for doing so.

TERMS AND CONDITIONS FOR THE INTERIM EXEMPTIONS

The Ontario interim exemptions include the following terms and conditions:

  • Continued regulation and oversight of the SEF by the CTFC
  • Direct access being provided to an Ontario entity (Ontario User) only if it is appropriately registered as applicable under Ontario securities law or exempt from or not subject to a registration requirement and it qualifies as an "eligible contract participant" under the U.S. Commodity Exchange Act (CEA)
  • Making available to Ontario Users appropriate training for each person who has access to trade on the SEF's facilities
  • Limiting access for Ontario Users to trading in swaps and security-based swaps, as defined in section 1a of the CEA, without prior OSC approval
  • Submission by the SEF to the non-exclusive jurisdiction of the Ontario courts and administrative tribunals and appointment by the SEF of an agent for service in Ontario
  • Provision of disclosure to Ontario Users in respect of possible limitations on rights and remedies, that trading rules are governed by U.S. rather than Ontario law, and that the SEF is regulated by the CFTC rather than the OSC
  • Provision to the OSC of copies of specified types of filings that the SEF makes with the CFTC
  • Prompt notification to the OSC of any material change to the business or operations of the SEF or the information provided in the SEF's application; changes in certain applicable U.S. laws, rules or regulations; anticipated breach of governing laws, rules or regulations; any investigatory or disciplinary actions faced; any matter that may affect the SEF's financial or operational viability; and any default or bankruptcy by a participant known to the SEF or its representatives that may have a material, adverse impact on the SEF, a clearing agency or any Ontario User
  • Prompt filing with OSC staff copies of any Rule Enforcement Review report regarding the SEF once issued as final by the CFTC
  • Provision of quarterly reports or upon request by OSC staff of the following: a list of all Ontario Users; a list of all Ontario Users against whom disciplinary action has been taken in the last quarter by the SEF or, to the best of the SEF's knowledge, the CFTC or the U.S. Securities and Exchange Commission with respect to activities on the SEF; a list of all investigations by the SEF relating to Ontario Users; a list of Ontario applicants denied status as a participant or access to the SEF during the quarter, together with the reasons for the denial; a list of all products available for trading, identifying changes since the prior quarter; the total trading volume and value traded by Ontario Users on an individualized basis and, aggregated, as a proportion of the SEF's worldwide trades; and a list outlining every incident of a material systems failure, malfunction or delay during the quarter relating to trading activity, noting any corrective action taken.
  • Prompt filing with the OSC of annual reports, annual audited financial statements and the Service Organization Controls 1 report
  • Provision of information as requested by the OSC or its staff, subject to applicable privacy laws

The terms and conditions in the Quebec orders are similar to those in the Ontario orders, but direct access may be provided to any accredited counterparty under the Derivatives Act (Quebec). The SEF is required to obtain from a Quebec applicant for direct access confirmations concerning the clearing arrangements put into place by the applicant; if the applicant is not a registered dealer, confirmation that the applicant is acting on its own behalf; and if the applicant is a member of the Investment Industry Regulatory Organization of Canada (IIROC), confirmation by IIROC of the applicant's compliance with IIROC's rules and regulations.

The terms and conditions in the Alberta orders are less extensive, but for the quarterly reports require that trading volumes for Alberta users be shown separately for the buy-side and sell-side for each contract. The terms and conditions in the Manitoba orders are equivalent to those in the Ontario orders.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions