Canada: CSA Propose Rules For Mandatory Derivatives Clearing

The Canadian Securities Administrators yesterday released proposed rules setting out mandatory requirements for central counterparty clearing of certain standardized over-the-counter derivatives transactions. The rule is in the form of a National Instrument, so harmonization across Canadian jurisdictions should be better than it is under the trade reporting rules. In addition to setting out clearing requirements, proposed National Instrument 94-101 also contains rules related to how regulators will determine which derivatives are subject to mandatory clearing. Ultimately, the proposal is intended to enhance market transparency and mitigate systemic risk.

As we previously discussed, the CSA previously proposed model rules  in regards to central counterparty clearing in December 2013. We took a closer look at those rules in January 2014. The proposed NI 94-101 is based on the draft model provincial rule, with revisions based on comments received from stakeholders.

The CSA are accepting comments on the proposal until May 13, 2015.

Mandatory clearing

Under the proposal, a local counterparty to a transaction in a mandatory clearable derivative would be required to submit the transaction for clearing to a regulated clearing agency. "Local counterparty" is defined consistently with the other derivatives rules; namely a counterparty would be considered a local counterparty to a transaction if at the time of execution of the transaction, either (a) the counterparty is a person or company that is organized under the laws of the local jurisdiction or has its head office or principal place of business in the local jurisdiction; or (b) the counterparty is an affiliated entity of a person or company referred to in (a) and such person or company is responsible for the liabilities of the counterparty. It does not appear to exclude individuals.

Notwithstanding certain concerns raised by commentators, the rule will require the transaction to be submitted for clearing by the end of the day of execution if it was executed during business hours of the clearing agency.

Limited Substitute Compliance

If the transaction is subject to the clearing requirement because the local counterparty is an affiliate of a company located in the jurisdiction (part (b) of the local counterparty definition), then there is a substituted compliance option. In that case, it can be submitted for clearing in accordance with the laws of certain foreign jurisdictions (likely the U.S. and Europe), which will be listed on an Appendix B to the instrument (or in Quebec on a published list). In certain Canadian jurisdictions (Newfoundland and Labrador, the NWT, Nunavut, PEI and Yukon), the clearing requirement would be satisfied if the transaction was submitted for clearing to a clearing agency recognized or exempted from recognition pursuant to the securities legislation of another jurisdiction of Canada.


An end-user exemption to the clearing requirement would be available where at least one of the counterparties is not a financial entity and the non-financial entity is entering into the transaction to hedge or mitigate a commercial risk. Many commentators had asked for a narrowing of the financial entity definition, particularly in its application to investment funds and small financial institutions, but no significant changes were made. The Notice suggests that further narrowing may be possible once data from trade repositories is analyzed. A few tweaks were made to the definition of hedging or mitigation of a commercial risk that are helpful. The requirement that affiliates that hedge for an affiliate be acting as "agent" was removed, for example. Also, the CSA comments clarify that transactions that qualify for hedge accounting should meet the end-user criteria.

An intragroup exemption would be available to affiliated entities or counterparties where both counterparties agree to rely on the exemption, the transaction is subject to appropriate centralized risk evaluation and there is a written agreement setting out the terms of the transaction. The local counterparty relying on the intragroup exemption would have to file a specified intragroup exemption form within 30 days of reliance on the exemption, subject to a 10-day reporting requirement should it become aware that previously-submitted information is no longer accurate. The requirement for an annual filing was removed. To qualify as an intragroup transaction the counterparties must be prudentially supervised on a consolidated basis or their financial statements prepared on a consolidated basis.

Local counterparties to a transaction relying on the end-user or intragroup exemptions would also have to maintain appropriate records for seven years following the date on which the relevant transaction expired or terminated.

The regulator is also empowered to grant exemptions. In response to a number of comments that suggested further exemptions, the response of the CSA was that an exemption could be applied for, which may indicate an openness to considering exemptions. Except for Alberta and Ontario, an exemption granted in one jurisdiction will be effective in another Canadian jurisdiction.

Transactions with governments and government entities are also exempt – meaning, Canada, the provinces, foreign governments, crown corporations whose obligations are guaranteed by their constituting government, wholly owned government entities whose obligations are guaranteed by their constituting government (this could include foreign corporations), central banks and BIS.

Determination of mandatory clearable derivatives

Under the proposal, a regulated clearing agency would be required to notify the relevant regulator of all OTC derivatives or classes of OTC derivatives for which it provides clearing services. Under this proposed "bottom-up" approach, the regulator would then determine whether the cleared derivative or class of derivatives would be made a "mandatory clearable derivative".

In making its determination, a regulator would consider various factors such as the standardization of a derivative or class of derivatives, its risk profile, and the liquidity and characteristics of its market. The regulator would then publish for comment each derivative proposed to be a mandatory clearable derivative and invite submissions by interested parties.

Of note, OTC derivatives and other instruments that would be outside the scope of the derivatives product determination rules (ie, Rule 91-506 in Ontario, Quebec and Manitoba and Proposed Multilateral Instrument 91-101), such as physical commodity contracts and spot FX contracts, would not be intended to be captured as mandatory clearable derivatives.


The CSA intend to phase-in the clearing requirements, with the clearing requirements applying to the following local counterparties in the following order:

  • Phase 1 – at the time of the determination of the mandatory clearable derivative by the regulator, clearing members of a regulated clearing agency that provide clearing for such mandatory clearable derivative;
  • Phase 2 – 6 months after the determination of the mandatory clearable derivative by the regulator, financial entities above a specified (yet undetermined) threshold;
  • Phase 3 – 12 months after the determination of the mandatory clearable derivative by the regulator, all other financial entities; and

  • Phase 4 - 18 months after the determination of the mandatory clearable derivative by the regulator, all other counterparties that were not financial entities.

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

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

Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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