The Investment Industry Regulatory Organization
of Canada yesterday proposed amendments to Dealer Member Form
1 intended to address concerns that current rules
do not set out specific margin requirements for agency cash and
security borrowing and lending arrangements, as well as the fact
that current rules do not have the same margin requirements for
arrangements with acceptable counterparties versus regulated entity
The concerns are especially relevant considering the recent
trend involving dealers entering into borrowing and lending
arrangements with custodians that act as agents for counterparties.
According to IIROC, the risk of such agreements is equivalent to
comparable "principal" arrangements. However, since
Dealer Member Form 1 does not cover these types of agency
agreements, dealers are currently required to provide additional
margin in these cases.
To address these concerns, the amendments are designed to ensure
that agency arrangements are treated for margin purposes in the
same way as equivalent principal arrangements between dealers and
custodians. As such, the counterparty credit risk classification of
the custodian would determine the level of margin
required. Custodians that are active in the security borrowing
and lending business are typically financial institutions that meet
the definition of "acceptable institutions" and are
considered low credit risk clients.
Proposals to amend the margin requirements were first published last
year, and yesterday's release takes into account
comments received from stakeholders. IIROC is accepting comments on
its revised proposal until May 27, 2015. For more information,
see IIROC Notice 15-0053.
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guide to the subject matter. Specialist advice should be sought
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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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