In mid 2005, the Ontario government established a committee to review the Ontario Commodity Futures Act, the legislation governing exchange-traded commodity futures contracts, the exchanges on which they trade and the intermediaries that participate in these markets. The legislation has not been amended in any significant way since its came into force in 1978 and is seriously out of date. The committee published an interim report in May setting out the direction of its thinking to date and asking for industry input.
Like the AMF, the Ontario committee is recommending a core principles and self-certification approach to the recognition and regulation of exchanges and clearing organizations.
The current CFA does not confer jurisdiction on the regulator (the Ontario Securities Commission) to regulate clearing organizations. Among other things, the committee is recommending that the OSC’s jurisdiction be extended to clearing organizations whether they clear exchange traded or OTC contracts.
With respect to the OTC market, the Ontario committee also recognizes that there is some role for a securities regulator with respect to retail participants in certain OTC markets (such as, for example, foreign exchange contracts). However, the Ontario committee has cautioned that any legislation with respect to OTC derivatives must be sensitive to the fact that there are many types of OTC contracts even with retail participants that may not be appropriately regulated as securities. Examples include bank hedging products, such as interest rate or currency swaps, and energy hedging products. Its preliminary view is that, for the purpose of establishing the OSC’s jurisdiction, an overly broad definition of an OTC derivative should be avoided in favour of a definition that more accurately reflects what a derivative transaction is. Also, if possible, it would be better to define "retail customer" in positive rather than negative terms (i.e. in terms of who is included, as opposed to who is not).
The Ontario Committee also suggests that the Ontario government take the opportunity to include provincial protections for close-out netting and collateral enforcement rights with respect to eligible financial contracts. Receivership, for example, is a provincial insolvency proceeding lacking express close-out netting protections. The market would benefit from, and the industry in general would undoubtedly welcome, additional certainty in this area (and greater consistency with the federal regime).
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