The anticipated amendments to the rules on reporting derivatives data in Ontario, Quebec and Manitoba are expected to come into force on July 29, 2016.  Highlights of the final amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting; MSC Rule 91-507 Trade Repositories and Derivatives Data Reporting include:

  • Exempting inter-affiliate trades from reporting (and not just those between "local" counterparties)
  • Pushing back the effective date for requiring trade repositories to publicly report derivatives data to January 16, 2017
  • Simplifying the timing convention used for releasing derivatives data publicly: it's now 48 hours after execution of the trade

Status of Exemptions for Trades Between Inter-Affiliate End Users

Ontario

Under the amendments as initially proposed in November 2015,the end-user exemption for inter-affiliate trades would have applied only to trades between local counterparties (i.e. Canadian affiliates). Trades between a Canadian company and a non-Canadian affiliate would be subject to reporting requirements, although available for substituted compliance in certain cases. The OSC listened to the comments of market participants that substituted compliance was practically speaking no relief and in response, section 41.1 of the Ontario trade reporting rule was amended to remove the reference to local counterparties. Now all transactions between end-users that are affiliated companies are exempt from the reporting requirements in the Ontario rule. Consequently, OSC Staff Notice 91-703 (indicating that the OSC would not enforce compliance with trade reporting rules for inter-affiliate transactions until amendments were made) is withdrawn. 

Manitoba and Quebec

In contrast, the Manitoba Securities Commission (MSC) and in Quebec's Autorité des marchés financiers (AMF) elected to withdraw the proposed revisions to section 41.1 and the associated substitute compliance provision. Instead, the blanket exemption orders granting relief from reporting obligations for trades between inter-affiliate (in the case of Manitoba) and intragroup (in the case of Quebec) end users that are currently in place in those provinces will remain in effect until their respective securities commissions say otherwise. (MSC Blanket Order #7118 and AMF Blanket Exemption Decision No. 2015-PDG-0089)

The securities commissions in all three provinces intend to  further study risks associated with inter-affiliate transactions and may still consider requiring reporting for certain transactions between affiliates.

It is hoped that corresponding amendments will be made to MI 96-101 applicable in the other provinces before January 1, 2017 when end-user trades will become reportable. Stay tuned. 

Dissemination of Derivatives Data to the Public Delayed

The requirement for trade repositories to publicly disseminate derivatives transaction data has been delayed to January 16, 2017 (from July 29, 2016) in order to allow firms and trade repositories to develop the infrastructure needed to comply with the final rule.

With respect to the timeframe imposed on a trade repository to publicly report the trade data once received, the final trade reporting rules adopt the CFTC's execution timestamp approach and now require the trade data to be disclosed 48 hours after the trade is executed. This change fixes the issues raised by market participants that the timing convention previously proposed, which based on the time the TR received the data rather than when the transaction was executed, had the unintended consequence of incentivising reporting counterparties to delay trade data reporting.

Note that with respect to block trading, the execution timestamp is the date the trades are allocated, not execution of the block trade. 

Legal Entity Identifiers – Alternative Identifiers Can Be Used

The OSC, AMF and MSC will also amend the provisions of the trade reporting rule dealing with legal entity identifiers.  All eligible local counterparties (other than individuals) are under a direct obligation to acquire a legal entity identifier (LEI).  However, there are circumstances that can arise where, for example, because of data protection or privacy obstacles, it may not be possible to obtain an LEI for individuals or other counterparties. The final proposed amendments include provisions to ensure that if a counterparty is not eligible to receive a LEI, the reporting counterparty and the trade repository can identify such a counterparty with an alternate identifier. Corresponding revisions were also made to the data fields at Appendix A, which lists the information the reporting counterparty is required to provide to a trade repository.

Bilateral Compression Exercises Are Now Also Exempt

The final amendments to the rules also expanded the exemption from the public disclosure requirement provided for multilateral portfolio compression exercises – a post-trade processing and netting mechanism that allows the removal of an offsetting exposure by replacing multiple contracts with a smaller contract of decreased notional value – to also include transactions involving bilateral compression exercises.

For further information, please see the OSC Notice of Amendment, the MSC Notice 2016-22, and the AMF Notice of Amendment. 

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.