Yesterday the CSA published for comment a Consultation Paper proposing
a framework for margin requirements on non-centrally cleared
derivatives. The invitation to provide comments on the proposal
ends September 6, 2016.
The requirements under the Consultation Paper are based on the
minimum standards for margin requirements for non-centrally cleared
derivatives developed by the Basel Committee on Banking Supervision
(BCBS) and the International Organization for Securities Commission
(IOSCO) (the BCSBS-IOSCO Standards)
that apply to certain financial entities and systemically important
non-financial entities. The CSA has also stated that the proposed
framework is largely consistent with OSFI Guideline E-22 on
Margin Requirements for Non-Centrally Cleared Derivatives
applicable in Canada to federally regulated financial institutions
(FRFIs). FRFIs will not be subject to the proposed framework
(although FRFI's are included in the definition of
"financial entities" for the purpose of defining
the "covered entities" with which a counterparty
that is not a FRFI will be required to exchange margin).
Under the proposed framework, all "covered entities"
that trade non-centrally cleared derivatives will be required to
exchange margin where the other counterparty is also a covered
entity. A "covered entity" is defined as a
financial entity whose aggregate month-end average notional amount
outstanding in non-centrally cleared derivatives exceeds $12
billion dollars. In general, this threshold will be calculated on a
corporate group basis and excludes intragroup transactions. The
proposed definition of "financial entity" covers, among
others, cooperative credit associations, banks, loan companies,
trust companies, insurance companies, credit unions, caisses
populaires, pension funds, investments funds and both registered
and exempt dealers that trade derivatives.
Other key elements of the CSA's proposed framework include,
among other things, a discussion about the following:
the scope of derivatives that will be subject to the margin
the minimum amount of initial and variation margin that will
need to be collected for non-centrally cleared derivatives,
including the methodologies by which that minimum baseline amount
would be calculated;
the collateral that will be eligible to be used to for margin
purposes, including appropriate haircuts;
the treatment of collateral, including segregation requirements
for initial margin and standards imposed on rehypothecating
the treatment of transactions with affiliates.
Stay tuned for our follow-up analysis on the proposed
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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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