Canada: Margin And Collateral Requirements For Non-Centrally Cleared Derivatives – Consultation Paper

Last Updated: July 25 2016
Article by Carol E. Derk, Melanie Bradley and Michelle M. Wilkinson

Most Read Contributor in Canada, November 2017

On July 7, 2016, the Canadian Securities Administrators (the "CSA") published for comment CSA Consultation Paper 95-401 — Margin and Collateral Requirements for Non-Centrally Cleared Derivatives (the "Consultation Paper"). The Consultation Paper proposes a framework that will require the exchange of initial and variation margin to secure the performance of non-centrally cleared over-the-counter derivatives ("OTC Derivatives") for certain counterparties. The recommendations in the Consultation Paper are intended to be broadly consistent with international standards and harmonized with the Office of the Superintendent of Financial Institutions' margin requirements for federally regulated financial institutions (the "OSFI Guidelines").

The complete Consultation Paper is available here. The comment period for the Consultation Paper ends on September 6, 2016.

Scope of Derivatives and Entities Covered

Initial and variation margin requirements will apply to all OTC Derivatives that are derivatives for purposes of the product determination rules in effect in the Canadian provinces and territories, other than derivatives cleared through a central counterparty. Further, apart from the interest rate component of cross-currency swaps, physically settled foreign exchange ("FX") forwards and FX swaps will be excluded from the initial margin requirement (but not the variation margin requirement).

The requirement to exchange margin will only apply where both counterparties to an OTC Derivative are "covered entities". Covered entities will be financial entities that have an aggregate month-end average notional amount under all outstanding OTC Derivatives, calculated on a corporate group basis, but excluding intragroup transaction, of more than $12,000,000,000. Financial entity will be defined to include cooperative credit associations, central cooperative credit societies, banks, loan corporations, loan companies, trust companies, trust corporations, insurance companies, treasury branches, credit unions, caisses populaires, financial services cooperatives, pension funds, investment funds and any person or company that is subject to registration or exempted from registration under securities legislation of any province or territory of Canada. The Consultation Paper clarifies that investment funds that are managed by a portfolio manager or adviser are considered distinct entities that are treated separately for purposes of the threshold, provided that the funds are distinct legal entities that are not collateralized or otherwise guaranteed or supported by other investment funds, the portfolio manager or the adviser in the event of insolvency or bankruptcy. While we are certain that investment funds established as trusts or partnerships are meant to be treated separately, the requirement that these funds be distinct legal entities is problematic, as neither trusts nor partnerships are legal entities.

Margin Requirements

The Consultation Paper provides that initial margin can be calculated using either a quantitative margining model or a standardized schedule. There are two important thresholds that will apply to the margin requirements: the $75,000,000 threshold and the $750,000 transfer threshold. Under the $75,000,000 threshold, covered entities will not be required to exchange initial margin if the total amount of initial margin required to be delivered by the covered entities under all OTC Derivatives, determined on a consolidated group basis, is less than $75,000,000. If a covered entity exceeds the $75,000,000 threshold, then only the initial margin that is over $75,000,000 is required to be exchanged. The $750,000 transfer threshold allows a covered entity not to deliver initial or variation margin if the sum of the initial and variation margin required to be delivered by the covered entity is less than $750,000. However, unlike the $75,000,000 threshold, if the total margin amount is above $750,000, the entire amount must be delivered. Covered entities will be expected to determine variation margin using a mark-to-market method if recently transacted price data from independent sources is available. However, independently certified alternative methods to value derivatives when price data is unreliable or unavailable will be permitted. Covered entities will need to put into place agreements that address the key aspects of the margin arrangements and provide for a dispute resolution mechanism.

Eligible Collateral

Assets to be delivered as collateral should be highly liquid, be able to hold their value in a time of financial stress, not be highly correlated with the creditworthiness of the counterparty or the value of the derivative, and have quoted prices that are reasonably accessible to the public. A non-exhaustive list of certain acceptable assets is set out in the Consultation Paper and includes cash, gold, certain types of debt securities (government, specified international banking organizations and rated corporates), certain mutual funds, and equities included in major Canadian stock indices. The collateral received as initial margin must be segregated from the covered entity's own assets (though collateral can be comingled with other counterparties' collateral) and may be rehypothecated only in limited circumstances. Records must be maintained to facilitate the identification and timely return of collateral in the event of a default.

Exemptions and Substituted Compliance

The Consultation Paper provides for a number of proposed exclusions and substituted compliance. For example, affiliated entities where both entities are prudentially supervised on a consolidated basis or the entities prepare their financial statements on a consolidated basis in accordance with specified accounting principles will be exempt. In addition, derivative parties that enter into trades with financial institutions that are subject to the OSFI Guidelines will satisfy the requirements if they exchange margin in accordance with the OSFI Guidelines. In addition, entities subject to compliance with rules imposed by a regulatory authority in a foreign counterparty's home jurisdiction that are assessed to be equivalent to these margin requirements and that meet the BCSC-IOSCO standards will be exempt.

Contact Us

If you have any questions about the Consultation Paper, please contact the authors of this alert or any other member of the BLG Derivatives Group. BLG is ranked as the Number One Law firm in Canada for Derivatives by Derivatives Weekly and was named Canada Law Firm of the Year at Global Capital's Americas Derivatives Awards for the years 2014, 2015 and 2016. BLG's Derivatives Group is a multi-disciplinary team of lawyers that cuts across several of our practice groups. The team is experienced in negotiating derivatives documentation with sell-side and buy-side market participants around the world. Our clients include financial institutions, investment dealers, futures commission merchants, market intermediaries, securitization conduits and a wide variety of derivative end-users, such as mutual funds, hedge funds, pension funds, other investment vehicles, commodity producers, real estate firms, insurance companies, risk management firms and other corporate end-users. Our advice covers derivative structuring and document negotiation, regulatory compliance, tri-party collateral control practices and close-out issues. We also advise on compliance and registration requirements relating to derivatives in Canada.

About BLG

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.

In association with
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions