FIA has submitted a comment letter in response to the Canadian Derivatives Clearing Corporation’s proposed rule changes for introducing a new clearing service for proprietary equity total return swaps. While FIA supports expanding central clearing for equity-linked products, members have expressed concerns regarding CDCC’s proposed use of a shared default waterfall between TRS and existing listed derivatives (Core Products). This structure risks cross-segment contagion, exposing Core-only participants to losses from TRS activity.
FIA recommends that CDCC implements fully segregated default resources for TRS and Core Products, with clearing fund contributions and exposures ring-fenced within each segment. Additionally, FIA urges CDCC to set an adequate minimum default fund floor for the TRS segment to prevent undercapitalisation at launch. The letter also calls for increased transparency around risk modelling, stress testing and any proposed resource-sharing mechanisms.
Importantly, FIA recommends the establishment of a dedicated TRS Default Fund and a proportional increase in CDCC’s own capital (skin-in-the-game). If full segregation is not feasible, the SITG should be significantly higher to reflect the incremental risks associated with the TRS offering. These safeguards would better align with international best practices and provide greater certainty and protection for market participants.
Read the full response here.
