Canada finalizes OTC clearing rules
Canada is set to implement mandatory clearing for interest rate swaps and certain other OTC derivatives in April, following the finalization of two sets of rules on Jan. 19 that spell out what instruments and which entities are subject to the new requirements and strengthen the protections around customer positions and assets.
“These national instruments are designed to align with international standards and provide safeguards in the Canadian market for counterparties transacting in OTC derivatives, while fostering a flexible and competitive market for clearing service providers,” said Louis Morisset, president and CEO of the Autorité des marchés financiers in Quebec and chairman of the Canadian Securities Administrators, the umbrella organization of the market regulators in each province.
The National Instrument 94-101, known as Mandatory Central Counterparty Clearing of Derivatives, requires certain counterparties to clear certain standardized OTC derivatives through a central counterparty, subject to exemptions set out in the instrument. This rule is set to take effect on April 4 and will apply to clearinghouse members and any of their affiliates with more than $1 billion in outstanding OTC derivatives. The rule also will apply to local counterparties with more than $500 billion in outstanding OTC derivatives. The derivatives covered by the clearing mandate consist of various types of interest rate swaps and forward rate agreements denominated in U.S. dollars, euros, British pounds and Canadian dollars.
The National Instrument 94-102, known as Customer Clearing and Protection of Customer Collateral and Positions, is designed to protect a local customer’s positions and collateral when clearing OTC derivatives and to improve clearing agencies’ resilience to default by a clearing intermediary. The rule includes requirements related to the segregation and portability of customer collateral and positions as well as detailed record-keeping, reporting and disclosure requirements. This rule takes effect on July 3, upon approval.
The CSA noted that in response to comments received during the consultation process, both national instruments provide certain exemptions for foreign entities that comply with similar laws of the U.S. or the European Union.
