On January 30th, the Office of the Superintendent of Financial Institutions (OSFI) issued the final version of its revised Guideline B-7 – Derivatives Sound Practices. A draft revised Guideline had previously been released for comment on October 1, 2014. No material changes have been made in the final Guideline. In our posting of November 1, 2014, we provided more detail about the chnages that were being introduced through the new Guideline.
Although the final version of the Guideline was just released, banks and insurers were expected to comply with the draft Guideline since November 1, 2014. A new feature of both the draft Guideline and the final Guideline is a requirement that banks and insurance companies report their derivatives transactions following the applicable derivatives data reporting requirements adopted by the provinces. As these requirements when into force in some provinces on October 31, 2014, OSFI required compliance with the draft Guideline even while it was awaiting comments on the draft to avoid any confusion about the application of these reporting requirements to OSFI regulated institutions.
The Guideline also requires that banks and insurers support efforts to move OTC derivative trading to organized electronic platforms. In that vein, on January 29th, the Canadian Securities Administrators (CSA) published for comment draft rules respecting derivatives trading facilities (DTF). A DTF is defined in the proposed rule as a facility or market that brings together buyers and sellers of OTC derivatives, brings together the orders of multiple buyers and multiple sellers, and uses methods under which the orders interact with each other and the buyers and sellers agree to the terms of trades. The CSA paper recommends that the provinces do further work to determine the derivatives that should be mandated to trade on a DTF based on a review of trading and clearing data and factors such as whether the class of OTC derivatives is: subject to a clearing mandate, sufficiently liquid and standardized, subject to a similar trading mandate in other jurisdictions, or already trading through the facilities of a DTF or foreign trading platform.
The comment period on the proposed DTF rules expires on March 30, 2015. However, it is expected to be some time before all of the related issues are addressed and a rule for regulating DTFs comes into effect.
For a link to the final Guideline click here.
A link to the CSA paper can found here.