CANADA: Canadian Securities Administrator Seek Comments on Rules Protecting Customer Collateral for Cleared Derivatives

Friday January 22 2016

On 21st January 2016, members of the Canadian Securities Administrators (CSA) published for comment Proposed National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Positions and Collateral and its companion policy (the proposed instrument).

The proposed instrument sets out requirements for the treatment of customer collateral, record-keeping and disclosure for clearing intermediaries and regulated clearing agencies providing clearing services for over-the-counter (OTC) derivatives.

The purpose of the proposed instrument is to ensure that the clearing of customer OTC derivatives transactions will be carried out in a manner that protects customers’ collateral and positions and to improve clearing agencies’ resilience to default by a clearing intermediary.

The proposed instrument contains requirements for the treatment of customer collateral by clearing intermediaries and regulated clearing agencies, including:

• requirements relating to collection and segregation of customer collateral; 
• record-keeping requirements to identify customers’ collateral and positions and 
• restrictions on the use and investment of customer collateral. Further, the proposed instrument creates a framework for customer clearing that promotes stability and efficiency of the OTC derivatives market by facilitating, to the greatest extent possible, the transfer of customer positions and collateral in the event of a clearing intermediary’s default or insolvency.

Currently, OTC derivatives clearing infrastructure and service providers are concentrated outside of Canada; the proposed instrument would provide for substituted compliance in specified circumstances where a foreign entity is involved in a transaction and appropriate foreign laws apply.

Click on the link above for further details.