Offers the amendments aim to reduce regulatory burden by aligning over-the-counter (OTC) derivatives data reporting requirements with international standards developed by the Committee on Payments and Market Infrastructures (CPMI) and the Organization International Commission of Securities Commissions (IOSCO) while simultaneously improving data quality and consistency.
THE SC recently announced proposed amendments to the various multilateral instruments, rules, regulations, notices to staff and related policies in place in CSA jurisdictions dealing with trade repositories and derivatives data reporting (trade reporting rules) and product determination derivatives (rules for determining products). The proposed changes can be found on each CSA Membership Website. The CSA anticipate that improved data quality will improve monitoring of the emergence of risks affecting the stability of local capital markets, the identification of challenges to market efficiency, the identification of opportunities to strengthen and to increase market competitiveness and policy development, and market surveillance for market manipulation and other fraudulent business activity.
Harmonized data elements
Proposed changes to trade reporting rules to align data elements with global standards include:
- a new hierarchy to determine which entity is responsible for generating a unique identifier for each transaction;
- require a reporting counterparty to identify a transaction by means of a unique identifier for each product;
- changing data element descriptions to match global standards and removing certain data element fields, including “other details”; and
- a draft Derivatives Data Technical Handbook, also released for comment, which aims to provide clarity to market participants on the format and reporting values of derivatives data.
Other proposed changes to transaction reporting rules and revenue determination rules include the following:
- Affiliated entities – the interpretation of “affiliated entity” is proposed to correspond to National Instrument 93-101 Derivatives: Business Conduct (Proposition 93-101) and would cover limited partnerships and trusts through the inter-affiliate transaction exclusion for non-dealers under the transaction reporting rules.
- Trade repository governance – updated requirements for the governance, operations and risk management of trade repositories include the addition of a new section clarifying the responsibilities of a designated trade repository, and a new section requiring that a trade repository designated central maintains controls to manage risks arising from networks that link various entities, such as electronic networks.
- Identity of the counterparty – a new article prohibits the disclosure of the identity of a counterparty to an anonymous transaction executed on a derivatives trading system and intended to be cleared to users of the recognized trade repository.
- Data validation – to ensure that the required data elements are reported, recognized trade repositories will be responsible for ensuring that derivatives data is valid in accordance with the required data elements and will be required to maintain records of reported data that do not meet validation procedures.
- Data verification – all reporting counterparties will have an obligation to ensure that derivatives data reported is accurate and free from misrepresentation and to establish policies and procedures to enable reporting counterparties to meet their obligations. In addition, certain reporting counterparties, including registered dealers, Canadian financial institutions or reporting clearinghouses will be required to verify data accuracy monthly.
- Legal identifier – the requirement for reporting counterparties to obtain, maintain and renew a legal identifier will be extended to apply to all reporting counterparties (local and non-local), including foreign derivatives dealers and clearing houses regulated or exempted.
- Item level data – instead of reporting lifecycle events separately for each transaction, reporting counterparties will be allowed to report aggregate data at the position level in certain circumstances.
- Data on guarantees and margins – certain reporting counterparties would be required to report collateral and margin data each business day until a trade is terminated or expires and new data elements relating to collateral and margin data are offered.
- Derivatives trading system – given its ability to determine the identity of the two counterparties, a derivatives trading system could be required to report transactions involving local counterparties executed anonymously and intended to be cleared.
- Reduced burden for non-dealers – monthly data verification and reporting requirements for valuation, collateral and margin data will not apply to non-traders. In addition, the reporting threshold for physical commodity transactions will be harmonized across all CSA jurisdictions and reporting would not be required for a local non-dealer counterparty whose aggregate gross notional amount outstanding at month end is less than 250 C$000,000.
- Definition of “local counterpart” – the addition of natural persons to the definition of “local counterparty” has been proposed, resulting in a reporting obligation for foreign derivatives traders who deal with natural persons.
- Definition of “derivatives dealer” – a proposed updated definition of “derivatives dealer” aligned with Draft 93-101, goes beyond the “trade trigger” test for whether the person or company is engaging or representing itself as engaging in derivatives trading activities to more broadly include “any other person or company required to be registered as a derivatives dealer under securities legislation”.
- Changes to Product Determination – clarification that certain crypto assets that are also “financial commodities” do not fall under the commodity exclusion in the product determination rules and therefore must be reported under the transaction reporting rules.
- Substituted compliance – foreign jurisdictions’ transaction reporting regimes that are equivalent for the purposes of the presumptive compliance provision will be updated to reflect the current equivalent transaction reporting laws of the European Union and to add equivalent transaction reporting laws from the United Kingdom. Compliance by substitution will continue to be limited and subject to certain conditions.
Transition periods and implementation
Commodity Futures Trading Commission amendments to harmonize global trade reporting standards set by the joint CPMI and IOSCO task force are scheduled to come into effect in phases on December 31, 2022 and December 31, 2023. CSA jurisdictions provide for finalize and implement proposed changes to trade reporting rules and revenue determination rules in 2024. CSA develop guidance for interim transition period during which reporting counterparties will be subject to new standards global in some territories, but not in others.
The CSA accept comments until October 7, 2022.