Proposed amendments are intended 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 International Organization of Securities Commissions (IOSCO) while simultaneously improving data quality and consistency.
The CSA recently announced proposed amendments to the various multilateral instruments, rules, regulations, staff notices, and companion policies in place in the CSA jurisdictions dealing with trade repositories and derivatives data reporting (Trade Reporting Rules) and derivatives product determination (Product Determination Rules). Proposed amendments can be found on each CSA members’ website. The CSA anticipate that enhanced data quality will improve oversight of the emergence of risks affecting the stability of local capital markets, identification of challenges to market efficiency, identification of opportunities to strengthen and increase market competitiveness and policy development, and monitoring markets for market manipulation and other fraudulent trading activity.
Harmonized Data Elements
Proposed amendments to the Trade Reporting Rules to harmonize data elements with global standards include:
- a new hierarchy to determine which entity is responsible for generating a unique identifier for each transaction;
- requiring a reporting counterparty to identify a transaction through 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 Manual, also being published for comment, that is intended to provide clarity to market participants on the format and values for reporting derivatives data.
Other proposed changes to the Trade Reporting Rules and Product Determination Rules include the following:
- Affiliated Entities – the interpretation of “affiliated entity” is proposed to match National Instrument 93-101 Derivatives: Business Conduct (Proposed 93-101) and would cover limited partnerships and trusts through the inter-affiliate transaction exclusion for non-dealers under the Trade Reporting Rules.
- Trade Repository Governance – updated requirements for trade repository governance, operations and risk management include the addition of a new section clarifying the responsibilities of a designated trade repository, and a new section requiring a designated trade repository to maintain controls to manage risk arising from networks that link various entities, such as electronic networks.
- Counterparty Identity – a new section prohibits the disclosure of the identity of a counterparty to an anonymous transaction executed on a derivatives trading facility and intended to be cleared to the users of the recognized trade repository.
- Data Validation – to ensure required data elements are reported, recognized trade repositories will be responsible for ensuring derivatives data is valid in accordance with required data elements, and will need to maintain records of reported data that fails to meet validation procedures.
- Data Verification – all reporting counterparties will have the obligation to ensure that reported derivatives data is accurate and free from misrepresentation and to establish policies and procedures that enable reporting counterparties to meet their obligations. Furthermore, certain reporting counterparties, including registered dealers, Canadian financial institutions or reporting clearing houses will need 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 regulated or exempt clearing agencies.
- Position Level Data – instead of reporting lifecycle events separately for each transaction, reporting counterparties will be permitted to report aggregate position level data in certain circumstances.
- Collateral and Margin Data – certain reporting counterparties would be required to report collateral and margin data each business day until a transaction is terminated or expires and new data elements relating to collateral and margin data are proposed.
- Derivatives Trading Facility – given its ability to determine the identity of both counterparties, a derivatives trading facility could be required to report transactions involving local counterparties that are executed anonymously and are intended to be cleared.
- Burden Reduction for Non-dealers – monthly data verification requirements and reporting of valuation, collateral and margin data will not apply to non-dealers. Furthermore, the reporting threshold for physical commodity transactions will be harmonized across CSA jurisdictions and reporting would not be required for a non-dealer local counterparty with an aggregate month end gross notional outstanding less than C$250,000,000.
- Definition of “local counterparty” – the addition of individuals to the definition of “local counterparty” has been proposed, resulting in a reporting requirement for foreign derivatives dealers who transact with individuals.
- Definition of “derivatives dealer” – a proposed updated definition of “derivatives dealer” aligning with Proposed 93-101, goes beyond the “business trigger” test of whether the person or company is engaging in or holding themselves out as engaging in the business of trading in derivatives to include more broadly “any other person or company required to be registered as a derivatives dealer under securities legislation”.
- Product Determination Changes – clarification that certain crypto assets that are also “financial commodities” do not fall within the commodity exclusion in the Product Determination Rules and are therefore required to be reported under the Trade Reporting Rules.
- Substituted Compliance – the trade reporting regimes of foreign jurisdictions that are equivalent for the purposes of the deemed compliance provision will be updated to reflect current equivalent trade reporting laws of the European Union and to add equivalent trade reporting laws of the United Kingdom. Substituted compliance will continue to be limited and subject to certain conditions.
Transition Periods and Implementation
The Commodity Futures Trading Commission amendments to harmonize global trade reporting standards set out by the CPMI and IOSCO joint working group are expected to take effect in phases on December 31, 2022 and December 31, 2023. The CSA jurisdictions expect to subsequently finalize and implement the proposed amendments to the Trade Reporting Rules and the Product Determination Rules in 2024. The CSA are developing guidance for the interim transition period where reporting counterparties will be subject to new global standards in some jurisdictions but not in others.
The CSA are accepting comments until October 7, 2022.