On July 25, 2024, the Canadian Securities Administrators (CSA) published final amendments (Amendments) to the over-the-counter (OTC) derivatives trade reporting rules applicable in each province and territory (including OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the Ontario TR Rule) and their related Companion Policies (collectively, the Provincial Trade Reporting Rules)).
The CSA developed the Amendments in response to coordinated international efforts to streamline and harmonize derivatives data reporting standards across global jurisdictions.
The CSA published the initial proposal for the Amendments on June 9, 2022, with a comment period ending October 7, 2022. Please see our discussion of this proposal in our July 2022 Blakes Bulletin: Canadian Securities Administrators Propose Amendments to OTC Derivatives Trade Reporting Rules.
Changes From the Amendments as Proposed
The Amendments depart from the June 2022 proposal in a number of ways, including the following notable changes:
- Implementation period: The Amendments will come into force on July 25, 2025. The CSA acknowledges that a one-year implementation period will temporarily result in different data standards in different global jurisdictions, but states the Transition Notice referred to below is intended to mitigate this impact.
- Further harmonization of the definition of a "local counterparty": OTC derivatives transactions are required to be reported to a designated trade repository where they involve a Canadian "local counterparty." The Amendments further harmonize the definition of "local counterparty" across the Provincial Trade Reporting Rules (although, in practice, the "local counterparty" definition is already substantially harmonized across the Canadian jurisdictions).
- Extended reporting deadline for OTC derivatives between non-dealers: The CSA has extended the reporting deadline to T+2 for creation data and lifecycle event data for reporting counterparties that are not derivatives dealers, clearing agencies or affiliates of these entities. The CSA has also harmonized the concept of "affiliated entity" under the Provincial Trade Reporting Rules to align with National Instrument 93-101 Derivatives: Business Conduct. This aligns the scope of the inter-affiliate reporting exemption across the Provincial Trade Reporting Rules for derivatives where both counterparties are non-dealers.
- Reporting hierarchy in Ontario: The reporting hierarchy in the Ontario TR Rule determines which counterparty (or counterparties) to an OTC derivatives transaction involving an Ontario local counterparty is required to report the transaction. The existing Ontario hierarchy has been adjusted, including to provide that a "financial derivatives dealer" will always be the reporting counterparty when transacting with a "non-financial derivatives dealer." In addition, for derivatives between either two non-financial derivatives dealers or two non-dealers, the parties will be permitted to specify in a written agreement which counterparty has the reporting requirement.
- Notice to the regulators of significant errors and omissions: The regulators have provided detailed Companion Policy guidance on their expectations for notifying the regulators after discovering a significant error or omission with respect to derivatives data reporting. In particular, the Companion Policy states that the regulators "consider a significant error or omission to be an error or omission that, due to its scope, type or duration, or due to other circumstances, may impair the ability" of the securities regulatory authority to "fulfill its mandate" and provides detailed guidance regarding how market participants should consider the scope, type, duration and "other circumstances" factors in determining whether an error or omission is of sufficient significance to trigger the self-reporting requirement. The Companion Policy also provides guidance on the meaning of "as soon as practicable after discovery," which is the timeframe within which the Provincial Trade Reporting Rules require significant errors and omissions to be self-reported to the regulators.
- Porting derivatives to a different designated data repository: The Provincial Trade Reporting Rules now provide a process for a reporting counterparty to transfer to a different designated trade repository.
- Position reporting: In June 2022, the CSA had proposed allowing reporting counterparties to report lifecycle event data, valuation data and collateral and margin data (referred to as "position level data") with respect to contracts for difference on an aggregated basis as a netted aggregate of multiple derivatives that have identical contract specifications, rather than separately for each derivative. In the Amendments as finalized, the CSA is extending this option to commodity derivatives to the extent such derivatives are part of a fungible class of derivatives. Reporting counterparties must still report creation data separately for each derivative.
- Updates to data elements: The CSA has removed proposed data elements that relate to excess collateral, which do not align with data elements required by the CFTC. Also, to reflect recent updates to global standards, the CSA added certain IOSCO-endorsed "critical data elements" to provide more specificity and clarity to certain fields and to account for data that is not included in the unique product identifier.
- Harmonized hierarchy for assigning the unique transaction identifier (UTI): The CSA has introduced a harmonized hierarchy to determine which counterparty is required to assign the UTI and to whom it is required to be transmitted.
- Requirements that apply to derivatives trading facilities: As proposed, the Amendments require derivatives trading facilities (DTFs) to report derivatives that are anonymously executed by a Canadian local counterparty and that are intended to be cleared through a recognized or exempt clearing agency. In the final version of the Amendments, the CSA has tailored the data elements that DTFs are required to report and provided them with additional time to determine whether a participant or its customer is a local counterparty.
Reporting counterparties may continue to refer to CSA Staff Notice 96-303 Derivatives Data Reporting Transition Guidance (Transition Notice) published on November 10, 2022 regarding compliance with trade reporting requirements during the current transition period prior to the Amendments coming into force on July 25, 2025. This Transition Notice permits reporting counterparties to coordinate compliance with the U.S. Commodity Futures Trading Commission's (CFTC) swap data reporting rules. Please see our discussion of the Transition Notice in our December 2022 Blakes Bulletin: CSA Provides Derivatives Data Reporting Transition Guidance and the OSC Established New Fee for OTC Derivatives Market Participants.
New CSA Derivatives Data Technical Manual
A new CSA Derivatives Data Technical Manual has been created to inform market participants on how to consistently report in accordance with the Provincial Trade Reporting Rules. The technical manual includes guidance on administrative matters, such as the format and values for reporting in line with international data standards, together with examples.
While the CSA had proposed four distinct draft technical manuals for each of the Provincial Trade Reporting Rules, after consulting with market participants, the CSA has instead published a single technical manual applicable in all Canadian jurisdictions to reduce regulatory burden and promote consistent reporting.
Additional Developments: Blanket Exemptions From NI 93-101
Also on July 25, 2024, the CSA published Coordinated Blanket Order 93-930 Re Temporary exemptions for derivatives firms from certain obligations when transacting with certain investment funds and for senior derivatives managers from certain reporting obligations(Blanket Order). The Blanket Order addresses the following two matters from National Instrument 93-101 Derivatives: Business Conduct (NI 93-101):
- Relief from Senior Derivatives Manager Compliance Report for 2024: The Blanket Order permits senior derivatives managers of derivatives dealers to wait until 2025 to first issue their annual Senior Derivatives Manager Compliance Reports to the derivatives dealer's board of directors, so long as the derivatives dealer complies with all other applicable provisions of the Business Conduct Rule and the period from September 28, 2024 to December 31, 2024 is covered by the 2025 annual report.
- Treatment of certain investment funds: The Blanket Order exempts derivatives firms from certain requirements in NI 93-101 when transacting with an investment fund managed or advised by a foreign fund manager or adviser that is considered to be the equivalent of a Canadian registered or authorized investment fund manager or adviser. This exemption enables derivatives firms to treat such investment funds as "eligible derivatives parties" for the purposes of compliance with NI 93-101.
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