Canadian OTC clearing mandate set for April

Mandatory clearing of OTC derivatives will come into force in Canada from April this year.

The Canadian Securities Administrators (CSA) will introduce mandatory clearing for over-the-counter (OTC) derivatives trading in Canada in April this year.

The rules are part of Canada’s ongoing contribution to the implementation of reforms to the global OTC derivatives markets in line with the G20 commitments.

From 4 April, counterparties will be required to clear certain standardised OTC derivatives through a central counterparty clearing agency, subject to specified exemptions. 

The second ruling, coming into force on 3 July, is designed to protect a local customer’s positions and collateral when clearing OTC derivatives. 

The latter instrument is also designed to improve clearing agencies’ resilience to default by a clearing intermediary. 

The collateral rules also include requirements related to the segregation and portability of customer collateral and positions as well as detailed record-keeping, reporting and disclosure requirements.

“These national instruments are designed to align with international standards and provide safeguards in the Canadian market for counterparties transacting in OTC derivatives, while fostering a flexible and competitive market for clearing service providers,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers. 

Similair central clearing rules came into force in Europe in summer 2016, following the US implementation through Dodd-Frank back in 2013.

In response to comments received during the most recent consultation periods, both national instruments provide certain exemptions for foreign entities that comply with similar laws of the US or EU. 

The CSA has collaborated with the Bank of Canada, the Office of the Superintendent of Financial Institutions, the Department of Finance Canada and market participants on the national instruments.