CSA Provides Derivatives Data Reporting Transition Guidance and the OSC Establishes New Fee for OTC Derivatives Market Participants

As global securities regulators begin to implement new, harmonized international derivatives data reporting standards, the Canadian Securities Administrators (CSA) has provided transitional guidance to over-the-counter (OTC) derivatives market participants as to how they may report in the transition period before the CSA implements such standards in Canada.

In addition, this bulletin discusses the OSC’s new participation fees for large OTC derivatives market participants, which have now been finalized.

DERIVATIVES DATA REPORTING

On November 10, 2022, the CSA published CSA Staff Notice 96-303 Derivatives Data Reporting Transition Guidance (Notice). The Notice provides guidance to market participants regarding coordinating compliance with swap data reporting rules scheduled to be implemented by the Commodity Futures Trading Commission (CFTC) in December 2022 (CFTC Amendments).

The CFTC’s rules are part of a global effort to harmonize derivatives data standards, led by the Bank of International Settlements and the International Organization of Securities Commissions. The CSA is aiming to implement comparable reporting requirements in Canada in 2024 and has published proposed amendments (CSA Proposed Amendments) to the OTC trade reporting rules currently applicable in each province and territory of Canada (Provincial Trade Reporting Rules).

Accordingly, there will be a period from December 2022 until the CSA Proposed Amendments are implemented where reporting counterparties may be subject to reporting requirements under the CFTC Amendments that are not applicable or differ from the requirements of the Provincial Trade Reporting Rules (Transition Period).

For a summary of the CSA Proposed Amendments, please see the discussion in our July 2022 Blakes Bulletin: Canadian Securities Administrators Propose Amendments to OTC Derivatives Trade Reporting Rules.

Transition Period Guidance

CSA Staff has provided reporting guidance during the Transition Period in three scenarios.

First, where derivatives data is reportable under the current Provincial Trade Reporting Rules, and where analogous data is required to be reported under the CFTC Amendments, market participants may comply with the Provincial Trade Reporting Rules by reporting that data according to the corresponding CFTC requirements (assuming such reporting is supported by the relevant trade repository). For example, a reporting counterparty that is reporting data in relation to the data element “Counterparty side” can comply with the Provincial Trade Reporting Rules by reporting that data under the CFTC data element “Buyer identifier”, “Seller identifier”, “Payer identifier” or “Receiver identifier”, as applicable, notwithstanding that the description of the data element under the Provincial Trade Reporting Rules is not identical to the CFTC’s definition for these data elements.

Second, where derivatives data is reportable under the CFTC Amendments but is not reportable under the current Provincial Trade Reporting Rules, such data continues not to be reportable under the current Provincial Trade Reporting Rules. However, market participants may, at their option, report such data if the relevant data element has been proposed in the CSA Proposed Amendments (again assuming that reporting is supported by the relevant trade repository). For example, daily margin data, which is required under the CFTC Amendments, is not currently reportable under the current Provincial Trade Reporting Rules but is proposed to be required under the CSA Proposed Amendments.

Third, where derivatives data is reportable under the current Provincial Trade Reporting Rules, but is not reportable under the CFTC Amendments, this data continues to be reportable under the Provincial Trade Reporting Rules. For example, the jurisdiction of a “local counterparty” under the current Provincial Trade Reporting Rules continues to be reportable during the Transition Period.

OSC ESTABLISHES NEW FEE FOR OTC DERIVATIVES MARKET PARTICIPANTS

On November 23, 2022, the OSC published finalized amendments to OSC Rule 13-502 Fees (Fee Amendments), which will impose annual participation fees on certain large derivatives market participants. The finalization of the Fee Amendments follows a consultation process commenced in January 2022. Please see our February 2022 Blakes Bulletin: CSA Restarts Canadian Derivatives Regulatory Project and Issues a Revised Business Conduct Rule Proposal for more information on the proposals.

The OSC made two key changes to the initially proposed Fee Amendments in response to comments received from market participants. The changes aim to reduce the regulatory burden of the initial proposals by (i) requiring derivatives participation fee payers to determine their average outstanding notional amounts on a quarterly basis, rather than daily, and (ii) providing derivatives participation fee payers the option to calculate the first derivatives participation fee payment due on August 29, 2023, based solely on their outstanding notional amount as at June 30, 2023, rather than on an average quarterly basis. Otherwise, the new annual fee will be based on the fee payer’s average quarterly notional amount outstanding during the relevant one-year fee period of all derivative transactions that are required to be reported to a designated trade repository under OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC Rule 91-507). No fee will be payable (1) by a market participant if its average outstanding notional for the relevant one-year fee period is under C$3-billion, (2) by an entity that has not been a reporting counterparty (as defined in OSC Rule 91-507) during the one-year fee period or (3) by a recognized or exempt clearing agency.

The average notional amount tiers and annual participation fees are set out below:
 

Average Quarterly Notional Amount Outstanding during Derivatives Fee Year (in C$)	Participation Fee (in C$)
Under $3-billion	$0
$3-billion to under $7.5-billion	$3,000
$7.5-billion to under $15-billion	$7,500
$15-billion to under $50-billion	$15,000
$50-billion to under $100-billion	$50,000
$100-billion to under $300-billion	$100,000
$300-billion to under $500-billion	$200,000
$500-billion to under $1-trillion	$450,000
$1-trillion to under $4-trillion	$750,000
$4-trillion to under $10-trillion	$1.35-million
$10-trillion and over	$1.9-million

 
As part of the Fee Amendments, the OSC expects to reduce existing capital markets participation fees and a number of activity and late fees by a total of approximately C$5.6-million. The Fee Amendments are expected to come into force on April 3, 2023.

For further information on any current market developments and regulatory initiatives, please contact:

Stephen Ashbourne    +1-416-863-3086
Chris Barker                +1-416-863-2710
Aaron Palmer              +1-416-863-4227
Tim Phillips                 +1-416-863-3842
Michael Hayes            +1-416-863-5826
 
or any other member of our Derivatives group.