The Canadian Securities Administrators (CSA) is seeking input from the financial industry and the public on proposed changes to the regulation of over-the-counter (OTC) derivatives.

The proposals were today released in CSA Consultation Paper 91-401 – Over-the-Counter Derivatives Regulation in Canada.

The proposals come in response to commitments made by the G20 to develop more robust oversight of the financial markets, including OTC derivatives.

“As an active participant in the global financial markets, it is fundamental for Canada to respect its G20 commitments” said Jean St-Gelais, chair of the CSA and president and CEO of the Autorité des marchés financiers (Quebec). “The comments received from this consultation will help the CSA to develop appropriate legislative and regulatory proposals for Canada’s OTC derivatives markets.”

Following the 2009 summit in Pittsburg, the G20 issued a communiquéé, calling recommending:

• All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.

• OTC derivative contracts should be reported to trade repositories.

• Non-centrally cleared contracts should be subject to higher capital requirements.

The CSA is encouraging the public to comment on the consultation paper’s recommendations generally and to respond to specific issues raised in the paper, including:

• mandatory reporting of all derivatives trades by Canadian counterparties to a trade repository;

• Provincial regulators obtain regulatory authority to mandate electronic trading of OTC derivative products in the near term. Such power should, in time, only be used to mandate the electronic trading of those products which are capable of being traded on an organized trading platform (e.g. products which are sufficiently standardized and liquid) and which pose a systemic risk to the market;

• the mandatory central clearing of OTC derivatives that are determined to be appropriate for clearing, and capable of being cleared;

• the use of a risk-based approach by imposing capital and collateral requirements to reflect appropriately the risks that an entity assumes; and,

• exemptions from the regulatory proposals outlined in this paper for defined categories of end-users.

The comment period for the consultation paper is open until January 14, 2011.


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