A clearing agency is a person or company that facilitates the clearing and settlement of trades. Its function is to:
- act as an intermediary in paying funds or delivering securities;
- provide centralized facilities for the clearing and settlement of trades; or
- provide centralized facilities as a depository of securities.
For the full definition, please see Section 1(1) of the Securities Act (Ontario).
Section 21.2 of the Securities Act (Ontario) prohibits clearing agencies from carrying on business in Ontario unless they are recognized by the Commission as a clearing agency or are exempt from the requirement to be recognized by order of the Commission. An application for recognition as a clearing agency should be filed through the OSC's electronic filing portal. National Instrument 24-102 Clearing Agency Requirements (NI 24-102) sets out the framework for the recognition or exemption of all clearing agencies seeking to carry on business in a Canadian jurisdiction. As described in the NI 24-102, the OSC will assess an application for recognition or exemption based on a variety of factors, including but not limited to:
- rules and rulemaking;
- systems and technology;
- access standards;
- financial viability and reporting;
- risk management;
- operational reliability;
- protection of assets;
- outsourcing; and
- information sharing and regulatory cooperation.
The OSC may also impose terms and conditions on the recognition or exemption of the clearing agency.
A clearing agency is required to comply with the relevant requirements of NI 24-102, as well as terms and conditions imposed by the OSC resulting from recognition or exemption from recognition. In particular, NI 24-102 adopts international standards set out in the April 2012 report Principles for financial market infrastructures published by the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).
Depending on the functions performed by a clearing agency, it may also be subject to various requirements of Ontario securities law, including National Instrument 24-101 Institutional Trade Matching and Settlement (NI 24-101) and National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101). Some of these requirements include:
- Delivering to the OSC aggregate and individual institutional trade matching statistics on Form 24-101F2 no later than 30 days after the end of a calendar quarter.
- Implementing rules, instruments and procedures that are consistent with the institutional trade matching and settlement requirements of NI 24-101.
- Facilitating the process for reporting issuers to communicate with, and send materials to, beneficial owners of securities under NI 54-101.
The OSC oversees the compliance of a clearing agency with regulatory requirements. As part of its oversight, the OSC may review required filings and proposals for amendments to by-laws, rules and policies of the clearing agency, and may perform on-site oversight reviews. The OSC also oversees a recognized clearing agency’s compliance with the automation review program.
The OSC coordinates its oversight of regulated clearing agencies with regulatory partners in the CSA and the Bank of Canada. The OSC has entered into a memorandum of understanding with the Bank of Canada, Autorité des marchés financiers du Québec, and the British Columbia Securities Commission (the BOC MOU). The main objective of the BOC MOU is to promote the safety and efficiency of clearing and settlement systems in a consistent and coordinated fashion. Specifically, the BOC MOU will enhance and formalize the cooperation and coordination among regulators to improve the efficiency and effectiveness of their oversight of commonly regulated clearing and settlement systems and to ensure consistency in their regulation to reduce regulatory burden; the BOC MOU will also promote information sharing. The BOC MOU came into effect on June 9, 2014.
Clearing agencies either recognized or exempted from recognition by the OSC for operation in Ontario:
- Canadian Depository for Securities Limited (CDS) (recognized)
- Canadian Derivatives Clearing Corporation (recognized)
- Chicago Mercantile Exchange Inc. (exempted)
- CLS Bank International (exempted)
- CME Clearing Europe Limited (exempted)
- FundSERV Inc. (recognized)
- ICE Clear Canada, Inc. (exempted)
- ICE Clear Credit LLC (exempted)
- LCH.Clearnet Limited (recognized)
- LCH.Clearnet LLC (exempted)
- Nodal Clear LLC (interim exemption)
- Omgeo Canada Matching Ltd. (exempted)
- Options Clearing Corporation (exempted)
- SS&C Technologies Canada Corp. (exempted)
For more information:
- National Instrument 24-102 Clearing Agency Requirements
- CPMI-IOSCO - Principles for financial market infrastructures - Final version, April 2012
- National Instrument 24-101 Institutional Trade Matching and Settlement
- National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer