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ONTARIO SECURITIES COMMISSION

NOTICE OF ONTARIO SECURITIES COMMISSION RULE 91-506
DERIVATIVES: PRODUCT DETERMINATION

COMPANION POLICY 91-506CP
DERIVATIVES: PRODUCT DETERMINATION

ONTARIO SECURITIES COMMISSION RULE 91-507
TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

AND

COMPANION POLICY 91-507CP
TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING



1. Introduction

The Ontario Securities Commission (the OSC, the Commission or we) is implementing:

• OSC Rule 91-506 Derivatives: Product Determination (the Scope Rule);

• OSC Companion Policy 91-506CP Derivatives: Product Determination (the Scope CP),

• OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the TR Rule), and

• OSC Companion Policy 91-507CP Trade Repositories and Derivatives Data Reporting (the TR CP).

Collectively, the Scope Rule, the Scope CP, the TR Rule and the TR CP will be referred to as the Rules. Ministerial approvals are required for these Rules to come into force. The Rules were delivered to the Minister of Finance on October 17, 2013. The Minister may approve or reject the Rules or return them for further consideration. If the Minister approves the Rules or does not take any further action by December 16, 2013, the Rules will come into force on December 31, 2013.

2. Background

On December 6, 2012, the Canadian Securities Administrators Derivatives Committee (the Committee) published CSA Staff Consultation Paper 91-301 Model Provincial Rules -- Derivatives: Product Determination and Trade Repositories and Derivatives Data Reporting (the Draft Model Rules). The Committee invited public comment on all aspects of the Draft Model Rules. Thirty-five comment letters were received. The Committee reviewed the comments received and made determinations on revisions to the Draft Model Rules (the Updated Draft Model Rules). Based on the Updated Draft Model Rules, some of the CSA jurisdictions developed harmonized province-specific rules. On June 6, 2013 the OSC published Proposed OSC Rule 91-506 Derivatives: Product Determination; Proposed OSC Companion Policy 91-506CP Derivatives: Product Determination, Proposed OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting, and Proposed OSC Companion Policy 91-507CP Trade Repositories and Derivatives Data Reporting (the Proposed Ontario Rules). On the same date, the Autorité des marchés financiers and Manitoba Securities Commission published proposed province specific rules while the Alberta Securities Commission, the British Columbia Securities Commission, the New Brunswick Securities Commission, the Nova Scotia Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan published a multi-province consultation paper containing the Updated Model Rules (the Paper and collectively with the Proposed Ontario Rules and the Autorité des marchés financiers and Manitoba Securities Commission proposed province specific rules, the Proposed Provincial Rules). Collectively, twenty-seven comment letters were received on the Proposed Provincial Rules. A list of those who submitted comments and a chart summarizing the comments received and the Committee's responses to them are attached at Appendix "A" to this Notice. The Committee has reviewed all comment letters on the Proposed Provincial Rules and made determinations on harmonized changes to the province specific rules. Changes to the Rules are discussed further below. These Rules are the final Ontario rules.

3. Substance and Purpose of the Scope Rule and Scope CP

The purpose of the Scope Rule is to define the types of derivatives that will be subject to reporting requirements under the TR Rule. The Scope Rule will initially only apply for the purposes of the TR Rule. Any other legislation, rules, notice or other policies applicable to derivatives will continue to apply. For example, OSC Staff Notice 91-702 -- Offerings of Contracts for Difference and Foreign Exchange Contracts to Investors in Ontario would continue to apply to these types of instruments until any new rules replacing the treatment as described in the notice have been implemented.

The Scope Rule prescribes certain contracts or instruments that fall within the broad definition of "derivative" in the Ontario Securities Act (the Act), not to be derivatives. The excluded contracts are contracts that have not traditionally been considered to be over-the-counter derivatives. The Scope Rule also addresses the fact that the definitions of "derivative" and "security" in securities legislation are expansive and, in some cases, overlapping. The Scope Rule resolves conflicts that arise when a contract or instrument meets both the definition of "derivative" and the definition of "security".

4. Substance and Purpose of the TR Rule and TR CP

The purpose of the TR Rule is to improve transparency in the derivatives market and to ensure that designated trade repositories operate in a manner that promotes the public interest. Derivatives data is essential for effective regulatory oversight of the derivatives market, including the ability to identify and address systemic risk and the risk of market abuse. Derivatives data reported to designated trade repositories will also support policy-making by providing regulators with information on the nature and characteristics of the Canadian derivatives market.

The TR Rule is divided into two areas (i) regulation and oversight of trade repositories, including the designation process, data access and dissemination, and operational requirements, and (ii) derivatives data reporting requirements by counterparties to derivatives transactions.

Please note that the TR CP does not provide guidance on Appendix A to the TR Rule. Guidance for Appendix A to the TR Rule is included in the Description column of the reporting fields in Appendix A itself.

5. Summary of the Scope Rule

The Scope Rule provides guidance as to which types of contracts or instruments will be treated as derivatives or securities, or are excluded in whole or in part from regulation. The definition of "derivative" in subsection 1(1) the Act is intended to include the types of instruments traditionally referred to as derivatives (for example, swaps and forwards) as well as other novel instruments. However, the definition of "derivative" is broad enough to capture many contracts and instruments that are not traditionally considered to be derivatives. The Scope Rule tailors the application of regulatory requirements to a broad range of existing and emerging products by making clear which contracts or instruments are to be regulated as derivatives or securities, or are outside the scope of securities or derivatives legislation.

The following contracts will be excluded from the definition of "derivative":

• gaming and insurance contracts where such contracts are regulated by a domestic or an equivalent foreign regulatory regime;

• currency exchange contracts provided that the contract (i) settles within prescribed timelines, (ii) is intended by the counterparties to be settled by delivery of the currency referenced in the contract, and (iii) is not rolled-over;

• commodity forward contracts provided that physical delivery of the commodity is intended and the contract does not permit cash settlement in the ordinary course;

• evidence of a deposit of certain federally and provincially regulated entities;

• contracts or instruments traded on certain prescribed exchanges

• contracts meeting the definition of both security and derivative in the Act, provided that such contract is not a security solely by virtue of being an "investment contract" or "option"; and

• certain listed issuer compensation products where the underlying interest is a stock or share of the issuer.

As noted above, any contract or instrument excluded from the definition of "derivative" under the Scope Rule will not be required to be reported to a designated trade repository.

6. Summary of the TR Rule

The TR Rule can generally be divided into two areas: (i) requirements relating to the regulation of trade repositories, and (ii) reporting requirements by counterparties to derivatives transactions.

(i) Regulation of Trade Repositories

To obtain and maintain designation as a trade repository, a person or entity must apply to the Commission for designation and must comply with the designated trade repository requirements set out in the TR Rule, as well as all terms and conditions imposed by the Commission in any designation order made.

The legal entity that applies to be a designated trade repository will be required to file with the Commission a completed Form 91-507F1 and financial statements.{1} When determining whether or not to designate a trade repository, the Commission will consider various factors, including whether it is in the public interest to do so, whether the applicant is in compliance with securities law and whether the applicant has established policies and procedures that meet standards applicable to trade repositories. The TR CP provides additional guidance on how the Commission will assess such factors.

Once designated, a trade repository will be required to provide the Commission with interim and year-end financial statements and to provide notice of any significant changes to the information submitted in its Form 91-507F1 before implementing the changes.

A designated trade repository will be subject to a variety of on-going requirements including ensuring the adequacy of its governance arrangements, meeting board composition requirements, clearly defining management roles and responsibilities, maintaining policies and procedures for material aspects of its business, retaining records, ensuring data security and confidentiality, establishing a comprehensive risk management framework and meeting other requirements related to systems and operational risks. A designated trade repository will also be required to appoint a chief compliance officer and to clearly define his or her role and responsibilities.

Once operational, a designated trade repository will be expected to accept derivatives data for each asset class set out in the Commission's designation order. Any fees charged by a designated trade repository must be fairly and equitably allocated amongst its participants and must be publicly disclosed. Designated trade repositories will also have an obligation to confirm derivatives data with all participants of their service.

A designated trade repository will be required to provide the following access to derivatives data:

• the Commission will have access to all relevant derivatives data reported to a designated trade repository in accordance with the Commission's mandate;

• counterparties to a transaction will have access to derivatives data relevant to their transactions; and

• aggregate data on open positions, volume, number and prices related to transactions will be required to be reported publicly.

(ii) Reporting Obligation

All derivatives transactions involving a local counterparty are required to be reported to a designated trade repository or to the Commission. The TR Rule outlines a hierarchy for determining which counterparty will be required to report a transaction based on the counterparty to the transaction which is best suited to fulfill the reporting obligation. For example, for transactions that are cleared through a recognized or exempt clearing agency, the clearing agency is best positioned to report derivatives data and is therefore subject to the reporting obligation.

In terms of timing, initial reporting is required to be completed on a real-time basis. However, where it is not technologically possible to do so, the reporting counterparty must report as soon as possible but not later than the end of the next business day following the day that the transaction was entered into. Transactions that were entered into prior to the TR Rule coming into force will be required to be reported provided they have not expired or been terminated within a prescribed period after the TR Rule comes into force.

Three main types of data must be reported under the TR Rule: (i) creation data, (see Appendix A to TR Rule for more details); (ii) life-cycle event data, which includes any change to derivatives data previously reported; and (iii) valuation data, which includes the current value of the transaction.

7. Changes to Rules

Appendix "A" to this Notice summarizes the comments received in respect of the Proposed Provincial Rules. A number of these comments led the Committee to make non-material revisions to the Proposed Provincial Rules. The main revisions which have been incorporated into the Rules are outlined below. In addition, the Commission has made some general drafting changes that are not of a substantive nature but which clarify the intended effect of certain provisions of the Rules and simplify the Rules as a whole.

(i) Scope Rule

Subsection 2(2) of the Scope Rule has been added to clarify that transactions executed on derivatives trading facilities are not eligible for the paragraph 2(1)(g) prescribed exclusion of exchange traded derivatives from the reporting requirements under the TR Rule. While the Committee does not intend to require transactions executed on an exchange to be reported under the TR Rule, the Committee has always intended that transactions executed on derivatives trading facilities would be required to be reported. The Commission is of the view that the clarification provided by subsection 2(2) is necessary because until an oversight regime for derivative trading facilities is enacted, such facilities may be recognized or exempted as exchanges.

(ii) TR Rule

(a) Local Counterparty Definition

Subsection (c) of the local counterparty definition has been revised so that guaranteed affiliates of registered foreign derivatives dealers are not local counterparties. This revision was made in response to a number of comments regarding the potential extra-territorial effect of the definition of local counterparty as proposed. The Committee determined that guaranteed affiliates of foreign derivatives dealers do not have a sufficient nexus to Ontario to warrant treatment as local counterparties.

(b) Reporting Counterparty

Subsection 25(1) has been revised to clarify the intent of the reporting counterparty hierarchy. If a transaction required to be reported is between two derivatives dealers, each derivatives dealer has an obligation to report the transaction. As previously drafted, the provision was focused on circumstances in which the derivatives dealers could not agree on which dealer would act as reporting counterparty. The revisions to subsection 25(1) make it clear that both dealers have a reporting obligation, but they may delegate this obligation under subsection 26(3) so as to avoid double reporting. Therefore, both derivatives dealers to the transaction ultimately have the reporting obligation, but are free to contract or institute systems and practices to delegate the reporting function to one of them.

Similarly, if a transaction required to be reported is between two non-derivatives dealer counterparties, each counterparty that is a local counterparty has an obligation to report under the TR Rule. Therefore, if a transaction is between two local counterparties that are not derivatives dealers, both local counterparties have an obligation to report under the TR Rule. As previously drafted, the provision was focused on circumstances in which the counterparties could not agree on which would act as reporting counterparty. The revisions to subsection 25(1) make it clear that both local counterparties have a reporting obligation, but they may delegate this obligation under subsection 26(3) so as to avoid double reporting. That is, both local counterparties to the transaction have a reporting obligation, but are free to contract or to institute systems and practices to delegate the reporting function to one of them. Likewise, when a local counterparty enters into a transaction with a foreign non-derivatives dealer counterparty, the local counterparty may delegate its reporting obligations to the foreign counterparty, but will remain ultimately responsible for reporting the transaction.

In each case, the intention of the TR Rule is to facilitate single reporting by one counterparty through delegation while requiring derivatives dealers and local counterparties to have procedures or contractual arrangements in place to ensure that reporting occurs.

(c) Foreign Reporting Counterparty

Subsection 25(2) applies to situations where the reporting counterparty, as determined under subsection 25(1), is not a local counterparty or a recognized or exempt clearing agency. This provision is intended to cover situations where a non-local reporting counterparty does not report a transaction or otherwise fails to fulfill the reporting counterparty's reporting duties. In such case the local counterparty must act as the reporting counterparty and fulfill the reporting counterparty duties under the TR Rule. This provision differs slightly from the delegation concept described in subsection (c) above in that, in the first instance the reporting obligation falls only on the derivatives dealer and not the non-derivatives dealer. The Committee believes that derivatives dealers are better positioned to report and only where a derivatives dealer is not a local counterparty does a fallback obligation arise on the non-derivatives dealer local counterparty.

The provision has been revised to clarify how a local counterparty may determine when a foreign reporting counterparty has failed to report and, consequently, when the local counterparty must fulfill the reporting counterparty's duties. The Commission expects that a local counterparty will determine that the non-local reporting counterparty has discharged its reporting obligations by reviewing a confirmation of the transaction report. Where the local counterparty has not received confirmation that its transaction has been reported in accordance with the requirements of this TR Rule within two business days after the date on which the transaction occurred, it must act as reporting counterparty for the transaction. Where the local counterparty is a participant of the designated trade repository this confirmation would come from the designated trade repository in accordance with subsection 23(1). Where the local counterparty is not a participant it would be necessary for the local counterparty to ensure that it receives the confirmation from the reporting counterparty (or its delegate).

(d) Limited Substituted Compliance

Subsection 26(5) has been added to provide limited substituted compliance for counterparties that reside primarily outside of Ontario but are otherwise subject to the TR Rule. This provision would apply, for example, to an Ontario registered foreign derivatives dealer. In this example, the foreign derivatives dealer would be required to comply with the TR Rule in its entirety when dealing with Ontario market participants. Substituted compliance would be available to the foreign derivatives dealer for a transaction with a foreign market participant provided that the transaction was reported pursuant to an equivalent foreign rule and the Commission had access to the reported data. This revision is intended to reduce overlapping international trade reporting requirements while ensuring that the Commission has access to the data necessary to fulfill its mandate.

(e) Valuation Data Reporting

Section 33 has been revised to remove the requirement that both counterparties to a transaction report valuation data. As revised, only one party to each transaction is required to report valuation data. This revision was made in response to a number of comments that double valuation reporting is unduly onerous and inconsistent with U.S. reporting rules. The Committee determined that the burdens of double reporting outweigh the short-term benefits; however, the Committee may revisit this issue in the future once sufficient derivatives transaction reporting data is available.

(f) Transaction Level Public Transparency

Subsection 43(2) has been added to provide a 6-month extension to the requirement that a designated trade repository publicize anonymous transaction level data. This revision was made in response to many comments that the publication of transaction level data, even with the reporting delays provided for in the TR Rule, could cause harm to the Canadian derivatives market and market participants due to the less liquid nature of the Canadian derivatives market relative to other major trading jurisdictions. The Committee determined that a 6-month delay would allow time to further consider the appropriateness of the timing of transaction level public disclosure.

8. Future Amendments to the Rule

The OSC is implementing the TR Rule and Scope Rule as one part of Canada's broader G20 commitment to regulate OTC derivatives. Other areas of OTC derivatives regulation that have been recommended by the CSA include mandatory clearing, electronic trading, registration and capital and collateral requirements. Future rule-making in these other areas of the regulatory framework will include concepts that are shared with and impact the TR Rule and Scope Rule. Accordingly, future developments in the OTC derivatives regulatory framework may require consequential amendments to the TR Rule and Scope Rule.

9. Legislative Authority for Rule Making

The Scope Rule will come into force under the rulemaking authority provided under paragraphs 19.1 and 19.4 of subsection 143(1) of the Act, following proclamation of such rulemaking authority. Paragraph 19.1 authorizes the Commission to make rules prescribing one or more classes of contracts or instruments that are not derivatives for the purpose of prescribed provisions of Ontario securities law and prescribing those provisions. Paragraph 19.4 authorizes the Commission to make rules prescribing derivatives or classes of derivatives that are deemed to be securities for the purposes of prescribed provisions of the Act, the regulations and the rules.

The Commission has authority to designate trade repositories under section 21.2.2 of the Act. This authority includes the power to impose terms and conditions on the designation and the ability to make any decision with respect to the manner in which a designated trade repository carries on business or any by-law, rule, regulation, policy, procedure, interpretation or practice of a designated trade repository. The Commission's rulemaking authority to regulate designated trade repositories under the TR Rule is provided under paragraph 12 of subsection 143(1) of the Act.

The Commission's rulemaking authority for derivatives data reporting requirements under the TR Rule will be provided under subparagraph 35(ii) of subsection 143(1) of the Act, following proclamation of such rulemaking authority. Subparagraph 35(ii) authorizes the Commission to make rules requiring or respecting record keeping, reporting and transparency relating to derivatives.

10. Alternatives Considered

No other alternatives were considered.

11. Unpublished Materials

The Commission did not rely on any unpublished study, report or other written materials in connection with the Rules.

12. Anticipated Costs and Benefits

We believe that the impact of the Rules, including anticipated costs of compliance for designated trade repositories and reporting counterparties, is proportional to the benefits we seek to achieve. Greater transparency in the OTC derivatives market is one of the central pillars of derivatives regulatory reform in Canada and internationally. The G20 has agreed that all OTC derivative transactions should be reported to trade repositories. Trade repositories support transparency by making transactional and aggregated data available to relevant regulatory authorities on a routine basis and by request. In order to identify and assess potential risks in the Canadian derivatives market, regulators must have access to aggregate and transaction level data for all Canadian derivatives transactions, including Canadian referenced derivatives. Timely access to data collected by trade repositories will enable Canadian regulators and the central bank to monitor systemic risk exposures of market participants, detect market abuse, and assist in the performance of systemic risk analysis on these markets. It will also increase transparency in the OTC derivatives market to the public, reducing information imbalances through greater access and dissemination of appropriate data including aggregate data on open positions and trading volumes on a periodic basis.

We recognize that counterparties will incur some additional costs in order to comply with the derivatives data reporting obligations. The primary expenditure associated with the TR Rule's reporting obligations is the cost of updating systems or implementing new systems to facilitate the reporting of derivatives data to designated trade repositories. Once such systems are in place, additional areas of expenditure will likely include ongoing compliance costs and systems maintenance.

Certain provisions of the TR Rule and other external factors should help mitigate the initial costs associated with implementing necessary systems, processes and procedures for derivatives data reporting. For example, the TR Rule provides a hierarchy for determining which counterparty is obligated to report derivatives data which is intended to ensure that clearing agencies and derivatives dealers do the majority of reporting. The incremental implementation costs for such entities will be limited by the fact that many derivatives dealers and clearing agencies active in the Canadian derivatives market must comply with foreign trade reporting regimes and already have trade reporting systems in place. The TR Rule also provides accommodation for foreign market participants that are subject to the Rules because they are derivatives dealers registered in Ontario by providing for substituted compliance where they are transacting with foreign counterparties. In addition, the TR Rule permits delegation of reporting obligations. The ability to delegate reporting obligations to third-party service providers should provide end-users with a cost-effective alternative to direct reporting, without having to incur the initial costs associated with implementing reporting systems.

November 14, 2013

{1}Certain additional information and forms will be required from applicants that are located outside of Ontario.

 

APPENDIX A

COMMENT SUMMARY AND OSC RESPONSES

1. The Scope Rule

Section Reference

Issue/Comment Summary

Response

S. 2(1)(c) -- Excluded derivatives -- FX spot transactions

Two commenters expressed concern that the activities of non-bank money services business -- e.g., foreign exchange dealers -- would be captured under paragraph 2(1)(c).

No change. Transactions involving foreign exchange dealers that do not qualify for the paragraph 2(1)(c) exclusion are expected to be reported.

 

S. 2(1)(c)(i)(B) -- Excluded derivatives -- FX security conversion transactions

A number of commenters requested clarification regarding the interpretation of clause 2(1)(c)(i)(B) and provided a number of examples of market practices relating to securities conversion transactions.

No change. We believe that the TR CP provides adequate guidance on the eligibility of securities conversions transactions for the clause 2(1)(c)(i)(B) exclusion.

 

S. 2(1)(d) -- Excluded derivatives -- Physically settled commodity transactions

One commenter urged that greater clarity is required in the CP for industry participants to form the interpretation that subparagraph 2(1)(d)(i) includes standardized industry contracts that contemplate cash settlement in place of physical delivery where a termination event has occurred.

No change. We believe that the TR CP provides adequate guidance on the treatment of termination events.

2. The TR Rule

Section Reference

Issue/Comment Summary

Response

General comments -- Harmonized regulations, simultaneous coming into force and passport system

A number of commenters stressed the importance of a coordinated approach to trade reporting across Canada, including with respect to harmonizing the effective date of the trade reporting requirements in all of the provinces.

No change. Provincial jurisdictions are committed to implementing harmonized trade reporting and trade repository rules. To the extent possible, jurisdictions will harmonize implementation timeframes.

 

 

A number of commenters reiterated the suggestion that a "principal regulator" model or "passport system" for trade reporting and designation of trade repositories be adopted.

No change. A "principal regulator" model or "passport system" is outside the scope of the TR Rule.

 

General comments -- Substituted compliance

Two commenters suggested that the Rule should provide for reciprocity or recognition of foreign-based trade repositories that are subject to the rules of an equivalent jurisdiction.

No change. Trade repositories may apply under renumbered section 42 for exemptions to certain requirements based upon substituted compliance.

 

 

A number of commenters urged that a system of "substituted compliance" be adopted in the Rule to provide for recognition of a market participant's reporting (i) pursuant to "recognized" data reporting requirements, such as CFTC or SEC rules, and/or (ii) to an equivalent foreign trade repository. One commenter suggested that provincial securities regulators should publish a list of "recognized" requirements that would satisfy the substituted compliance suggestion set out above.

Change made. New subsection 26(5) deems a reporting counterparty to be in compliance with its reporting obligations under the Rule if (a) the transaction is required to be reported solely because it involves a local counterparty that is required to be registered with the Commission, or an affiliate thereof, (b) the transaction is reported to a designated trade repository pursuant to the securities legislation of a province of Canada or the laws of a foreign jurisdiction identified in Appendix B, and (c) the reporting counterparty instructs the designated TR to provide the Commission with access to the data it would otherwise be required to report under the TR Rule.

 

 

A number commenters suggested harmonizing data fields with, or at minimum limiting deviations from, the data fields required to be reported under CFTC and SEC rules, to avoid technological costs associated with compliance.

Change made. The data fields list in Appendix A are consistent with the fields required by major trading jurisdictions. The "Custodian" field has been deleted.

 

S. 1 -- "Dealer"

One commenter suggested that the defined term should be "derivatives dealer", to distinguish from dealers that are securities dealers.

Change made. The defined term has been revised from "dealer" to "derivatives dealer".

 

S. 1 -- "Life-cycle event"

One commenter suggested revising the language in the guidance provided in the TR CP with respect to "life-cycle event", to clarify that the reporting of life-cycle events may follow either a "message by message" approach or an end of business day "snapshot" approach that reflects all updates that occurred on the record on the given day.

Change made. The defined term "life-cycle data" has been revised to "life-cycle event data" to avoid any confusion. Pursuant to section 32, life-cycle event data is required to be reported by the end of the business day.

 

S. 1 -- "Local counterparty" -- General

A number commenters expressed concern that an entity could meet the "local counterparty" definition in more than one jurisdiction, and requested clarification as to the treatment and reporting obligations of such an entity.

No change. We note that reporting requirements will be harmonized across the Canadian jurisdictions. See also new subsection 26(5).

 

S. 1 -- "Local counterparty" -- Paragraph (b)

One commenter expressed concern that even if a party is exempt from any registration requirements under provincial law, it would still be "subject to" such regulations and thus be included within the definition of "local counterparty", and therefore subject to reporting requirements under the Rule.

Change made. Paragraph (b) has been revised to clarify that the paragraph applies only to counterparties that are required to be registered.

 

S. 1 -- "Local counterparty" -- Paragraph (c)

One commenter expressed concern with what it perceived as the extra-territorial reach of the definition of "local counterparty".

Change made. Paragraph (c) has been revised such that it no longer applies to counterparties that are local counterparties solely by virtue of paragraph (b).

 

S. 2(4) -- Initial filing and designation -- Changes and inaccuracies

One commenter suggested revising the requirement to notify the Commission "in writing immediately" of changes to, or inaccuracy of, information in Form 91-507F1 to a requirement for notice in writing as soon as practicable upon the applicant making such changes or becoming aware of such changes, consistent with the requirement to file an amended Form 91-507F1 within 7 days of such change occurring or the applicant becoming aware of such inaccuracy.

Change made. The requirement to notify the Commission is satisfied by the filing of a completed amended Form 91-507F1 no later than 7 days after the change occurs or after becoming aware of any inaccuracy.

 

S. 13 -- Access to designated trade repository services

One commenter recommended that continuing derivatives data reporting by the clearing agency should be made to the same trade repository where the original trade was reported. The commenter also pointed out that by naming a clearinghouse as a reporting party in former section 27, there may be an increased likelihood that, in circumstances where a clearinghouse operates a trade repository, there will be a loss of choice as the clearinghouse will be incented to report to its own trade repository.

Change made. New subsection 26(9) requires that where a clearing agency is the reporting counterparty, it must report to a designated trade repository selected by the local counterparty. Renumbered subsection 26(6) requires that all derivatives data must be reported to the same designated trade repository to which the initial report was made.

 

Former s. 20(2) -- General business risk

One commenter recommended that subsection 20(2) expressly provide that that a designated trade repository must hold liquid net assets funded by equity equal to at least six months of current operating expenses.

Change made. Section 20 has been revised to require a designated trade repository to hold liquid assets funded by equity equal to at least 6 months of current operating expenses.

 

S. 21(1), (2) -- Systems and other operational risk requirements

One commenter suggested that the requirements of the board in subsections 21(1) and (2) are overly broad and place on the board responsibilities better seated with the management of the trade repository.

No change. International standards require board involvement in the risk management framework.

 

S. 21(4) -- Systems and other operational risk requirements -- Business continuity plans

One commenter suggested that the requirement to recover within 2 hours is unnecessary and unduly burdensome relative to the risk presented by a longer recovery time.

No change. The 2-hour recovery time requirement is consistent with international standards.

 

plans

 

 

 

S. 21(6) -- Systems and other operational risk requirements -- Independent review of systems

One commenter urged that an independent review of systems would (i) force designated trade repositories to incur excessive cost, (ii) be inconsistent with oversight requirements promulgated in other jurisdictions requiring trade reporting, and (iii) be duplicative of independent internal assessments. The commenter suggested subsection 21(6) be amended to allow the required independent assessment to be performed by internal audit departments that are compliant with the Institute of Internal Audit's (IIA) "International Standards for the Professional Practice of Internal Auditing", and align the frequency of reviews to coincide with such standards.

Change made. The TR CP provides that this requirement may be satisfied by an independent internal assessment.

 

S. 21(8) -- Systems and other operational risk requirements -- Publication of requirements

One commenter suggested revising subsection 21(8) such that the 3 month requirement is changed to state "a period of time sufficiently in advance of implementation to allow for sufficient testing and system modification by participants".

Change made. Subsection 21(8) has been revised to reflect suggested language.

 

S. 21(9) -- Systems and other operational risk requirements -- Testing environment

One commenter suggested revising subsection 21(9) such that the 2 month requirement is changed to state "a period of time sufficiently in advance of implementation to allow for sufficient testing and system modification by participants".

Change made. Subsection 21(9) has been revised to reflect suggested language.

 

S. 23 -- Confirmation of data and information

A number of commenters suggested that (i) a trade repository not be required to affirmatively communicate with both counterparties when data is received from a third-party service provider, a CCP, or an execution platform if (a) the designated trade repository reasonably believes the data is accurate, (b) the data reflects that both counterparties agreed to the data, and (c) the counterparties were provided with a 48-hour correction period; and (ii) the trade repository be required to affirmatively communicate with both parties to the transaction when creation data is submitted directly by a swap counterparty.

Change made. TR CP revised to explain that the section 23 confirmation obligations may be satisfied by a notice to the counterparties that a transaction has been reported in their name. No response within 48 hours by a party may be deemed confirmation of the derivatives data reported.

 

Former s. 25 -- Duty to report -- Interaction between s. 25 and former s. 27

A number of commenters requested clarification on the interaction between the duty to report under former subsection 25(1) and the reporting counterparty hierarchy set out in former subsection 27(1).

Change made. Renumbered section 26 provides that the reporting counterparty's obligation to report is triggered by a derivatives transaction involving a local counterparty. Renumbered section 25 prescribes who the reporting counterparty with the legal obligation to report is.

 

Former s. 25 -- Duty to report -- Post-transaction services

One commenter requested clarification with respect to the reporting of bulk post-transaction services, including portfolio compression. The commenter specifically requested confirmation that transactions resulting bulk post-transaction services shall not be required to be reported in real-time due to technological impracticability, and recommended that, for both reporting and public dissemination, reporting resulting post-transaction services should be clearly indicated as such and not be accompanied by pricing data.

Change made. Appendix A revised to include field for post-transaction services. The size of a post-transaction services operation would be taken into account in determining technological practability.

 

Former s. 26 -- Pre-existing derivatives data

A number of commenters raised concerns with the scope of the data required to be reported for pre-existing transactions.

No change. The reporting fields required for pre-existing transactions are consistent with the fields required by major trading jurisdictions.

 

 

Two commenters suggested that, for clarity and simplicity, the obligation to report pre-existing transactions should include all those transactions that are open as of the day that mandatory reporting begins, as opposed to when the Proposed Rules come into effect, regardless of whether any such trade expires or terminates within the 365 day back-load period post the mandatory compliance date.

No change. We believe that the current reporting requirements and timeframe for pre-existing transactions are appropriate. There are no restrictions against a local counterparty voluntarily reporting any other pre-existing trade.

 

Former s. 27(1) -- Reporting counterparty

One commenter suggested that former paragraph 27(1)(a) expressly refer to a "clearing agency" as a recognized or exempt clearing agency, to ensure that the clearing agency is subject to the Commission's regulatory oversight and jurisdiction.

Change made. Renumbered section 25 now refers to a "recognized or exempt clearing agency".

 

 

A number of commenters expressed concern with placing on local counterparties the ultimate obligation for ensuring derivatives data is reported. A number of commenters suggested that the obligation to report derivatives trade data under former section 27 should be imposed on derivatives dealers or a clearing agency or swap execution facility involved in such transactions, regardless of whether such entities are foreign or not.

Change made. Renumbered section 26 revised such that a recognized or exempt clearing agency has exclusive reporting obligation. A registered foreign derivatives dealer is a local counterparty pursuant to subsection (b) of the "local counterparty" definition and has the reporting onus when transacting with non-dealers.

 

 

Further change made. Renumbered subsection 25(2) provides that where a local counterparty has not received a confirmation, by the end of the second business day after the day on which the transaction is required to be reported, the local counterparty must act as the reporting counterparty.

 

Former s. 28 -- Real-time reporting

A number of commenters requested clarification that the phrase "as soon as technologically practicable" would take into account the nature of the reporting counterparty.

Partial change made. Revised subsection 31(2) of the Rule reflects that the real-time reporting requirement applies to creation data only. The TR CP provides guidance that revised subsection 31(2) "is intended to take into account the fact that not all counterparties will have the same technological capabilities."

 

Former s. 32 -- Unique product identifier

One commenter suggested that the counterparties to a transaction are best situated to understand the product and assign a unique product identifier to that product in accordance with either industry or international standards and that it is not the province of the trade repository to analyze transactions and determine the type of product being reported.

Change made. Renumbered section 30 has been revised to require the reporting counterparty to assign a unique product identifier.

 

Former s. 33 -- Life-cycle event data

One commenter recommended that life-cycle data and valuation data for transactions between affiliated entities be required to be reported on a quarterly, not daily, basis.

No change. The Commission believes that daily reporting of life-cycle event data for transactions between affiliated entities is important in providing the Commission with a view of the risk exposure in the market. To the extent that affiliated entities are not derivatives dealers, valuation data is only required to be reported quarterly in accordance with renumbered paragraph 33(1)(b).

 

Former s. 35 -- Valuation data -- Reporting counterparty

A number of commenters urged that only the reporting counterparty should be required to report valuation data, with one commenter suggesting that requiring local end-users to report valuation data will remove an incentive to clear transactions.

Change made. Renumbered section 33 revised to require only the reporting counterparty to report valuation data.

 

S. 37(2) -- Data available to regulators -- Access standards

One commenter suggested that subsection 37(2) be revised so as to require a designated trade repository to conform its access standards to internationally accepted regulatory access standards applicable to trade repositories only to the extent that the internationally accepted regulatory standards comport with the standards of any regulatory body with oversight responsibility for the designated trade repository.

No change. We note that, to the extent that internationally accepted regulatory standards conflict with the standards of a regulatory body with oversight responsibility for the designated trade repository, a designated trade repository may, in accordance with renumbered section 42, apply to a Director for an exemption to this Rule, in whole or in part.

 

S. 37(3) -- Data available to regulators

A number of commenters expressed concern with the requirement that a local counterparty must "take any action necessary" to ensure that the Commission can access the derivatives data reported for transactions involving the local counterparty.

Change made. Section 37(3) has been revised to require a local counterparty to use "best efforts" to ensure that the Commission has access to reported derivatives data, including instructing a trade repository to provide the Commission with access

 

S. 38 -- Data available to counterparties

One commenter recommended that, in cases of conflict between reporting laws and foreign privacy or blocking (secrecy) laws, the CSA should allow the reporting counterparty to withhold disclosure of certain identity information without having to seek the explicit approval of the regulator.

No change. We note that a reporting counterparty may, in accordance with renumbered section 42, apply to a Director for an exemption to this Rule, in whole or in part.

 

 

One commenter urged that, in order to promote a level playing field with regard to derivatives-related services, service providers should be granted access to data in trade repositories upon consent by relevant counterparties to the trades submitted to the repositories and that trade repositories shall not be able to restrict such access based on reasons other than information security safeguards.

No change. The TR CP provides in guidance to section 38 that where a counterparty has provided consent to a trade repository to grant access to data to a third-party service provider, the trade repository shall grant such access on the terms consented to.

 

S. 39 -- Data available to the public

A number of commenters urged that the need to preserve confidentiality and anonymity of the data being disseminated by the trade repository is of utmost priority. Commenters urged that subsection 39(3) should provide certain exceptions to public reporting for block trades, or trades above a certain threshold, and/ or mandatory minimum time delays with respect to public disclosure of data of such trades. Commenters encouraged the Commission to delay public reporting of transaction-level data.

Change made to renumbered section 43 to provide a further 6-month delay in the coming into force of subsection 39(3).

 

 

A number of commenters suggested removing the requirement that a trade repository release to the public the geographic location and type of counterparty involved in a transaction, given the potential harm associated with the identification of a specific Ontario end-user.

Change made. The requirement to publish aggregate data on "geographic location" and "type of entity" has been deleted from subsection 39(2).

 

S. 39(6) -- Data available to the public -- Affiliate transactions

One commenter expressed concern that the wording of subsection 39(6) does not establish a restriction against the public release of affiliate transaction data, and recommended revising subsection 39(6) to state the trade repository "must not" make public any derivatives data for transactions between affiliates, consistent with the approach used in subsection 39(4) to establish a restriction.

No change. Given the international nature of the derivatives market, the Commission is not in a position to mandate that a trade repository may not publicly release such data where it may be required to do so under foreign regulations.

 

S. 40 -- Exclusions

One commenter expressed concern that the result of former paragraph (c) in subsection 40 is to create a singular exclusion where one already exists -- that is, it says if the counterparty is not the reporting counterparty, then it is excused from reporting obligations, with the result that every OTC commodity derivative transaction, regardless of transaction size or type of participant involved, will be subject to the reporting obligation.

Change made. Former paragraph (c) in section 40 has been deleted.

 

 

One commenter requested clarification on the intent of section 40, and suggested that the term "physical commodity transaction" be replaced with "commodity other than cash or currency" for consistency with paragraph 2(1)(d) of the Scope Rule.

Change made. The exclusion in section 40 has made consistent with the Scope Rule and refers to a "derivative the asset class of which is a commodity other than cash or currency".

 

 

A number of commenters suggested that the $500,000 threshold for exemption from reporting may be too low.

No change. This exclusion is only intended to be available to small market participants.

 

S. 40 -- Exclusions -- Inter-affiliate and intra-group trades

A number of commenters urged that inter-affiliate derivatives transactions should be excluded from the proposed trade reporting obligations.

No change. See the response to comments relating to public dissemination of inter-affiliate transaction data in section 39 above.

 

Former s. 41 -- Exemptions -- General

Two commenters suggested that the Rule be amended to specifically address issues that could lead to frequent applications for exemptive relief, including: (i) substituted compliance, and (ii) confidentiality laws and public dissemination of block trade data. Commenters also suggested that a process for obtaining and "passporting" exemptive relief into other CSA jurisdictions be developed

See general comments above relating to harmonization and substituted compliance (first two comments on TR Rule).

 

 

One commenter suggested expanded usage of the exemption under former section 41 in instances where minor conflicts exist between the laws and regulations governing a foreign trade repository in its home jurisdiction and those proposed by the OSC.

No change. As stated above, an exemption may be available under renumbered section 42 where minor conflicts exist.

 

Former s. 42 -- Effective date

A number of commenters suggested the Rule be amended to defer the reporting obligations on non-dealers for at least six months.

No change. Non-dealer market participants are afforded a deferral of reporting obligations under renumbered subsection 43(4).

 

 

A number of commenters expressed concern regarding reporting requirements that differ in data fields or by transaction asset class or sub-asset class from those in other major trading jurisdictions. The commenters suggested deferring the effective date for reporting of data fields and transactions in additional asset classes that are not currently required to be reported in other major trading jurisdictions.

No change. Reporting requirement timelines are consistent with the timelines in other jurisdictions.

3. The TR Rule Appendix A -- Data Fields

Topic or Field

Round 2 Issue/Comment

Response

N/A fields

One commenter recommended that fields that are not applicable should be left blank, rather than populated with N/A.

Change made. A field should be left blank where the field is not applicable.

 

Clearing Exemption and End-user Exemption fields

One commenter expressed concern with the Clearing Exemption and End-user Exemption fields, suggesting that only the Clearing Exemption field should be used and the End user Exemption field should be deleted.

Change made. The End-user Exemption field has been deleted, as the Clearing Exemption field captures the required information.

 

Execution Timestamp

One commenter requested clarification as to whether the "Execution Timestamp" field is applicable to transactions not executed on a trading venue. Also, it is not always the case that this information is available when a counterparty is back-loading pre-existing trades.

Change made. Further clarifying language provided in the public dissemination column, requiring information to be provided only if available.

 

Confirmation Timestamp

A number of commenters expressed concern with the requirement to report the confirmation timestamp as it is either difficult to report or it will be different between counterparties.

Change made. This field has been deleted as the benefits of having it are limited and keeping it could cause reporting issues for participants.

 

Electronic Trading Venue (ETV) and ETV Identifier fields

One commenter suggests that Electronic Trading Venue Identifier field be deleted. The identifier of the execution venue can be used as the value under the Electronic Trading Venue field.

Change made. This field has been deleted. Further clarifying language has been provided in the public dissemination column.

 

Custodian field

Two commenters expressed concern with the "Custodian" field.

Change made. This field has been deleted as it is not required by other major trading jurisdictions and may be difficult to report.

 

Compression

One commenter expressed concern that it was not clear if a transaction resulting from portfolio compression was subject to public dissemination.

Change made. A "Post-Transaction Services" field has been added to identify a transaction that results from post-transaction services, including compression and reconciliation exercises.

4. The TR Rule Forms -- Form 91-507F1

Section reference

Round 2 Issue/Comment

Response

Exhibit I, s. 1

One commenter expressed concern regarding the provision of the names of participants prior to designation of an applicant company, noting that absent consent to provide such information, the applicant trade repository may be in violation of the privacy rights of such participants.

Change made. This requirement has been deleted.

5. List of Commenters

1. Alternative Investment Management Association

2. Blake, Cassels & Graydon LLP

3. BP Canada Energy Group ULC

4. Canadian Life and Health Insurance Association Inc.

5. Canadian Market Infrastructure Committee

6. Capital Power Corporation

7. Depository Trust & Clearing Corporation

8. Direct Energy Marketing Limited

9. Terence W. Doherty

10. FpML Standards Committee, Financial product Markup Language

11. Global Financial Markets Association, Global Foreign Exchange Division

12. IGM Financial Inc.

13. International Swaps and Derivatives Association, Inc.

14. Just Energy Group Inc.

15. MarkitSERV, Markit Group Limited

16. Miller Thomson LLP

17. Nexen Marketing

18. Ontario Teachers' Pension Plan

19. Osler, Hoskin & Harcourt, LLP

20. RBC Global Asset Management Inc.

21. SaskEnergy Incorporated and TransGas Limited

22. Securities Industry and Financial Markets Association

23. Shell Energy North America (Canada) Inc. and Shell Trading Canada

24. State Street Global Advisors, Ltd.

25. Suncor Energy Marketing Inc.

26. TransAlta Corporation

27. TriOptima AB

 

ONTARIO SECURITIES COMMISSION RULE 91-506

DERIVATIVES: PRODUCT DETERMINATION

Application

1. This Rule applies to Ontario Securities Commission Rule 91-507 -- Trade Repositories and Derivatives Data Reporting.

Excluded derivatives

2. (1) A contract or instrument is prescribed not to be a derivative if it is

(a) regulated by,

(i) gaming control legislation of Canada or a jurisdiction of Canada, or

(ii) gaming control legislation of a foreign jurisdiction, if the contract or instrument

(A) is entered into outside of Canada,

(B) is not in violation of legislation of Canada or Ontario, and

(C) would be regulated under gaming control legislation of Canada or Ontario if it had been entered into in Ontario;

(b) an insurance or annuity contract entered into,

(i) with an insurer holding a licence under insurance legislation of Canada or a jurisdiction of Canada and regulated as insurance under that legislation, or

(ii) outside of Canada with an insurer holding a licence under insurance legislation of a foreign jurisdiction, if it would be regulated as insurance under insurance legislation of Canada or Ontario if it had been entered into in Ontario;

(c) a contract or instrument for the purchase and sale of currency that,

(i) except where all or part of the delivery of the currency referenced in the contract or instrument is rendered impossible or commercially unreasonable by an intervening event or occurrence not reasonably within the control of the parties, their affiliates or their agents, requires settlement by the delivery of the currency referenced in the contract or instrument,

(A) within two business days, or

(B) after two business days provided that the contract or instrument was entered into contemporaneously with a related security trade and the contract or instrument requires settlement on or before the relevant security trade settlement deadline,

(ii) is intended by the counterparties, at the time of the execution of the transaction, to be settled by the delivery of the currency referenced in the contract within the time periods set out in subparagraph (i), and

(iii) does not allow for the contract or instrument to be rolled over;

(d) a contract or instrument for delivery of a commodity other than cash or currency that,

(i) is intended by the counterparties, at the time of execution of the transaction, to be settled by delivery of the commodity, and

(ii) does not allow for cash settlement in place of delivery except where all or part of the delivery is rendered impossible or commercially unreasonable by an intervening event or occurrence not reasonably within the control of the counterparties, their affiliates, or their agents;

(e) evidence of a deposit issued by a bank listed in Schedule I, II or III to the Bank Act (Canada), by an association to which the Cooperative Credit Associations Act (Canada) applies or by a company to which theTrust and Loan Companies Act (Canada) applies;

(f) evidence of a deposit issued by a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 or a similar statute of Canada or a jurisdiction of Canada (other than Ontario) applies or by a loan corporation or trust corporation registered under the Loan and Trust Corporations Act or a similar statute of a jurisdiction of Canada (other than Ontario); or

(g) traded on an exchange recognized by a securities regulatory authority, an exchange exempt from recognition by a securities regulatory authority or an exchange that is regulated in a foreign jurisdiction by a signatory to the International Organization of Securities Commissions' Multilateral Memorandum of Understanding.

(2) For the purposes of paragraph (1)(g), an exchange does not include a derivatives trading facility.

Investment contracts and over-the-counter options

3. A contract or instrument, other than a contract or instrument to which section 2 applies, that is a derivative, and that is otherwise a security solely by reason of being an investment contract under paragraph (n) of the definition of "security" in subsection 1(1) of the Act, or being an option described in paragraph (d) of that definition, that is not described in section 5, is prescribed not to be a security.

Derivatives that are securities

4. A contract or instrument, other than a contract or instrument to which any of sections 2 and 3 apply, that is a security and would otherwise be a derivative is prescribed not to be a derivative.

Derivatives prescribed to be securities

5. A contract or instrument that is a security and would otherwise be a derivative, other than a contract or instrument to which any of sections 2 to 4 apply, is prescribed not to be a derivative if such contract or instrument is used by an issuer or affiliate of an issuer solely to compensate an employee or service provider or as a financing instrument and whose underlying interest is a share or stock of that issuer or its affiliate.

 

COMPANION POLICY 91-506CP

TO ONTARIO SECURITIES COMMISSION RULE 91-506

DERIVATIVES: PRODUCT DETERMINATION

PART 1

GENERAL COMMENTS

Introduction

This Companion Policy (the "Policy") sets out the views of the Commission ("our" or "we") on various matters relating to Ontario Securities Commission Rule 91-506 Derivatives: Product Determination (the "Rule").

Except for Part 1, the numbering and headings in this Companion Policy correspond to the numbering and headings in the Rule. Any general guidance for a Section appears immediately after the Section name. Any specific guidance on sections in the Rule follows any general guidance.

The Rule applies only to the Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting.

Unless defined in the Rule or this Companion Policy, terms used in the Rule and in this Companion Policy have the meaning given to them in securities legislation, including, for greater certainty, in National Instrument 14-101 Definitions and Ontario Securities Commission Rule 14-501 Definitions.

In this Companion Policy, the term "contract" is interpreted to mean "contract or instrument".

PART 2

GUIDANCE

Excluded derivatives

2. (1)(a) Gaming contracts

Paragraph 2(1)(a) of the Rule prescribes certain domestic and foreign gaming contracts not to be "derivatives". While a gaming contract may come within the definition of "derivative", it is generally not recognized as being a financial derivative and typically does not pose the same potential risk to the financial system as other derivatives products. In addition, the Commission does not believe that the derivatives regulatory regime will be appropriate for this type of contract. Further, gaming control legislation of Canada (or a jurisdiction of Canada), or equivalent gaming control legislation of a foreign jurisdiction, generally has consumer protection as an objective and is therefore aligned with the objective of securities legislation to provide protection to investors from unfair, improper or fraudulent practices.

With respect to subparagraph 2(1)(a)(ii), a contract that is regulated by gaming control legislation of a foreign jurisdiction would only qualify for this exclusion if: (1) its execution does not violate legislation of Canada or Ontario, and (2) it would be considered a gaming contract under domestic legislation. If a contract would be treated as a derivative if entered into in Ontario, but would be considered a gaming contract in a foreign jurisdiction, the contract does not qualify for this exclusion, irrespective of its characterization in the foreign jurisdiction.

(b) Insurance and annuity contracts

Paragraph 2(1)(b) of the Rule prescribes qualifying insurance or annuity contracts not to be "derivatives". A reinsurance contract would be considered to be an insurance or annuity contract.

While an insurance contract may come within the definition of "derivative", it is generally not recognized as a financial derivative and typically does not pose the same potential risk to the financial system as other derivatives products. The Commission does not believe that the derivatives regulatory regime will be appropriate for this type of contract. Further, a comprehensive regime is already in place that regulates the insurance industry in Canada and the insurance legislation of Canada (or a jurisdiction of Canada), or equivalent insurance legislation of a foreign jurisdiction, has consumer protection as an objective and is therefore aligned with the objective of securities legislation to provide protection to investors from unfair, improper or fraudulent practices.

Certain derivatives that have characteristics similar to insurance contracts, including credit derivatives and climate-based derivatives, will be treated as derivatives and not insurance or annuity contracts.

Subparagraph 2(1)(b)(i) requires an insurance or annuity contract to be entered into with a domestically licensed insurer and that the contract be regulated as an insurance or annuity contract under Canadian insurance legislation. Therefore, for example, an interest rate derivative entered into by a licensed insurance company would not be an excluded derivative.

With respect to subparagraph 2(1)(b)(ii), an insurance or annuity contract that is made outside of Canada would only qualify for this exclusion if it would be regulated under insurance legislation of Canada or Ontario if made in Ontario. Where a contract would otherwise be treated as a derivative if entered into in Canada, but is considered an insurance contract in a foreign jurisdiction, the contract does not qualify for this exclusion, irrespective of its characterization in the foreign jurisdiction. Subparagraph 2(1)(b)(ii) is included to address the situation where a local counterparty purchases insurance for an interest that is located outside of Canada and the insurer is not required to be licensed in Canada.

(c)Currency exchange contracts

Paragraph 2(1)(c) of the Rule prescribes a short-term contract for the purchase and sale of a currency not to be a "derivative" if it is settled within the time limits set out in subparagraph 2(1)(c)(i). This provision is intended to apply exclusively to contracts that facilitate the conversion of one currency into another currency specified in the contract. These currency exchange services are often provided by financial institutions or other businesses that exchange one currency for another for clients' personal or business use (e.g., for purposes of travel or to make payment of an obligation denominated in a foreign currency).

Timing of delivery (subparagraph 2(1)(c)(i))

To qualify for this exclusion the contract must require physical delivery of the currency referenced in the contract within the time periods prescribed in subparagraph 2(1)(c)(i). If a contract does not have a fixed settlement date or otherwise allows for settlement beyond the prescribed periods or permits settlement by delivery of a currency other than the currency referenced in the contract, it will not qualify for this exclusion.

Clause 2(1)(c)(i)(A) applies to a transaction that settles by delivery of the referenced currency within two business days -- being the industry standard maximum settlement period for a spot foreign exchange transaction.

Clause 2(1)(c)(i)(B) allows for a longer settlement period if the foreign exchange transaction is entered into contemporaneously with a related securities trade. This exclusion reflects the fact that the settlement period for certain securities trades can be three or more days. In order for the provision to apply, the securities trade and foreign exchange transaction must be related, meaning that the currency to which the foreign exchange transaction pertains was used to facilitate the settlement of the related security purchase.

Where a contract for the purchase or sale of a currency provides for multiple exchanges of cash flows, all such exchanges must occur within the timelines prescribed in subparagraph 2(1)(c)(i) in order for the exclusion in paragraph 2(1)(c) to apply.

Settlement by delivery except where impossible or commercially unreasonable (subparagraph 2(1)(c)(i))

Subparagraph 2(1)(c)(i) requires that a contract must not permit settlement in a currency other than what is referenced in the contract unless delivery is rendered impossible or commercially unreasonable as a result of events not reasonably within the control of the counterparties.

Settlement by delivery of the currency referenced in the contract requires the currency contracted for to be delivered and not an equivalent amount in a different currency. For example, where a contract references Japanese Yen, such currency must be delivered in order for this exclusion to apply. We consider delivery to mean actual delivery of the original currency contracted for either in cash or through electronic funds transfer. In situations where settlement takes place through the delivery of an alternate currency or account notation without actual currency transfer, there is no settlement by delivery and therefore the exclusion in paragraph 2(1)(c) would not apply.

We consider events that are not reasonably within the control of the counterparties to include events that cannot be reasonably anticipated, avoided or remedied. An example of an intervening event that would render delivery to be commercially unreasonable would include a situation where a government in a foreign jurisdiction imposes capital controls that restrict the flow of the currency required to be delivered. A change in the market value of the currency itself will not render delivery commercially unreasonable.

Intention requirement (subparagraph 2(1)(c)(ii))

Subparagraph 2(1)(c)(ii) excludes from the reporting requirement a contract for the purchase and sale of a currency that is intended to be settled through the delivery of the currency referenced in such contract. The intention to settle a contract by delivery may be inferred from the terms of the relevant contract as well as from the surrounding facts and circumstances.

When examining the specific terms of a contract for evidence of intention to deliver, we take the position that the contract must create an obligation on the counterparties to make or take delivery of the currency and not merely an option to make or take delivery. Any agreement, arrangement or understanding between the parties, including a side agreement, standard account terms or operational procedures that allow for the settlement in a currency other than the referenced currency or on a date after the time period specified in subparagraph 2(1)(c)(i) is an indication that the parties do not intend to settle the transaction by delivery of the prescribed currency within the specified time periods.

We are generally of the view that certain provisions, including standard industry provisions, the effect of which may result in a transaction not being physically settled, will not necessarily negate the intention to deliver. The contract as a whole needs to be reviewed in order to determine whether the counterparties' intention was to actually deliver the contracted currency. Examples of provisions that may be consistent with the intention requirement under subparagraph 2(1)(c)(ii) include:

• a netting provision that allows two counterparties who are party to multiple contracts that require delivery of a currency to net offsetting obligations, provided that the counterparties intended to settle through delivery at the time the contract was created and the netted settlement is physically settled in the currency prescribed by the contract, and

• a provision where cash settlement is triggered by a termination right that arises as a result of a breach of the terms of the contract.

Although these types of provisions permit settlement by means other than the delivery of the relevant currency, they are included in the contract for practical and efficiency reasons.

In addition to the contract itself, intention may also be inferred from the conduct of the counterparties. Where a counterparty's conduct indicates an intention not to settle by delivery, the contract will not qualify for the exclusion in paragraph 2(1)(c). For example, where it could be inferred from the conduct that counterparties intend to rely on breach or frustration provisions in the contract in order to achieve an economic outcome that is, or is akin to, settlement by means other than delivery of the relevant currency, the contract will not qualify for this exclusion. Similarly, a contract would not qualify for this exclusion where it can be inferred from their conduct that the counterparties intend to enter into collateral or amending agreements which, together with the original contract, achieve an economic outcome that is, or is akin to, settlement by means other than delivery of the relevant currency.

Rolling over (subparagraph 2(1)(c)(iii))

Subparagraph 2(1)(c)(iii) provides that, in order to qualify for the reporting exclusion in paragraph 2(1)(c), a currency exchange contract must not permit a rollover of the contract. Therefore, physical delivery of the relevant currencies must occur in the time periods prescribed in subparagraph 2(1)(c)(i). To the extent that a contract does not have a fixed settlement date or otherwise allows for the settlement date to be extended beyond the periods prescribed in subparagraph 2(1)(c)(i), the Commission would consider it to permit a rollover of the contract. Similarly, any terms or practice that permits the settlement date of the contract to be extended by simultaneously closing the contract and entering into a new contract without delivery of the relevant currencies would also not qualify for the exclusion in paragraph 2(1)(c).

The Commission does not intend that the exclusion in paragraph 2(1)(c) will apply to contracts entered into through platforms that facilitate investment or speculation based on the relative value of currencies. These platforms typically do not provide for physical delivery of the currency referenced in the contract, but instead close out the positions by crediting client accounts held by the person operating the platform, often applying the credit using a standard currency.

(d) Commodities

Paragraph 2(1)(d) of the Rule prescribes a contract for the delivery of a commodity not to be a "derivative" if it meets the criteria in subparagraphs 2(1)(d)(i) and (ii).

Commodity

The exclusion available under paragraph 2(1)(d) is limited to commercial transactions in goods that can be delivered either in a physical form or by delivery of the instrument evidencing ownership of the commodity. We take the position that commodities include goods such as agricultural products, forest products, products of the sea, minerals, metals, hydrocarbon fuel, precious stones or other gems, electricity, oil and natural gas (and by-products, and associated refined products, thereof), and water. We also consider certain intangible commodities, such as carbon credits and emission allowances, to be commodities. In contrast, this exclusion will not apply to financial commodities such as currencies, interest rates, securities and indexes.

Intention requirement (subparagraph 2(1)(d)(i))

Subparagraph 2(1)(d)(i) of the Rule requires that counterparties intend to settle the contract by delivering the commodity. Intention can be inferred from the terms of the relevant contract as well as from the surrounding facts and circumstances.

When examining the specific terms of a contract for evidence of an intention to deliver, we take the position that the contract must create an obligation on the counterparties to make or take delivery of the commodity and not merely an option to make or take delivery. Subject to the comments below on subparagraph 2(1)(d)(ii), we are of the view that a contract containing a provision that permits the contract to be settled by means other than delivery of the commodity, or that includes an option or has the effect of creating an option to settle the contract by a method other than through the delivery of the commodity, would not satisfy the intention requirement and therefore does not qualify for this exclusion.

We are generally of the view that certain provisions, including standard industry provisions, the effect of which may result in a transaction not being physically settled, may not necessarily negate the intention to deliver. The contract as a whole needs to be reviewed in order to determine whether the counterparties' intention was to actually deliver the commodity. Examples of provisions that may be consistent with the intention requirement under subparagraph 2(1)(d)(i) include:

• an option to change the volume or quantity, or the timing or manner of delivery, of the commodity to be delivered;

• a netting provision that allows two counterparties who are party to multiple contracts that require delivery of a commodity to net offsetting obligations provided that the counterparties intended to settle each contract through delivery at the time the contract was created,

• an option that allows the counterparty that is to accept delivery of a commodity to assign the obligation to accept delivery of the commodity to a third-party; and

• a provision where cash settlement is triggered by a termination right arising as a result of the breach of the terms of the contract or an event of default thereunder.

Although these types of provisions permit some form of cash settlement, they are included in the contract for practical and efficiency reasons.

In addition to the contract itself, intention may also be inferred from the conduct of the counterparties. For example, where it could be inferred from the conduct that counterparties intend to rely on breach or frustration provisions in the contract in order to achieve an economic outcome that is, or is akin to, cash settlement, the contract will not qualify for this exclusion. Similarly, a contract will not qualify for this exclusion where it can be inferred from their conduct that the counterparties intend to enter into collateral or amending agreements which, together with the original contract, achieve an economic outcome that is, or is akin to, cash settlement of the original contract.

When determining the intention of the counterparties, we will examine their conduct at execution and throughout the duration of the contract. Factors that we will consider include whether a counterparty is in the business of producing, delivering or using the commodity in question and whether the counterparties regularly make or take delivery of the commodity relative to the frequency with which they enter into such contracts in relation to the commodity.

Situations may exist where, after entering into the contract for delivery of the commodity, the counterparties enter into an agreement that terminates their obligation to deliver or accept delivery of the commodity (often referred to as a "book-out" agreement). Book-out agreements are typically separately negotiated, new agreements where the counterparties have no obligation to enter into such agreements and such book-out agreements are not provided for by the terms of the contract as initially entered into. We will generally not consider a book-out to be a "derivative" provided that, at the time of execution of the original contract, the counterparties intended that the commodity would be delivered.

Settlement by delivery except where impossible or commercially unreasonable (subparagraph 2(1)(d)(ii))

Subparagraph 2(1)(d)(ii) requires that a contract not permit cash settlement in place of delivery unless physical settlement is rendered impossible or commercially unreasonable as a result of an intervening event or occurrence not reasonably within the control of the counterparties, their affiliates or their agents. A change in the market value of the commodity itself will not render delivery commercially unreasonable. In general, we consider examples of events not reasonably within the control of the counterparties would include:

• events to which typical force majeure clauses would apply,

• problems in delivery systems such as the unavailability of transmission lines for electricity or a pipeline for oil or gas where an alternative method of delivery is not reasonably available, and

• problems incurred by a counterparty in producing the commodity that they are obliged to deliver such as a fire at an oil refinery or a drought preventing crops from growing where an alternative source for the commodity is not reasonably available.

In our view, cash settlement in these circumstances would not preclude the requisite intention under subparagraph 2(1)(d)(i) from being satisfied.

(e) and (f) Evidence of a deposit

Paragraphs 2(1)(e) and (f) of the Rule prescribe certain evidence of deposits not to be a "derivative".

Paragraph 2(1)(f) refers to "similar statutes of Canada or a jurisdiction of Canada". While the Credit Unions and Caisses Populaires Act, 1994 (Ontario) is Ontario legislation, it is intended that all federal or province-specific statutes will receive the same treatment in every province or territory. For example, if a credit union to which the Ontario Credit Unions and Caisses Populaires Act, 1994 (Ontario) applies issues an evidence of deposit to a market participant that is located in a different province, that province would apply the same treatment under its equivalent legislation.

(g) Exchange-traded derivatives

Paragraph 2(1)(g) of the Rule prescribes a contract not to be a derivative if it is traded on certain prescribed exchanges. Exchange-traded derivatives provide a measure of transparency to regulators and to the public, and for this reason are not required to be reported. We note that where a transaction is cleared through a clearing agency, but not traded on an exchange, it will not be considered to be exchange-traded and will be required to be reported.

Subsection 2(2) of the Rule excludes derivatives trading facilities from the meaning of exchange as it is used in paragraph 2(1)(g). A derivatives trading facility includes any trading system, facility or platform in which multiple participants have the ability to execute or trade derivative instruments by accepting bids and offers made by multiple participants in the facility or system, and in which multiple third-party buying and selling interests in over-the-counter derivatives have the ability to interact in the system, facility or platform in a way that results in a contract.

For example, the following would not be considered an exchange for purposes of paragraph 2(1)(g): a "swap execution facility" as defined in the Commodity Exchange Act 7 U.S.C. §(1a)(50); a "security-based swap execution facility" as defined in the Securities Exchange Act of 1934 15 U.S.C. §78c(a)(77); and a "Multilateral trading facility" as defined in Directive 2004/39/EC Article 4(1)(15) of the European Parliament. Therefore derivatives traded on the foregoing facilities that would otherwise be considered derivatives for the purposes of this Rule are required to be reported.

(h) Additional contracts not considered to be derivatives

Apart from the contracts expressly prescribed not to be derivatives in section 2 of the Rule, there are other contracts that we do not consider to be "derivatives" for the purposes of securities or derivatives legislation. A feature common to these contracts is that they are entered into for consumer, business or non-profit purposes that do not involve investment, speculation or hedging. Typically, they provide for the transfer of ownership of a good or the provision of a service. In most cases, they are not traded on a market.

These contracts include, but are not limited to:

• a consumer or commercial contract to acquire, or lease real or personal property, to provide personal services, to sell or assign rights, equipment, receivables or inventory, or to obtain a loan or mortgage, including a loan or mortgage with a variable rate of interest, interest rate cap, interest rate lock or embedded interest rate option;

• a consumer contract to purchase non-financial products or services at a fixed, capped or collared price;

• an employment contract or retirement benefit arrangement;

• a guarantee;

• a performance bond;

• a commercial sale, servicing, or distribution arrangement;

• a contract for the purpose of effecting a business purchase and sale or combination transaction;

• a contract representing a lending arrangement in connection with building an inventory of assets in anticipation of a securitization of such assets; and

• a commercial contract containing mechanisms indexing the purchase price or payment terms for inflation such as via reference to an interest rate or consumer price index.

Investment contracts and over-the-counter options

3. Section 3 of the Rule prescribes a contract (to which section 2 of the Rule does not apply) that is a derivative and a security solely by reason of being an investment contract under paragraph (n) of the definition of "security" in subsection 1(1) of the Act, not to be a security. Some types of contracts traded over-the-counter, such as foreign exchange contracts and contracts for difference meet the definition of "derivative" (because their market price, value, delivery obligations, payment obligations or settlement obligations are derived from, referenced to or based on an underlying interest) but also meet the definition of "security" (because they are investment contracts). This section prescribes that such instruments will be treated as derivatives and therefore be required to be reported to a designated trade repository.

Similarly, options fall within both the definition of "derivative" and the definition of "security". Section 3 of the Rule prescribes an option that is only a security by virtue of paragraph (d) of the definition of "security" in subsection 1(1) of the Act (and not described in section 5 of the Rule), not to be a security. This section prescribes that such instruments will be treated as derivatives and therefore will be required to be reported to a designated trade repository. This treatment will only apply to options that are traded over-the-counter. Under paragraph 2(g), exchange-traded options will not be required to be reported to a designated trade repository. Further, options that are entered into on a commodity futures exchange pursuant to standardized terms and conditions are commodity futures options and therefore regulated under the Commodity Futures Act (Ontario) and excluded from the definition of "derivative".

Derivatives that are securities

4. Section 4 of the Rule prescribes a contract (to which sections 2 and 3 of the Rule do not apply) that is a security and a derivative, not to be a derivative. Derivatives that are securities and which are contemplated as falling within this section include structured notes, asset-backed securities, exchange-traded notes, capital trust units, exchangeable securities, income trust units, securities of investment funds and warrants. This section ensures that such instruments will continue to be subject to applicable prospectus disclosure and continuous disclosure requirements in securities legislation as well as applicable registration requirements for dealers and advisers. The Commission anticipates that it will again review the categorization of instruments as securities and derivatives once the comprehensive derivatives regime has been implemented.

Derivatives prescribed to be securities

5. Section 5 of the Rule prescribes a security-based derivative that is used by an issuer or its affiliate to compensate an officer, director, employee or service provider, or as a financing instrument, not to be a derivative. Examples of the compensation instruments that are contemplated as falling within section 5 include stock options, phantom stock units, restricted share units, deferred share units, restricted share awards, performance share units, stock appreciation rights and compensation instruments provided to service providers, such as broker options. Securities treatment would also apply to the aforementioned instruments when used as a financing instrument, for example, rights, warrants and special warrants, or subscription rights/receipts or convertible instruments issued to raise capital for any purpose. The Commission takes the view that an instrument would only be considered a financing instrument if it is used for capital-raising purposes. An equity swap, for example, would generally not be considered a financing instrument. The classes of derivatives referred to in section 5 can have similar or the same economic effect as a securities issuance and are therefore subject to requirements generally applicable to securities. As they are prescribed not to be derivatives they are not subject to the derivatives reporting requirements.

 

ONTARIO SECURITIES COMMISSION RULE 91-507

TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

PART 1

DEFINITIONS AND INTERPRETATION

Definitions

1. (1) In this Rule

"asset class" means the asset category underlying a derivative and includes interest rate, foreign exchange, credit, equity and commodity;

"board of directors" means, in the case of a designated trade repository that does not have a board of directors, a group of individuals that acts in a capacity similar to a board of directors;

"creation data" means the data in the fields listed in Appendix A;

"derivatives dealer" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of trading in derivatives in Ontario as principal or agent;

"derivatives data" means all data related to a transaction that is required to be reported pursuant to Part 3;

"Global Legal Entity Identifier System" means the system for unique identification of parties to financial transactions developed by the Legal Entity Identifier System Regulatory Oversight Committee;

"Legal Entity Identifier System Regulatory Oversight Committee" means the international working group established by the Finance Ministers and the Central Bank Governors of the Group of Twenty nations and the Financial Stability Board, under the Charter of the Regulatory Oversight Committee for the Global Legal Entity Identifier System dated November 5, 2012;

"life-cycle event" means an event that results in a change to derivatives data previously reported to a designated trade repository in respect of a transaction;

"life-cycle event data" means changes to creation data resulting from a life-cycle event;

"local counterparty" means a counterparty to a transaction if, at the time of the transaction, one or more of the following apply:

(a) the counterparty is a person or company, other than an individual, organized under the laws of Ontario or that has its head office or principal place of business in Ontario;

(b) the counterparty is registered under Ontario securities law as a derivatives dealer or in an alternative category as a consequence of trading in derivatives;

(c) the counterparty is an affiliate of a person or company described in paragraph (a), and such person or company is responsible for the liabilities of that affiliated party;

"participant" means a person or company that has entered into an agreement with a designated trade repository to access the services of the designated trade repository;

"reporting counterparty" means the counterparty to a transaction as determined under section 25 that is required to report derivatives data under section 26;

"transaction" means entering into, assigning, selling or otherwise acquiring or disposing of a derivative or the novation of a derivative;

"user" means, in respect of a designated trade repository, a counterparty (or delegate of a counterparty) to a transaction reported to that designated trade repository pursuant to this Rule; and

"valuation data" means data that reflects the current value of the transaction and includes the data in the applicable fields listed in Appendix A under the heading "Valuation Data".

(2) In this Rule, each of the following terms has the same meaning as in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards: "accounting principles"; "auditing standards"; "publicly accountable enterprise"; "U.S. AICPA GAAS"; "U.S. GAAP"; and "U.S. PCAOB GAAS".

(3) In this Rule, "interim period" has the same meaning as in section 1.1 of National Instrument 51-102 Continuous Disclosure Obligations.

PART 2

TRADE REPOSITORY DESIGNATION AND ONGOING REQUIREMENTS

Trade repository initial filing of information and designation

2. (1) An applicant for designation under section 21.2.2 of the Act must file a completed Form 91-507F1 -- Application For Designation and Trade Repository Information Statement.

(2) In addition to the requirement set out in subsection (1), an applicant for designation under section 21.2.2 of the Act whose head office or principal place of business is located outside of Ontario must

(a) certify on Form 91-507F1 that it will provide the Commission with access to its books and records and will submit to onsite inspection and examination by the Commission,

(b) certify on Form 91-507F1 that it will provide the Commission with an opinion of legal counsel that

(i) the applicant has the power and authority to provide the Commission with access to its books and records, and

(ii) the applicant has the power and authority to submit to onsite inspection and examination by the Commission.

(3) In addition to the requirements set out in subsections (1) and (2), an applicant for designation under section 21.2.2 of the Act whose head office or principal place of business is located in a foreign jurisdiction must file a completed Form 91-507F2 -- Submission to Jurisdiction and Appointment of Agent for Service of Process.

(4) Within 7 days of becoming aware of an inaccuracy in or making a change to the information provided in Form 91-507F1, an applicant must file an amendment to Form 91-507F1 in the manner set out in that Form.

Change in information

3. (1) Subject to subsection (2), a designated trade repository must not implement a significant change to a matter set out in Form 91-507F1 unless it has filed an amendment to Form 91-507F1 in the manner set out in that Form at least 45 days before implementing the change.

(2) A designated trade repository must file an amendment to the information provided in Exhibit I (Fees) of Form 91-507F1 in the manner set out in the Form at least 15 days before implementing a change to the information provided in the Exhibit.

(3) For a change to a matter set out in Form 91-507F1 other than a change referred to in subsection (1) or (2), a designated trade repository must file an amendment to Form 91-507F1 in the manner set out in that Form by the earlier of

(a) the close of business of the designated trade repository on the 10th day after the end of the month in which the change was made, and

(b) the time the designated trade repository publicly discloses the change.

Filing of initial audited financial statements

4. (1) An applicant must file audited financial statements for its most recently completed financial year with the Commission as part of its application for designation under section 21.2.2 of the Act.

(2) The financial statements referred to in subsection (1) must

(a) be prepared in accordance with one of the following

(i) Canadian GAAP applicable to a publicly accountable enterprise,

(ii) IFRS, or

(iii) U.S. GAAP, if the person or company is incorporated or organized under the laws of the United States of America,

(b) identify in the notes to the financial statements the accounting principles used to prepare the financial statements,

(c) disclose the presentation currency, and

(d) be audited in accordance with

(i) Canadian GAAS,

(ii) International Standards on Auditing, or

(iii) U.S. AICPA GAAS or U.S. PCAOB GAAS if the person or company is incorporated or organized under the laws of the United States of America.

(3) The financial statements referred to in subsection (1) must be accompanied by an auditor's report that

(a) expresses an unmodified opinion if the financial statements are audited in accordance with Canadian GAAS or International Standards on Auditing,

(b) expresses an unqualified opinion if the financial statements are audited in accordance with U.S. AICPA GAAS or U.S. PCAOB GAAS,

(c) identifies all financial periods presented for which the auditor's report applies,

(d) identifies the auditing standards used to conduct the audit,

(e) identifies the accounting principles used to prepare the financial statements,

(f) is prepared in accordance with the same auditing standards used to conduct the audit, and

(g) is prepared and signed by a person or company that is authorized to sign an auditor's report under the laws of a jurisdiction of Canada or a foreign jurisdiction, and that meets the professional standards of that jurisdiction.

Filing of annual audited and interim financial statements

5. (1) A designated trade repository must file annual audited financial statements that comply with the requirements in subsections 4(2) and 4(3) with the Commission no later than the 90th day after the end of its financial year.

(2) A designated trade repository must file interim financial statements with the Commission no later than the 45th day after the end of each interim period.

(3) The interim financial statements referred to in subsection (2) must

(a) be prepared in accordance with one of the following

(i) Canadian GAAP applicable to a publicly accountable enterprise,

(ii) IFRS, or

(iii) U.S. GAAP, if the person or company is incorporated or organized under the laws of the United States of America, and

(b) identify in the notes to the financial statements the accounting principles used to prepare the financial statements.

Ceasing to carry on business

6. (1) A designated trade repository that intends to cease carrying on business in Ontario as a trade repository must make an application and file a report on Form 91-507F3 -- Cessation of Operations Report For Trade Repository at least 180 days before the date on which it intends to cease carrying on that business.

(2) A designated trade repository that involuntarily ceases to carry on business in Ontario as a trade repository must file a report on Form 91-507F3 as soon as practicable after it ceases to carry on that business.

Legal framework

7. (1) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures reasonably designed to ensure a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities.

(2) Without limiting the generality of subsection (1), a designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures that are not contrary to the public interest and that are reasonably designed to ensure that

(a) such rules, policies and procedures and the contractual arrangements are supported by the laws applicable to those rules, policies, procedures and contractual arrangements,

(b) the rights and obligations of a user, owner and regulator with respect to the use of the designated trade repository's information are clear and transparent,

(c) the contractual arrangements that it enters into and supporting documentation clearly state service levels, rights of access, protection of confidential information, intellectual property rights and operational reliability, and

(d) the status of records of contracts in its repository and whether those records of contracts are the legal contracts of record are clearly established.

Governance

8. (1) A designated trade repository must establish, implement and maintain written governance arrangements that

(a) are well-defined, clear and transparent,

(b) set out a clear organizational structure with consistent lines of responsibility,

(c) provide for effective internal controls,

(d) promote the safety and efficiency of the designated trade repository,

(e) ensure effective oversight of the designated trade repository,

(f) support the stability of the broader financial system and other relevant public interest considerations, and

(g) properly balance the interests of relevant stakeholders.

(2) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures reasonably designed to identify and manage existing and potential conflicts of interest.

(3) A designated trade repository must publicly disclose on its website

(a) the governance arrangements established in accordance with subsection (1), and

(b) the rules, policies and procedures established in accordance with subsection (2).

Board of directors

9. (1) A designated trade repository must have a board of directors.

(2) The board of directors of a designated trade repository must include

(a) individuals who have an appropriate level of skill and experience to effectively and efficiently oversee the management of its operations in accordance with all relevant laws, and

(b) appropriate representation by individuals who are independent of the designated trade repository.

(3) The board of directors of a designated trade repository must, in consultation with the chief compliance officer of the designated trade repository, resolve conflicts of interest identified by the chief compliance officer.

(4) The board of directors of a designated trade repository must meet with the chief compliance officer of the designated trade repository on a regular basis.

Management

10. (1) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures that

(a) specify the roles and responsibilities of management, and

(b) ensure that management has the experience, competencies, integrity and mix of skills necessary to discharge its roles and responsibilities.

(2) A designated trade repository must notify the Commission no later than the 5th business day after appointing or replacing its chief compliance officer, chief executive officer or chief risk officer.

Chief compliance officer

11. (1) The board of directors of a designated trade repository must appoint a chief compliance officer with the appropriate experience, competencies, integrity and mix of skills necessary to serve in that capacity.

(2) The chief compliance officer of a designated trade repository must report directly to the board of directors of the designated trade repository or, if so directed by the board of directors, to the chief executive officer of the designated trade repository.

(3) The chief compliance officer of a designated trade repository must

(a) establish, implement, maintain and enforce written rules, policies and procedures to identify and resolve conflicts of interest,

(b) establish, implement, maintain and enforce written rules, policies and procedures to ensure that the designated trade repository complies with securities legislation,

(c) monitor compliance with the rules, policies and procedures required under paragraphs (a) and (b) on an ongoing basis,

(d) report to the board of directors of the designated trade repository as soon as practicable upon becoming aware of a circumstance indicating that the designated trade repository, or an individual acting on its behalf, is not in compliance with the securities laws of a jurisdiction in which it operates and one or more of the following apply:

(i) the non-compliance creates a risk of harm to a user;

(ii) the non-compliance creates a risk of harm to the capital markets;

(iii) the non-compliance is part of a pattern of non-compliance;

(iv) the non-compliance may have an impact on the ability of the designated trade repository to carry on business as a trade repository in compliance with securities legislation,

(e) report to the designated trade repository's board of directors as soon as practicable upon becoming aware of a conflict of interest that creates a risk of harm to a user or to the capital markets, and

(f) prepare and certify an annual report assessing compliance by the designated trade repository, and individuals acting on its behalf, with securities legislation and submit the report to the board of directors.

(4) Concurrently with submitting a report under paragraph (3)(d), (3)(e) or (3)(f), the chief compliance officer must file a copy of the report with the Commission.

Fees

12. All fees and other material costs imposed by a designated trade repository on its participants must be

(a) fairly and equitably allocated among participants, and

(b) publicly disclosed on its website for each service it offers with respect to the collection and maintenance of derivatives data.

Access to designated trade repository services

13. (1) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures that establish objective, risk-based criteria for participation that permit fair and open access to the services it provides.

(2) A designated trade repository must publicly disclose on its website the rules, policies and procedures referred to in subsection (1).

(3) A designated trade repository must not do any of the following:

(a) unreasonably prohibit, condition or limit access by a person or company to the services offered by the designated trade repository;

(b) permit unreasonable discrimination among the participants of the designated trade repository;

(c) impose a burden on competition that is not reasonably necessary and appropriate;

(d) require the use or purchase of another service for a person or company to utilize the trade reporting service offered by the designated trade repository.

Acceptance of reporting

14. A designated trade repository must accept derivatives data from a participant for a transaction in a derivative of the asset class or classes set out in the designated trade repository's designation order.

Communication policies, procedures and standards

15. A designated trade repository must use or accommodate relevant internationally accepted communication procedures and standards in order to facilitate the efficient exchange of data between its systems and those of

(a) its participants,

(b) other trade repositories,

(c) exchanges, clearing agencies, alternative trading systems, and other marketplaces, and

(d) other service providers.

Due process

16. For a decision made by a designated trade repository that directly adversely affects a participant or an applicant that applies to become a participant, the designated trade repository must ensure that

(a) the participant or applicant is given an opportunity to be heard or make representations, and

(b) it keeps records of, gives reasons for, and provides for reviews of its decisions, including, for each applicant, the reasons for granting, denying or limiting access.

Rules, policies and procedures

17. (1) The rules, policies and procedures of a designated trade repository must

(a) be clear and comprehensive and provide sufficient information to enable a participant to have an accurate understanding of its rights and obligations in accessing the services of the designated trade repository and the risks, fees, and other material costs they incur by using the services of the designated trade repository,

(b) be reasonably designed to govern all aspects of the services offered by the designated trade repository with respect to the collection and maintenance of derivatives data and other information on a completed transaction, and

(c) not be inconsistent with securities legislation.

(2) A designated trade repository must monitor compliance with its rules, policies and procedures on an ongoing basis.

(3) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures for sanctioning non-compliance with its rules, policies and procedures.

(4) A designated trade repository must publicly disclose on its website

(a) its rules, policies and procedures referred to in this section, and

(b) its procedures for adopting new rules, policies and procedures or amending existing rules, policies and procedures.

(5) A designated trade repository must file its proposed new or amended rules, policies and procedures for approval in accordance with the terms and conditions of its designation order, unless the order explicitly exempts the designated trade repository from this requirement.

Records of data reported

18. (1) A designated trade repository must design its recordkeeping procedures to ensure that it records derivatives data accurately, completely and on a timely basis.

(2) A designated trade repository must keep, in a safe location and in a durable form, records of derivatives data in relation to a transaction for the life of the transaction and for a further 7 years after the date on which the transaction expires or terminates.

(3) Throughout the period described in subsection (2), a designated trade repository must create and maintain at least one copy of each record of derivatives data required to be kept under subsection (2), in a safe location and in a durable form, separate from the location of the original record.

Comprehensive risk-management framework

19. A designated trade repository must establish, implement and maintain a written risk-management framework for comprehensively managing risks including business, legal, and operational risks.

General business risk

20. (1) A designated trade repository must establish, implement and maintain appropriate systems, controls and procedures to identify, monitor, and manage its general business risk.

(2) Without limiting the generality of subsection (1), a designated trade repository must hold sufficient insurance coverage and liquid net assets funded by equity to cover potential general business losses in order that it can continue operations and services as a going concern in order to achieve a recovery or an orderly wind down if those losses materialize.

(3) For the purposes of subsection (2), a designated trade repository must hold, at a minimum, liquid net assets funded by equity equal to six months of current operating expenses.

(4) A designated trade repository must identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for an orderly wind-down.

(5) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures reasonably designed to facilitate its orderly wind-down based on the results of the assessment required by subsection (4).

(6) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures to ensure that it or a successor entity, insolvency administrator or other legal representative, will continue to comply with the requirements of subsection 6(2) and section 37 in the event of the bankruptcy or insolvency of the designated trade repository or the wind-down of the designated trade repository's operations.

System and other operational risk requirements

21. (1) A designated trade repository must establish, implement, maintain and enforce appropriate systems, controls and procedures to identify and minimize the impact of all plausible sources of operational risk, both internal and external, including risks to data integrity, data security, business continuity and capacity and performance management.

(2) The systems, controls and procedures established pursuant to subsection (1) must be approved by the board of directors of the designated trade repository.

(3) Without limiting the generality of subsection (1), a designated trade repository must

(a) develop and maintain

(i) an adequate system of internal controls over its systems, and

(ii) adequate information technology general controls, including without limitation, controls relating to information systems operations, information security and integrity, change management, problem management, network support and system software support,

(b) in accordance with prudent business practice, on a reasonably frequent basis and, in any event, at least annually

(i) make reasonable current and future capacity estimates, and

(ii) conduct capacity stress tests to determine the ability of those systems to process transactions in an accurate, timely and efficient manner, and

(c) promptly notify the Commission of a material systems failure, malfunction, delay or other disruptive incident, or a breach of data security, integrity or confidentiality, and provide a post-incident report that includes a root-cause analysis as soon as practicable.

(4) Without limiting the generality of subsection (1), a designated trade repository must establish, implement, maintain and enforce business continuity plans, including disaster recovery plans reasonably designed to

(a) achieve prompt recovery of its operations following a disruption,

(b) allow for the timely recovery of information, including derivatives data, in the event of a disruption, and

(c) provide for the exercise of authority in the event of an emergency.

(5) A designated trade repository must test its business continuity plans, including disaster recovery plans, at least annually.

(6) For each of its systems for collecting and maintaining reports of derivatives data, a designated trade repository must annually engage a qualified party to conduct an independent review and prepare a report in accordance with established audit standards to ensure that it is in compliance with paragraphs (3)(a) and (b) and subsections (4) and (5).

(7) A designated trade repository must provide the report prepared in accordance with subsection (6) to

(a) its board of directors or audit committee promptly upon the completion of the report, and

(b) the Commission not later than the 30th day after providing the report to its board of directors or audit committee.

(8) A designated trade repository must publicly disclose on its website all technology requirements regarding interfacing with or accessing the services provided by the designated trade repository,

(a) if operations have not begun, sufficiently in advance of operations to allow a reasonable period for testing and system modification by participants, and

(b) if operations have begun, sufficiently in advance of implementing a material change to technology requirements to allow a reasonable period for testing and system modification by participants.

(9) A designated trade repository must make available testing facilities for interfacing with or accessing the services provided by the designated trade repository,

(a) if operations have not begun, sufficiently in advance of operations to allow a reasonable period for testing and system modification by participants, and

(b) if operations have begun, sufficiently in advance of implementing a material change to technology requirements to allow a reasonable period for testing and system modification by participants.

(10) A designated trade repository must not begin operations in Ontario unless it has complied with paragraphs (8)(a) and (9)(a).

(11) Paragraphs (8)(b) and (9)(b) do not apply to a designated trade repository if

(a) the change to its technology requirements must be made immediately to address a failure, malfunction or material delay of its systems or equipment,

(b) the designated trade repository immediately notifies the Commission of its intention to make the change to its technology requirements, and

(c) the designated trade repository publicly discloses on its website the changed technology requirements as soon as practicable.

Data security and confidentiality

22. (1) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures reasonably designed to ensure the safety, privacy and confidentiality of the derivatives data.

(2) A designated trade repository must not release derivatives data for commercial or business purposes unless

(a) the derivatives data has otherwise been disclosed pursuant to section 39, or

(b) the counterparties to the transaction have provided the designated trade repository with their express written consent to use or release the derivatives data.

Confirmation of data and information

23. (1) A designated trade repository must establish, implement, maintain and enforce written rules, policies and procedures to confirm with each counterparty to a transaction, or agent acting on behalf of such counterparty, that the derivatives data that the designated trade repository receives from a reporting counterparty, or from a party to whom a reporting counterparty has delegated its reporting obligation under this Rule, is accurate.

(2) Despite subsection (1), a designated trade repository need only confirm the accuracy of the derivatives data it receives with those counterparties that are participants of the designated trade repository.

Outsourcing

24. If a designated trade repository outsources a material service or system to a service provider, including to an associate or affiliate of the designated trade repository, the designated trade repository must

(a) establish, implement, maintain and enforce written rules, policies and procedures for the selection of a service provider to which a material service or system may be outsourced and for the evaluation and approval of such an outsourcing arrangement,

(b) identify any conflicts of interest between the designated trade repository and a service provider to which a material service or system is outsourced, and establish, implement, maintain and enforce written rules, policies and procedures to mitigate and manage those conflicts of interest,

(c) enter into a written contract with the service provider that is appropriate for the materiality and nature of the outsourced activity and that provides for adequate termination procedures,

(d) maintain access to the books and records of the service provider relating to the outsourced activity,

(e) ensure that the Commission has the same access to all data, information and systems maintained by the service provider on behalf of the designated trade repository that it would have absent the outsourcing arrangement,

(f) ensure that all persons conducting audits or independent reviews of the designated trade repository under this Rule have appropriate access to all data, information and systems maintained by the service provider on behalf of the designated trade repository that such persons would have absent the outsourcing arrangement,

(g) take appropriate measures to determine that a service provider to which a material service or system is outsourced establishes, maintains and periodically tests an appropriate business continuity plan, including a disaster recovery plan in accordance with the requirements under section 21,

(h) take appropriate measures to ensure that the service provider protects the safety, privacy and confidentiality of derivatives data and of users' confidential information in accordance with the requirements under section 22, and

(i) establish, implement, maintain and enforce written rules, policies and procedures to regularly review the performance of the service provider under the outsourcing arrangement.

PART 3

DATA REPORTING

Reporting counterparty

25. (1) The reporting counterparty with respect to a transaction involving a local counterparty is

(a) if the transaction is cleared through a recognized or exempt clearing agency, the recognized or exempt clearing agency,

(b) if the transaction is not cleared through a recognized or exempt clearing agency and is between two derivatives dealers, each derivatives dealer,

(c) if the transaction is not cleared through a recognized or exempt clearing agency and is between a derivatives dealer and a counterparty that is not a derivatives dealer, the derivatives dealer, and

(d) in any other case, each local counterparty to the transaction.

(2) A local counterparty to a transaction must act as the reporting counterparty to the transaction for the purposes of this Rule if

(a) the reporting counterparty to the transaction as determined under paragraph (1)(c) is not a local counterparty, and

(b) by the end of the second business day following the day on which derivatives data is required to be reported under this Part, the local counterparty has not received confirmation that the derivatives data for the transaction has been reported by the reporting counterparty.

Duty to report

26. (1) A reporting counterparty to a transaction involving a local counterparty must report, or cause to be reported, the data required to be reported under this Part to a designated trade repository.

(2) A reporting counterparty in respect of a transaction is responsible for ensuring that all reporting obligations in respect of that transaction have been fulfilled.

(3) A reporting counterparty may delegate its reporting obligations under this Rule, but remains responsible for ensuring the timely and accurate reporting of derivatives data required by this Rule.

(4) Despite subsection (1), if no designated trade repository accepts the data required to be reported by this Part, the reporting counterparty must electronically report the data required to be reported by this Part to the Commission.

(5) A reporting counterparty satisfies the reporting obligation in respect of a transaction required to be reported under subsection (1) if

(a) the transaction is required to be reported solely because a counterparty to the transaction is a local counterparty pursuant to paragraph (b) or (c) of the definition of "local counterparty",

(b) the transaction is reported to a designated trade repository pursuant to

(i) the securities legislation of a province of Canada other than Ontario, or

(ii) the laws of a foreign jurisdiction listed in Appendix B; and

(c) the reporting counterparty instructs the designated trade repository referred to in paragraph (b) to provide the Commission with access to the derivatives data that it is required to report pursuant to this Rule and otherwise uses its best efforts to provide the Commission with access to such derivatives data.

(6) A reporting counterparty must ensure that all reported derivatives data relating to a transaction

(a) is reported to the same designated trade repository to which the initial report was made or, if the initial report was made to the Commission under subsection (4), to the Commission, and

(b) is accurate and contains no misrepresentation.

(7) A reporting counterparty must report an error or omission in the derivatives data as soon as technologically practicable upon discovery of the error or omission, and in no event later than the end of the business day following the day of discovery of the error or omission.

(8) A local counterparty, other than the reporting counterparty, must notify the reporting counterparty of an error or omission with respect to derivatives data relating to a transaction to which it is a counterparty as soon as technologically practicable upon discovery of the error or omission, and in no event later than the end of the business day following the day of discovery of the error or omission.

(9) A recognized or exempt clearing agency must report derivatives data to the designated trade repository specified by a local counterparty and may not report derivatives data to another trade repository without the consent of the local counterparty where

(a) the reporting counterparty to a transaction is the recognized or exempt clearing agency, and

(b) the local counterparty to the transaction that is not a recognized or exempt clearing agency has specified a designated trade repository to which derivatives data in respect of that transaction is to be reported.

Identifiers, general

27. A reporting counterparty must include the following in every report required by this Part:

(a) the legal entity identifier of each counterparty to the transaction as set out in section 28;

(b) the unique transaction identifier for the transaction as set out in section 29;

(c) the unique product identifier for the transaction as set out in section 30.

Legal entity identifiers

28. (1) A designated trade repository must identify each counterparty to a transaction that is required to be reported under this Rule in all recordkeeping and all reporting required under this Rule by means of a single legal entity identifier.

(2) Each of the following rules apply to legal entity identifiers

(a) a legal entity identifier must be a unique identification code assigned to a counterparty in accordance with the standards set by the Global Legal Entity Identifier System, and

(b) a local counterparty must comply with all applicable requirements imposed by the Global Legal Entity Identifier System.

(3) Despite subsection (2), if the Global Legal Entity Identifier System is unavailable to a counterparty to a transaction at the time when a report under this Rule is required to be made, all of the following rules apply

(a) each counterparty to the transaction must obtain a substitute legal entity identifier which complies with the standards established March 8, 2013 by the Legal Entity Identifier Regulatory Oversight Committee for pre-legal entity identifiers,

(b) a local counterparty must use the substitute legal entity identifier until a legal entity identifier is assigned to the counterparty in accordance with the standards set by the Global Legal Entity Identifier System as required under paragraph (2)(a), and

(c) after the holder of a substitute legal entity identifier is assigned a legal entity identifier in accordance with the standards set by the Global Legal Entity Identifier System as required under paragraph (2)(a), the local counterparty must ensure that it is identified only by the assigned legal entity identifier in all derivatives data reported pursuant to this Rule in respect of transactions to which it is a counterparty.

Unique transaction identifiers

29. (1) A designated trade repository must identify each transaction that is required to be reported under this Rule in all recordkeeping and all reporting required under this Rule by means of a unique transaction identifier.

(2) A designated trade repository must assign a unique transaction identifier to a transaction, using its own methodology or incorporating a unique transaction identifier previously assigned to the transaction.

(3) A designated trade repository must not assign more than one unique transaction identifier to a transaction.

Unique product identifiers

30. (1) For the purposes of this section, a unique product identifier means a code that uniquely identifies a derivative and is assigned in accordance with international or industry standards.

(2) A reporting counterparty must identify each transaction that is required to be reported under this Rule in all recordkeeping and all reporting required under this Rule by means of a unique product identifier.

(3) A reporting counterparty must not assign more than one unique product identifier to a transaction.

(4) If international or industry standards for a unique product identifier are unavailable for a particular derivative when a report is required to be made to a designated trade repository under this Rule, a reporting counterparty must assign a unique product identifier to the transaction using its own methodology.

Creation data

31. (1) Upon execution of a transaction that is required to be reported under this Rule, a reporting counterparty must report the creation data relating to that transaction to a designated trade repository.

(2) A reporting counterparty in respect of a transaction must report creation data in real time.

(3) If it is not technologically practicable to report creation data in real time, a reporting counterparty must report creation data as soon as technologically practicable and in no event later than the end of the business day following the day on which the data would otherwise be required to be reported.

(4) Despite subsections (2) and (3), a local counterparty that is required to act as reporting counterparty to a transaction under subsection 25(2) must report the creation data relating to the transaction in no event later than the end of the third business day following the day on which the data would otherwise be required to be reported.

Life-cycle event data

32. (1) For a transaction that is required to be reported under this Rule, the reporting counterparty must report all life-cycle event data to a designated trade repository by the end of the business day on which the life-cycle event occurs.

(2) If it is not technologically practicable to report life-cycle event data by the end of the business day on which the life-cycle event occurs, the reporting counterparty must report life-cycle event data no later than the end of the business day following the day on which the life-cycle event occurs.

Valuation data

33. (1) For a transaction that is required to be reported under this Rule, a reporting counterparty must report valuation data, based on industry accepted valuation standards, to a designated trade repository

(a) daily, based on relevant closing market data from the previous business day, if the reporting counterparty is a derivatives dealer or a recognized or exempt clearing agency , or

(b) quarterly, as of the last day of each calendar quarter, if the reporting counterparty is not a derivatives dealer or a recognized or exempt clearing agency.

(2) Valuation data required to be reported pursuant to paragraph 1(b) must be reported to the designated trade repository no later than 30 days after the end of the calendar quarter.

Pre-existing transactions

34. (1) Despite section 31 and subject to subsection 43(5), for a transaction required to be reported pursuant to subsection 26(1) that was entered into before July 2, 2014 and that had outstanding contractual obligations on that day

(a) a reporting counterparty to the transaction is required to report only that creation data indicated in the column entitled "Required for Pre-existing Transactions" in Appendix A, and

(b) the creation data required to be reported pursuant to paragraph (a) must be reported no later than December 31, 2014.

(2) Despite section 32, for a transaction to which subsection (1) applies, a reporting counterparty's obligation to report life-cycle event data under section 32 commences only after it has reported creation data in accordance with subsection (1).

(3) Despite section 33, for a transaction to which subsection (1) applies, a reporting counterparty's obligation to report valuation data under section 33 commences only after it has reported creation data in accordance with subsection (1).

Timing requirements for reporting data to another designated trade repository

35. Despite the data reporting timing requirements in sections 31, 32, 33 and 34, where a designated trade repository ceases operations or stops accepting derivatives data for a certain asset class of derivatives, the reporting counterparty may fulfill its reporting obligations under this Rule by reporting the derivatives data to another designated trade repository, or the Commission if there is not an available designated trade repository, within a reasonable period of time.

Records of data reported

36. (1) A reporting counterparty must keep transaction records for the life of each transaction and for a further 7 years after the date on which the transaction expires or terminates.

(2) A reporting counterparty must keep records referred to in subsection (1) in a safe location and in a durable form.

PART 4

DATA DISSEMINATION AND ACCESS TO DATA

Data available to regulators

37. (1) A designated trade repository must, at no cost

(a) provide to the Commission direct, continuous and timely electronic access to such data in the designated trade repository's possession as is required by the Commission in order to carry out the Commission's mandate,

(b) accept and promptly fulfil any data requests from the Commission in order to carry out the Commission's mandate,

(c) create and make available to the Commission aggregate data derived from data in the designated trade repository's possession as required by the Commission in order to carry out the Commission's mandate, and

(d) disclose to the Commission the manner in which the derivatives data provided under paragraph (c) has been aggregated.

(2) A designated trade repository must conform to internationally accepted regulatory access standards applicable to trade repositories.

(3) A reporting counterparty must use its best efforts to provide the Commission with access to all derivatives data that it is required to report pursuant to this Rule, including instructing a trade repository to provide the Commission with access to such data.

Data available to counterparties

38. (1) A designated trade repository must provide counterparties to a transaction with timely access to all derivatives data relevant to that transaction which is submitted to the designated trade repository.

(2) A designated trade repository must have appropriate verification and authorization procedures in place to deal with access pursuant to subsection (1) by non-reporting counterparties or a party acting on behalf of a non-reporting counterparty.

(3) Each counterparty to a transaction is deemed to have consented to the release of all derivatives data required to be reported or disclosed under this Rule.

(4) Subsection (3) applies despite any agreement to the contrary between the counterparties to a transaction.

Data available to public

39. (1) A designated trade repository must, on a periodic basis, create and make available to the public, at no cost, aggregate data on open positions, volume, number and price, relating to the transactions reported to it pursuant to this Rule.

(2) The periodic aggregate data made available to the public pursuant to subsection (1) must be complemented at a minimum by breakdowns, where applicable, by currency of denomination, geographic location of reference entity or asset, asset class, contract type, maturity and whether the transaction is cleared.

(3) A designated trade repository must make transaction level reports of the data indicated in the column entitled "Required for Public Dissemination" in Appendix A for each transaction reported pursuant to this Rule available to the public at no cost not later than

(a) the end of the day following the day on which it receives the data from the reporting counterparty to the transaction, if one of the counterparties to the transaction is a derivatives dealer, or

(b) the end of the second day following the day on which it receives the data from the reporting counterparty to the transaction in all other circumstances.

(4) In disclosing transaction level reports required by subsection (3), a designated trade repository must not disclose the identity of either counterparty to the transaction.

(5) A designated trade repository must make the data required to be made available to the public under this section available in a usable form through a publicly accessible website or other publicly accessible technology or medium.

(6) Despite subsections (1) to (5), a designated trade repository is not required to make public any derivatives data for transactions entered into between affiliated companies as defined under subsection 1(2) of the Act.

PART 5

EXCLUSIONS

40. Despite any other section of this Rule, a local counterparty is under no obligation to report derivatives data for a transaction if,

(a) the transaction relates to a derivative the asset class of which is a commodity other than cash or currency,

(b) the local counterparty is not a derivatives dealer, and

(c) the local counterparty has less than $500,000 aggregate notional value, without netting, under all its outstanding transactions at the time of the transaction including the additional notional value related to that transaction.

41. Despite any other section of this Rule, a counterparty is under no obligation to report derivatives data in relation to a transaction if it is entered into between

(a) Her Majesty in right of Ontario or the Ontario Financing Authority when acting as agent for Her Majesty in right of Ontario, and

(b) an Ontario crown corporation or crown agency that forms part of a consolidated entity with Her Majesty in right of Ontario for accounting purposes.

PART 6

EXEMPTIONS

42. A Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.

PART 7

EFFECTIVE DATE

Effective date

43. (1) Parts 1, 2, 4, and 6 come into force on December 31, 2013.

(2) Despite subsection (1), subsection 39(3) does not apply until December 31, 2014.

(3) Parts 3 and 5 come into force July 2, 2014.

(4) Despite subsection (3), Part 3 does not apply so as to require a reporting counterparty that is not a derivatives dealer to make any reports under that Part until September 30, 2014.

(5) Despite the foregoing, Part 3 does not apply to a transaction entered into before July 2, 2014 that expires or terminates not later than December 31, 2014.

 

Appendix A to OSC Rule 91-507 -- Trade Repositories and Derivatives Data Reporting

Minimum Data Fields Required to be Reported to a Designated Trade Repository

Instructions:

The reporting counterparty is required to provide a response for each of the fields unless the field is not applicable to the transaction.

Data field

Description

Required for Public Dissemination

Required for Pre-existing Transactions

 

Transaction identifier

The unique transaction identifier as provided by the designated trade repository or the identifier as identified by the two counterparties, electronic trading venue of execution or clearing agency.

N

Y

 

Master agreement type

The type of master agreement, if used for the reported transaction.

N

N

 

Master agreement version

Date of the master agreement version (e.g., 2002, 2006).

N

N

 

Cleared

Indicate whether the transaction has been cleared by a clearing agency.

Y

Y

 

Clearing agency

LEI of the clearing agency where the transaction was cleared.

N

Y

 

Clearing member

LEI of the clearing member, if the clearing member is not a counterparty.

N

N

 

Clearing exemption

Indicate whether one or more of the counterparties to the transaction are exempted from a mandatory clearing requirement.

Y

N

 

Broker

LEI of the broker acting as an intermediary for the reporting counterparty without becoming a counterparty.

N

N

 

 

 

Y

 

Electronic trading venue identifier

LEI of the electronic trading venue or, if not available, the name of the electronic trading venue where the transaction was executed.

(Only "Yes" or "No" shall be publicly disseminated)

Y

 

Inter-affiliate

Indicate whether the transaction is between two affiliated entities.

N

N

 

Collateralization

Indicate whether the transaction is collateralized. Field Values:

 

 

 

Fully (initial and variation margin required to be posted by both parties),

 

 

 

Partially (variation only required to be posted by both parties),

 

 

 

One-way (one party will be required to post some form of collateral),

 

 

 

Uncollateralized.

Y

N

 

Identifier of reporting counterparty

LEI of the reporting counterparty or, in case of an individual, its client code.

N

Y

 

Identifier of non-reporting counterparty

LEI of the non-reporting counterparty or, in case of an individual, its client code.

N

Y

 

Counterparty side

Indicate whether the reporting counterparty was the buyer or seller. In the case of swaps, other than credit default, the buyer will represent the payer of leg 1 and the seller will be the payer of leg 2.

N

Y

 

Identifier of agent reporting the transaction

LEI of the agent reporting the transaction if reporting of the transaction has been delegated by the reporting counterparty.

N

N

 

Reporting counterparty derivatives dealer or non-derivatives dealer

Indicate whether the reporting counterparty is a derivatives dealer or non-derivatives dealer.

N

N

 

Non-reporting counterparty local counterparty or not local

Indicate whether the non-reporting counterparty is a local counterparty or not.

N

N

 

A. Common Data

These fields are required to be reported for all derivative transactions even if the information may be entered in an Asset field below.

 

Fields do not have to be reported if the unique product identifier adequately describes those fields.

 

Unique product identifier

Unique product identification code based on the taxonomy of the product.

Y

N

 

Contract type

The name of the contract type (e.g., swap, swaption, forwards, options, basis swap, index swap, basket swap, other).

Y

Y

 

Underlying asset identifier 1

The unique identifier of the asset referenced in the contract.

Y

Y

 

Underlying asset identifier 2

The unique identifier of the second asset referenced in the contract, if more than one.

 

 

 

If more than two assets identified in the contract, report the unique identifiers for those additional underlying assets.

Y

Y

 

Asset class

Major asset class of the product (e.g., interest rate, credit, commodity, foreign exchange, equity, etc.).

Y

N

 

Effective date or start date

The date the transaction becomes effective or starts.

Y

Y

 

Maturity, termination or end date

The date the transaction expires.

Y

Y

 

Payment frequency or dates

The dates or frequency the transaction requires payments to be made (e.g., quarterly, monthly).

Y

Y

 

Reset frequency or dates

The dates or frequency at which the price resets (e.g., quarterly, semi-annually, annually).

Y

Y

 

Day count convention

Factor used to calculate the payments (e.g., 30/360, actual/360).

Y

Y

 

Delivery type

Indicate whether transaction is settled physically or in cash.

N

Y

 

Price 1

The price, yield, spread, coupon, etc., of the derivative. The price/rate should not include any premiums such as commissions, collateral premiums, accrued interest, etc.

Y

Y

 

Price 2

The price, yield, spread, coupon, etc., of the derivative. The price/rate should not include any premiums such as commissions, collateral premiums, accrued interest, etc.

Y

Y

 

Price notation type 1

The manner in which the price is expressed (e.g., percent, basis points, etc.).

Y

Y

 

Price notation type 2

The manner in which the price is expressed (e.g., percent, basis points, etc.).

Y

Y

 

Price multiplier

The number of units of the underlying reference entity represented by 1 unit of the contract.

N

N

 

Notional amount leg 1

Total notional amount(s) of leg 1 of the contract.

Y

Y

 

Notional amount leg 2

Total notional amount(s) of leg 2 of the contract.

Y

Y

 

Currency leg 1

Currency(ies) of leg 1.

Y

Y

 

Currency leg 2

Currency(ies) of leg 2.

Y

Y

 

Settlement currency

The currency used to determine the cash settlement amount.

Y

Y

 

Up-front payment

Amount of any up-front payment.

N

N

 

Currency or currencies of up-front payment

The currency in which any up-front payment is made by one counterparty to another.

N

N

 

Embedded option

Indicate whether the option is an embedded option.

Y

N

 

B. Additional Asset Information

These additional fields are required to be reported for transactions in the respective types of derivatives set out below, even if the information is entered in a Common Data field above.

 

i) Interest rate derivatives

 

Fixed rate leg 1

The rate used to determine the payment amount for leg 1 of the transaction.

N

Y

 

Fixed rate leg 2

The rate used to determine the payment amount for leg 2 of the transaction.

N

Y

 

Floating rate leg 1

The floating rate used to determine the payment amount for leg 1 of the transaction.

N

Y

Floating rate leg 2

The floating rate used to determine the payment amount for leg 2 of the transaction.

N

Y

Fixed rate day count convention

Factor used to calculate the fixed payer payments (e.g., 30/360, actual/360).

N

Y

 

Fixed leg payment frequency or dates

Frequency or dates of payments for the fixed rate leg of the transaction (e.g., quarterly, semi-annually, annually).

N

Y

Floating leg payment frequency or dates

Frequency or dates of payments for the floating rate leg of the transaction (e.g., quarterly, semi-annually, annually).

N

Y

 

Floating rate reset frequency or dates

The dates or frequency at which the floating leg of the transaction resets (e.g., quarterly, semi-annually, annually).

N

Y

 

ii) Currency derivatives

 

 

 

 

Exchange rate

Contractual rate(s) of exchange of the currencies.

N

Y

 

iii) Commodity derivatives

 

 

 

 

Sub-asset class

Specific information to identify the type of commodity derivative (e.g., Agriculture, Energy, Freights, Metals, Index, Environmental, Exotic).

Y

Y

 

Quantity

Total quantity in the unit of measure of an underlying commodity.

Y

Y

 

Unit of measure

Unit of measure for the quantity of each side of the transaction (e.g., barrels, bushels, etc.).

Y

Y

 

Grade

Grade of product being delivered (e.g., grade of oil).

N

Y

 

Delivery point

The delivery location.

N

N

 

Delivery connection points

Description of the delivery route.

N

N

 

Load type

For power, load profile for the delivery.

N

Y

 

Transmission days

For power, the delivery days of the week.

N

Y

 

Transmission duration

For power, the hours of day transmission starts and ends.

N

Y

 

C. Options

These additional fields are required to be reported for options transactions set out below, even if the information is entered in a Common Data field above.

 

Option exercise date

The date(s) on which the option may be exercised.

Y

Y

 

Option premium

Fixed premium paid by the buyer to the seller.

Y

Y

 

Strike price (cap/floor rate)

The strike price of the option.

Y

Y

 

Option style

Indicate whether the option can be exercised on a fixed date or anytime during the life of the contract (e.g., American, European, Bermudan, Asian).

Y

Y

 

Option type

Put/call.

Y

Y

 

D. Event Data

 

 

 

 

Action

Describes the type of action to the transaction (e.g., new transaction, modification or cancellation of existing transaction, etc.).

Y

N

 

Execution timestamp

Where the transaction was executed on a trading venue, the time and date of execution, expressed using Coordinated Universal Time (UTC).

Y

Y (If available)

 

Post-transaction services

Indicate whether the transaction resulted from a post-transaction service, such as compression or reconciliation.

N

N

 

Clearing timestamp

The time and date the transaction was cleared, expressed using UTC.

N

N

 

Reporting date

The time and date the transaction was submitted to the trade repository, expressed using UTC.

N

N

 

E. Valuation data

These additional fields are required to be reported on a continuing basis for all reported derivative transactions, including reported pre-existing transactions.

 

Value of contract calculated by the reporting counterparty

Mark-to-market valuation of the contract, or mark-to-model valuation.

N

N

 

Valuation date

Date of the latest mark-to-market or mark-to-model valuation.

N

N

 

Valuation type

Indicate whether valuation was based on mark-to-market or mark-to-model.

N

N

 

Appendix B to OSC Rule 91-507 -- Trade Repositories and Derivatives Data Reporting

Equivalent Trade Reporting Laws of Foreign Jurisdictions

Subject to Deemed Compliance Pursuant to Subsection 26(5)

The Commission has determined that the laws and regulations of the following jurisdictions outside of Ontario are equivalent for the purposes of the deemed compliance provision in subsection 26(5).

Jurisdiction

Law, Regulation and/or Instrument

 

__________

_______________

 

__________

_______________

 

__________

_______________

 

__________

_______________

 

__________

_______________

 

__________

_______________

 

__________

_______________

 

FORM 91-507F1

OSC RULE 91-507 -- TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

APPLICATION FOR DESIGNATION

TRADE REPOSITORY

INFORMATION STATEMENT

Filer:

[ ] TRADE REPOSITORY

Type of Filing:

[ ] INITIAL

[ ] AMENDMENT

1. Full name of trade repository:

2. Name(s) under which business is conducted, if different from item 1:

3. If this filing makes a name change on behalf of the trade repository in respect of the name set out in item 1 or item 2, enter the previous name and the new name.

Previous name:

New name:

4. Head office

Address:

Telephone:

Facsimile:

5. Mailing address (if different):

6. Other offices

Address:

Telephone:

Facsimile:

7. Website address:

8. Contact employee

Name and title:

Telephone number:

Facsimile:

E-mail address:

9. Counsel

Firm name:

Contact name:

Telephone number:

Facsimile:

E-mail address:

10. Canadian counsel (if applicable)

Firm name:

Contact name:

Telephone number:

Facsimile:

E-mail address:

EXHIBITS

File all Exhibits with the Filing. For each Exhibit, include the name of the trade repository, the date of filing of the Exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shall be furnished instead of such Exhibit.

Except as provided below, if the filer files an amendment to the information provided in its Filing and the information relates to an Exhibit filed with the Filing or a subsequent amendment, the filer must, in order to comply with section 3 of OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the "TR Rule"), provide a description of the change, the expected date of the implementation of the change, and file a complete and updated Exhibit. The filer must provide a clean and blacklined version showing changes from the previous filing.

If the filer has otherwise filed the information required by the previous paragraph pursuant to section 17 of the TR Rule, it is not required to file the information again as an amendment to an Exhibit. However, if supplementary material relating to a filed rule is contained in an Exhibit, an amendment to the Exhibit must also be filed.

Exhibit A -- Corporate Governance

1. Legal status:

[ ] Corporation

[ ] Partnership

[ ] Other (specify):

2. Indicate the following:

1. Date (DD/MM/YYYY) of formation.

2. Place of formation.

3. Statute under which trade repository was organized.

4. Regulatory status in other jurisdictions.

3. Provide a copy of the constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents, and all subsequent amendments.

4. Provide the policies and procedures to address potential conflicts of interest arising from the operation of the trade repository or the services it provides, including those related to the commercial interest of the trade repository, the interests of its owners and its operators, the responsibilities and sound functioning of the trade repository, and those between the operations of the trade repository and its regulatory responsibilities.

5. An applicant that is located outside of Ontario that is applying for designation as a trade repository under section 21.2.2(1) of the Act must additionally provide the following:

1. An opinion of legal counsel that, as a matter of law the applicant has the power and authority to provide the Commission with prompt access to the applicant's books and records and submit to onsite inspection and examination by the Commission, and

2. A completed Form 91-507F2, Submission to Jurisdiction and Appointment of Agent for Service.

Exhibit B -- Ownership

A list of the registered or beneficial holders of securities of, partnership interests in, or other ownership interests in, the trade repository. For each of the persons listed in the Exhibit, please provide the following:

1. Name.

2. Principal business or occupation and title.

3. Ownership interest.

4. Nature of the ownership interest, including a description of the type of security, partnership interest or other ownership interest.

In the case of a trade repository that is publicly traded, if the trade repository is a corporation, please only provide a list of each shareholder that directly owns five percent or more of a class of a security with voting rights.

Exhibit C -- Organization

1. A list of partners, officers, governors, and members of the board of directors and any standing committees of the board, or persons performing similar functions, who presently hold or have held their offices or positions during the previous year, indicating the following for each:

1. Name.

2. Principal business or occupation and title.

3. Dates of commencement and expiry of present term of office or position.

4. Type of business in which each is primarily engaged and current employer.

5. Type of business in which each was primarily engaged in the preceding five years, if different from that set out in item 4.

6. Whether the person is considered to be an independent director.

2. A list of the committees of the board, including their mandates.

3. The name of the trade repository's Chief Compliance Officer.

Exhibit D -- Affiliates

1. For each affiliated entity of the trade repository provide the name and head office address and describe the principal business of the affiliate.

2. For each affiliated entity of the trade repository

(i) to which the trade repository has outsourced any of its key services or systems described in Exhibit E -- Operations of the Trade Repository, including business recordkeeping, recordkeeping of trade data, trade data reporting, trade data comparison, data feed, or

(ii) with which the trade repository has any other material business relationship, including loans, cross-guarantees, etc.,

provide the following information:

1. Name and address of the affiliate.

2. The name and title of the directors and officers, or persons performing similar functions, of the affiliate.

3. A description of the nature and extent of the contractual and other agreements with the trade repository, and the roles and responsibilities of the affiliate under the arrangement.

4. A copy of each material contract relating to any outsourced functions or other material relationship.

5. Copies of constating documents (including corporate by-laws), shareholder agreements, partnership agreements and other similar documents.

6. For the latest financial year of any affiliated entity that has any outstanding loans or cross-guarantee arrangements with the trade repository, financial statements, which may be unaudited, prepared in accordance with:

a. Canadian GAAP applicable to publicly accountable enterprises;

b. IFRS; or

c. U.S. GAAP where the affiliated entity is incorporated or organized under the laws of the U.S.

Exhibit E -- Operations of the Trade Repository

Describe in detail the manner of operation of the trade repository and its associated functions. This should include, but not be limited to, a description of the following:

1. The structure of the trade repository.

2. Means of access by the trade repository's participants and, if applicable, their clients to the trade repository's facilities and services.

3. The hours of operation.

4. A description of the facilities and services offered by the trade repository including, but not limited to, collection and maintenance of derivatives data.

5. A list of the types of derivatives instruments for which data recordkeeping is offered, including, but not limited to, a description of the features and characteristics of the instruments.

6. Procedures regarding the entry, display and reporting of derivatives data.

7. Description of recordkeeping procedures that ensure derivatives data is recorded accurately, completely and on a timely basis.

8. The safeguards and procedures to protect derivatives data of the trade repository's participants, including required policies and procedures reasonably designed to protect the privacy and confidentiality of the data.

9. Training provided to participants and a copy of any materials provided with respect to systems and rules and other requirements of the trade repository.

10. Steps taken to ensure that the trade repository's participants have knowledge of and comply with the requirements of the trade repository.

11. A description of the trade repository's risk management framework for comprehensively managing risks including business, legal, and operational risks.

The filer must provide all policies, procedures and manuals related to the operation of the trade repository.

Exhibit F -- Outsourcing

Where the trade repository has outsourced the operation of key services or systems described in Exhibit E -- Operations of the Trade Repository to an arms-length third party, including any function associated with the collection and maintenance of derivatives data, provide the following information:

1. Name and address of person or company (including any affiliates of the trade repository) to which the function has been outsourced.

2. A description of the nature and extent of the contractual or other agreement with the trade repository and the roles and responsibilities of the arms-length party under the arrangement.

3. A copy of each material contract relating to any outsourced function.

Exhibit G -- Systems and Contingency Planning

For each of the systems for collecting and maintaining reports of derivatives data, describe:

1. Current and future capacity estimates.

2. Procedures for reviewing system capacity.

3. Procedures for reviewing system security.

4. Procedures to conduct stress tests.

5. A description of the filer's business continuity and disaster recovery plans, including any relevant documentation.

6. Procedures to test business continuity and disaster recovery plans.

7. The list of data to be reported by all types of participants.

8. A description of the data format or formats that will be available to the Commission and other persons receiving trade reporting data.

Exhibit H -- Access to Services

1. A complete set of all forms, agreements or other materials pertaining to access to the services of the trade repository described in Exhibit E.4.

2. Describe the types of trade repository participants.

3. Describe the trade repository's criteria for access to the services of the trade repository.

4. Describe any differences in access to the services offered by the trade repository to different groups or types of participants.

5. Describe conditions under which the trade repository's participants may be subject to suspension or termination with regard to access to the services of the trade repository.

6. Describe any procedures that will be involved in the suspension or termination of a participant.

7. Describe the trade repository's arrangements for permitting clients of participants to have access to the trade repository. Provide a copy of any agreements or documentation relating to these arrangements.

Exhibit I -- Fees

A description of the fee model and all fees charged by the trade repository, or by a party to which services have been directly or indirectly outsourced, including, but not limited to, fees relating to access and the collection and maintenance of derivatives data, how such fees are set, and any fee rebates or discounts and how the rebates and discounts are set.

 

CERTIFICATE OF TRADE REPOSITORY

The undersigned certifies that the information given in this report is true and correct.

DATED at ____________ this ________ day of _________________, 20____

________________________________________________________

(Name of trade repository)

________________________________________________________

(Name of director, officer or partner -- please type or print)

________________________________________________________

(Signature of director, officer or partner)

________________________________________________________

(Official capacity -- please type or print)

IF APPLICABLE, ADDITIONAL CERTIFICATE

OF TRADE REPOSITORY THAT IS LOCATED OUTSIDE OF ONTARIO

The undersigned certifies that

(a) it will provide the Commission with access to its books and records and will submit to onsite inspection and examination by the Commission;

(b) as a matter of law, it has the power and authority to

i. provide the Commission with access to its books and records, and

ii. submit to onsite inspection and examination by the Commission.

DATED at ____________ this ________ day of _________________, 20____

________________________________________________________

(Name of trade repository)

________________________________________________________

(Name of director, officer or partner -- please type or print)

________________________________________________________

(Signature of director, officer or partner)

________________________________________________________

(Official capacity -- please type or print)

 

FORM 91-507F2

OSC RULE 91-507 -- TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

TRADE REPOSITORY SUBMISSION TO

JURISDICTION AND APPOINTMENT OF

AGENT FOR SERVICE OF PROCESS

1. Name of trade repository (the "Trade Repository"):

_______________________________________________________________________________

2. Jurisdiction of incorporation, or equivalent, of Trade Repository:

_______________________________________________________________________________

3. Address of principal place of business of Trade Repository:

_______________________________________________________________________________

4. Name of the agent for service of process for the Trade Repository (the "Agent"):

_______________________________________________________________________________

5. Address of Agent for service of process in Ontario:

_______________________________________________________________________________

6. The Trade Repository designates and appoints the Agent as its agent upon whom may be served a notice, pleading, subpoena, summons or other process in any action, investigation or administrative, criminal, quasi-criminal, penal or other proceeding arising out of or relating to or concerning the activities of the Trade Repository in Ontario. The Trade Repository hereby irrevocably waives any right to challenge service upon its Agent as not binding upon the Trade Repository.

7. The Trade Repository agrees to unconditionally and irrevocably attorn to the non-exclusive jurisdiction of (i) the courts and administrative tribunals of Ontario and (ii) any proceeding in any province or territory arising out of, related to, concerning or in any other manner connected with the regulation and oversight of the activities of the Trade Repository in Ontario.

8. The Trade Repository shall file a new submission to jurisdiction and appointment of agent for service of process in this form at least 30 days before the Trade Repository ceases to be designated or exempted by the Commission, to be in effect for six years from the date it ceases to be designated or exempted unless otherwise amended in accordance with section 9.

9. Until six years after it has ceased to be a designated or exempted by the Commission from the recognition requirement under subsection 21.2.2(1) of the Act, the Trade Repository shall file an amended submission to jurisdiction and appointment of agent for service of process at least 30 days before any change in the name or above address of the Agent.

10. This submission to jurisdiction and appointment of agent for service of process shall be governed by and construed in accordance with the laws of Ontario.

Dated: _________________________________

 

_______________________________________

 

Signature of the Trade Repository

 

 

_______________________________________

 

Print name and title of signing officer of the Trade Repository

 

AGENT

CONSENT TO ACT AS AGENT FOR SERVICE

I, ______________________________________ (name of Agent in full; if Corporation, full Corporate name) of __________________________________________(business address), hereby accept the appointment as agent for service of process of ______________________________________(insert name of Trade Repository) and hereby consent to act as agent for service pursuant to the terms of the appointment executed by ______________________________________ (insert name of Trade Repository) on ______________________________________ (insert date).

Dated: ________________________________

 

____________________________

 

Signature of Agent

 

 

______________________________

 

Print name of person signing and, if Agent is not an individual, the title of the person

 

FORM 91-507F3

OSC RULE 91-507 -- TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

CESSATION OF OPERATIONS REPORT FOR TRADE REPOSITORY

1. Identification:

A. Full name of the designated trade repository:

B. Name(s) under which business is conducted, if different from item 1A:

2. Date designated trade repository proposes to cease carrying on business as a trade repository:

3. If cessation of business was involuntary, date trade repository has ceased to carry on business as a trade repository:

Exhibits

File all Exhibits with the Cessation of Operations Report. For each exhibit, include the name of the trade repository, the date of filing of the exhibit and the date as of which the information is accurate (if different from the date of the filing). If any Exhibit required is inapplicable, a statement to that effect shall be furnished instead of such Exhibit.

Exhibit A

The reasons for the designated trade repository ceasing to carry on business as a trade repository.

Exhibit B

A list of all derivatives instruments for which data recordkeeping is offered during the last 30 days prior to ceasing business as a trade repository.

Exhibit C

A list of all participants who are counterparties to a transaction whose derivatives data is required to be reported pursuant to OSC Rule 91-507 -- Trade Repositories and Derivatives Data Reporting and for whom the trade repository provided services during the last 30 days prior to ceasing business as a trade repository.

 

CERTIFICATE OF TRADE REPOSITORY

The undersigned certifies that the information given in this report is true and correct.

DATED at ____________ this ____________ day of _____________________ 20 _____

_________________________

(Name of trade repository)

_________________________

(Name of director, officer or partner -- please type or print)

_________________________

(Signature of director, officer or partner)

_________________________

(Official capacity -- please type or print)

 

COMPANION POLICY 91-507CP

TO ONTARIO SECURITIES COMMISSION RULE 91-507

TRADE REPOSITORIES AND DERIVATIVES DATA REPORTING

PART 1

GENERAL COMMENTS

Introduction

This companion policy (the "Policy") sets out the views of the Commission ("our" or "we") on various matters relating to Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting (the "Rule") and related securities legislation.

The numbering of Parts, sections and subsections from Part 2 on in this Policy generally corresponds to the numbering in the Rule. Any general guidance for a Part appears immediately after the Part's name. Any specific guidance on a section or subsection follows any general guidance. If there is no guidance for a Part, section or subsection, the numbering in this Policy will skip to the next provision that does have guidance.

Unless defined in the Rule or this Policy, terms used in the Rule and in this Policy have the meaning given to them in securities legislation, including, for greater certainty, in National Instrument 14-101 Definitions and OSC Rule 14-501 Definitions.

Definitions and interpretation

1. (1) In this Policy,

"CPSS" means the Committee on Payment and Settlement Systems,

"FMI" means a financial market infrastructure, as described in the PFMI Report,

"Global LEI System" means the Global Legal Entity Identifier System,

"IOSCO" means the Technical Committee of the International Organization of Securities Commissions,

"LEI" means a legal entity identifier,

"LEI ROC" means the LEI Regulatory Oversight Committee,

"PFMI Report" means the April 2012 final report entitled Principles for financial market infrastructures published by CPSS and IOSCO, as amended from time to time,{1} and

"principle" means, unless the context otherwise indicates, a principle set out in the PFMI Report.

(2) A "life-cycle event" is defined in the Rule as an event that results in a change to derivatives data previously reported to a designated trade repository. Where a life-cycle event occurs, the corresponding life-cycle event data must be reported under section 32 of the Rule by the end of the business day on which the life-cycle event occurs. When reporting a life-cycle event, there is no obligation to re-report derivatives data that has not changed -- only new data and changes to previously reported data need to be reported. Examples of a life-cycle event would include

• a change to the termination date for the transaction,

• a change in the cash flows, payment frequency, currency, numbering convention, spread, benchmark, reference entity or rates originally reported,

• the availability of a legal entity identifier for a counterparty previously identified by name or by some other identifier,

• a corporate action affecting a security or securities on which the transaction is based (e.g., a merger, dividend, stock split, or bankruptcy),

• a change to the notional amount of a transaction including contractually agreed upon changes (e.g., amortization schedule),

• the exercise of a right or option that is an element of the expired transaction, and

• the satisfaction of a level, event, barrier or other condition contained in the original transaction.

(3) Paragraph (c) of the definition of "local counterparty" captures affiliates of parties mentioned in paragraph (a) of the "local counterparty" definition, provided that such party guarantees the liabilities of the affiliate. It is our view that the guarantee must be for all or substantially all of the affiliate's liabilities.

(4) The term "transaction" is defined in the Rule and used instead of the term "trade", as defined in the Act, in order to reflect the types of activities that require a unique transaction report, as opposed to the modification of an existing transaction report. The primary difference between the two definitions is that unlike the term "transaction", the term "trade" includes material amendments and terminations.

A material amendment is not referred to in the definition of "transaction" but is required to be reported as a life-cycle event in connection with an existing transaction under section 32. A termination is not referred to in the definition of "transaction", as the expiry or termination of a transaction would be reported to a trade repository as a life-cycle event without the requirement for a new transaction record.

In addition, unlike the definition of "trade", the definition of "transaction" includes a novation to a clearing agency. Each transaction resulting from a novation of a bi-lateral transaction to a clearing agency is required to be reported as a separate, new transaction with reporting links to the original transaction.

(5) The term "valuation data" is defined in the Rule as data that reflects the current value of a transaction. It is the Commission's view that valuation data can be calculated based upon the use of an industry-accepted methodology such as mark-to-market or mark-to-model, or another valuation method that is in accordance with accounting principles and will result in a reasonable valuation of a transaction.{2} The valuation methodology should be consistent over the entire life of a transaction.

PART 2

TRADE REPOSITORY DESIGNATION AND ONGOING REQUIREMENTS

Part 2 contains rules for designation of a trade repository and ongoing requirements for a designated trade repository. To obtain and maintain a designation as a trade repository, a person or entity must comply with these rules and requirements in addition to all of the terms and conditions in the designation order made by the Commission. In order to comply with the reporting obligations contained in Part 3, counterparties must report to a designated trade repository. While there is no prohibition on an undesignated trade repository operating in Ontario, a counterparty that reports a transaction to an undesignated trade repository would not be in compliance with its reporting obligations under this Rule with respect to that transaction.

The legal entity that applies to be a designated trade repository will typically be the entity that operates the facility and collects and maintains records of completed transactions reported to the trade repository by other persons or companies. In some cases, the applicant may operate more than one trade repository facility. In such cases, the trade repository may file separate forms in respect of each trade repository facility, or it may choose to file one form to cover all of the different trade repository facilities. If the latter alternative is chosen, the trade repository must clearly identify the facility to which the information or changes submitted under this Part apply.

Trade repository initial filing of information and designation

2. (1) In determining whether to designate an applicant as a trade repository under section 21.2.2 of the Act, it is anticipated that the Commission will consider a number of factors, including

• whether it is in the public interest to designate the applicant,

• the manner in which the trade repository proposes to comply with the Rule,

• whether the trade repository has meaningful representation on its governing body,

• whether the trade repository has sufficient financial and operational resources for the proper performance of its functions,

• whether the rules and procedures of the trade repository ensure that its business is conducted in an orderly manner that fosters both fair and efficient capital markets, and improves transparency in the derivatives market,

• whether the trade repository has policies and procedures to effectively identify and manage conflicts of interest arising from its operation or the services it provides,

• whether the requirements of the trade repository relating to access to its services are fair and reasonable,

• whether the trade repository's process for setting fees is fair, transparent and appropriate,

• whether the trade repository's fees are inequitably allocated among the participants, have the effect of creating barriers to access or place an undue burden on any participant or class of participants,

• the manner and process for the Commission and other applicable regulatory agencies to receive or access derivatives data, including the timing, type of reports, and any confidentiality restrictions,

• whether the trade repository has robust and comprehensive policies, procedures, processes and systems to ensure the security and confidentiality of derivatives data, and

• whether the trade repository has entered into a memorandum of understanding with its local securities regulator.

The Commission will examine whether the trade repository has been, or will be, in compliance with securities legislation. This includes compliance with the Rule and any terms and conditions attached to the Commission's designation order in respect of a designated trade repository.

A trade repository that is applying for designation must demonstrate that it has established, implemented, maintained and enforced appropriate written rules, policies and procedures that are in accordance with standards applicable to trade repositories. We consider that these rules, policies and procedures include, but are not limited to, the principles and key considerations and explanatory notes applicable to trade repositories in the PFMI Report. These principles are set out in the following chart, along with the corresponding sections of the Rule the interpretation of which we consider ought to be consistent with the principles:

Principle in the PFMI Report applicable to a trade repository

Relevant section(s) of the Rule

 

Principle 1: Legal Basis

Section 7 -- Legal framework

 

 

Section 17 -- Rules (in part)

 

Principle 2: Governance

Section 8 -- Governance

 

 

Section 9 -- Board of directors

 

 

Section 10 -- Management

 

Principle 3: Framework for the comprehensive management of risks

Section 19 -- Comprehensive risk management framework

 

 

Section 20 -- General business risk (in part)

 

Principle 15: General business risk

Section 20 -- General business risk

 

Principle 17: Operational risk

Section 21 -- System and other operational risk requirements

 

 

Section 22 -- Data security and confidentiality

 

 

Section 24 -- Outsourcing

 

Principle 18: Access and participation requirements

Section 13 -- Access to designated trade repository services

 

 

Section 16 -- Due process (in part)

 

 

Section 17 -- Rules (in part)

 

Principle 19: Tiered participation arrangements

No equivalent provisions in the Rule; however, the trade repository may be expected to observe or broadly observe the principle, where applicable.

 

Principle 20: FMI links

No equivalent provisions in the Rule; however, the trade repository may be expected to observe or broadly observe the principle, where applicable.

 

Principle 21: Efficiency and effectiveness

No equivalent provisions in the Rule; however, the trade repository may be expected to observe or broadly observe the principle, where applicable.

 

Principle 22: Communication procedures and standards

Section 15 -- Communication policies, procedures and standards

 

Principle 23: Disclosure of rules, key procedures, and market data

Section 17 -- Rules (in part)

 

Principle 24: Disclosure of market data by trade repositories

Sections in Part 4 -- Data Dissemination and Access to Data

It is anticipated that the Commission will apply the principles in its oversight activities of designated trade repositories. Therefore, in complying with the Rule, designated trade repositories will be expected to observe the principles.

The forms filed by an applicant or designated trade repository under the Rule will be kept confidential in accordance with the provisions of securities legislation. The Commission is of the view that the forms generally contain proprietary financial, commercial and technical information, and that the cost and potential risks to the filers of disclosure outweigh the benefit of the principle requiring that forms be made available for public inspection. However, the Commission would expect a designated trade repository to publicly disclose its responses to the CPSS-IOSCO consultative report entitled Disclosure framework for financial market infrastructures, which is a supplement to the PFMI Report.{3} In addition, much of the information that will be included in the forms that are filed will be required to be made publicly available by a designated trade repository pursuant to the Rule or the terms and conditions of the designation order imposed by the Commission.

While Form 91-507F1 -- Application for Designation and Trade Repository Information Statement and any amendments to it will be kept generally confidential, if the Commission considers that it is in the public interest to do so, it may require the applicant or designated trade repository to publicly disclose a summary of the information contained in such form, or amendments to it.

Notwithstanding the confidential nature of the forms, an applicant's application itself (excluding forms) will be published for comment for a minimum period of 30 days.

Change in information

3. (1) Under subsection 3(1), a designated trade repository is required to file an amendment to the information provided in Form 91-507F1 at least 45 days prior to implementing a significant change. The Commission considers a change to be significant when it could impact a designated trade repository, its users, participants, market participants, investors, or the capital markets (including derivatives markets and the markets for assets underlying a derivative). The Commission would consider a significant change to include, but not be limited to,

• a change in the structure of the designated trade repository, including procedures governing how derivatives data is collected and maintained (included in any back-up sites), that has or may have a direct impact on users in Ontario,

• a change to the services provided by the designated trade repository, or a change that affects the services provided, including the hours of operation, that has or may have a direct impact on users in Ontario,

• a change to means of access to the designated trade repository's facility and its services, including changes to data formats or protocols, that has or may have a direct impact on users in Ontario,

• a change to the types of derivative asset classes or categories of derivatives that may be reported to the designated trade repository,

• a change to the systems and technology used by the designated trade repository that collect, maintain and disseminate derivatives data, including matters affecting capacity,

• a change to the governance of the designated trade repository, including changes to the structure of its board of directors or board committees and their related mandates,

• a change in control of the designated trade repository,

• a change in affiliates that provide key services or systems to, or on behalf of, the designated trade repository,

• a change to outsourcing arrangements for key services or systems of the designated trade repository,

• a change to fees or the fee structure of the designated trade repository,

• a change in the designated trade repository's policies and procedures relating to risk-management, including relating to business continuity and data security, that has or may have an impact on the designated trade repository's provision of services to its participants,

• the commencement of a new type of business activity, either directly or indirectly through an affiliate, and

• a change in the location of the designated trade repository's head office or primary place of business or the location where the main data servers or contingency sites are housed.

(2) The Commission generally considers a change in a designated trade repository's fees or fee structure to be a significant change. However, the Commission recognizes that designated trade repositories may frequently change their fees or fee structure and may need to implement fee changes within timeframes that are shorter than the 45-day notice period contemplated in subsection (1). To facilitate this process, subsection 3(2) provides that a designated trade repository may provide information that describes the change to fees or fee structure in a shorter timeframe (at least 15 days before the expected implementation date of the change to fees or fee structure). See section 12 of this Policy for guidance with respect to fee requirements applicable to designated trade repositories.

The Commission will make best efforts to review amendments to Form 91-507F1 filed in accordance with subsections 3(1) and 3(2) before the proposed date of implementation of the change. However, where the changes are complex, raise regulatory concerns, or when additional information is required, the Commission's review may exceed these timeframes.

(3) Subsection 3(3) sets out the filing requirements for changes to information provided in a filed Form 91-507F1 other than those described in subsections 3(1) or (2). Such changes to information are not considered significant and include changes that:

• would not have an impact on the designated trade repository's structure or participants, or more broadly on market participants, investors or the capital markets; or

• are administrative changes, such as

• changes in the routine processes, policies, practices, or administration of the designated trade repository that would not impact participants,

• changes due to standardization of terminology,

• corrections of spelling or typographical errors,

• changes to the types of designated trade repository participants in Ontario,

• necessary changes to conform to applicable regulatory or other legal requirements of Ontario or Canada, and

• minor system or technology changes that would not significantly impact the system or its capacity.

For the changes referred to in subsection 3(3), the Commission may review these filings to ascertain whether they have been categorized appropriately. If the Commission disagrees with the categorization, the designated trade repository will be notified in writing. Where the Commission determines that changes reported under subsection 3(3) are in fact significant changes under subsection 3(1), the designated trade repository will be required to file an amended Form 91-507F1 that will be subject to review by the Commission.

Ceasing to carry on business

6. (1) In addition to filing a completed Form 91-507F3 -- Cessation of Operations Report for Trade Repository, a designated trade repository that intends to cease carrying on business in Ontario as a designated trade repository must make an application to voluntarily surrender its designation to the Commission pursuant to securities legislation. The Commission may accept the voluntary surrender subject to terms and conditions.{4}

Legal framework

7. (1) Designated trade repositories are required to have rules, policies, and procedures in place that provide a legal basis for their activities in all relevant jurisdictions, whether within Canada or any foreign jurisdiction, where they have activities.

Governance

8. Designated trade repositories are required to have in place governance arrangements that meet the minimum requirements and policy objectives set out in subsections 8(1) and 8(2).

(3) Under subsection 8(3), a designated trade repository is required to make the written governance arrangements required under subsections 8(1) and (2) available to the public on its website. The Commission expects that this information will be posted on the trade repository's publicly accessible website and that interested parties will be able to locate the information through a web search or through clearly identified links on the designated trade repository's website.

Board of directors

9. The board of directors of a designated trade repository is subject to various requirements, such as requirements pertaining to board composition and conflicts of interest. To the extent that a designated trade repository is not organized as a corporation, the requirements relating to the board of directors may be fulfilled by a body that performs functions that are equivalent to the functions of a board of directors.

(2) Paragraph 9(2)(a) requires individuals who comprise the board of directors of a designated trade repository to have an appropriate level of skill and experience to effectively and efficiently oversee the management of its operations. This would include individuals with experience and skills in areas such as business recovery, contingency planning, financial market systems and data management.

Under paragraph 9(2)(b), the board of directors of a designated trade repository must include individuals who are independent of the designated trade repository. The Commission would view individuals who have no direct or indirect material relationship with the designated trade repository as independent. The Commission would expect that independent directors of a designated trade repository would represent the public interest by ensuring that regulatory and public transparency objectives are fulfilled, and that the interests of participants who are not derivatives dealers are considered.

Chief compliance officer

11. (3) References to harm to the capital markets in subsection 11(3) may be in relation to domestic or international capital markets.

Fees

12. A designated trade repository is responsible for ensuring that the fees it sets are in compliance with section 12. In assessing whether a designated trade repository's fees and costs are fairly and equitably allocated among participants as required under paragraph 12(a), the Commission will consider a number of factors, including

• the number and complexity of the transactions being reported,

• the amount of the fee or cost imposed relative to the cost of providing the services,

• the amount of fees or costs charged by other comparable trade repositories, where relevant, to report similar transactions in the market,

• with respect to market data fees and costs, the amount of market data fees charged relative to the market share of the designated trade repository, and

• whether the fees or costs represent a barrier to accessing the services of the designated trade repository for any category of participant.

A designated trade repository should provide clear descriptions of priced services for comparability purposes. Other than fees for individual services, a designated trade repository should also disclose other fees and costs related to connecting to or accessing the trade repository. For example, a designated trade repository should disclose information on the system design, as well as technology and communication procedures, that influence the costs of using the designated trade repository. A designated trade repository is also expected to provide timely notice to participants and the public of any changes to services and fees.

Access to designated trade repository services

13. (3) Under subsection 13(3), a designated trade repository is prohibited from unreasonably limiting access to its services, permitting unreasonable discrimination among its participants, imposing unreasonable burdens on competition or requiring the use or purchase of another service in order for a person or company to utilize its trade reporting service. For example, a designated trade repository should not engage in anti-competitive practices such as setting overly restrictive terms of use or engaging in anti-competitive price discrimination. A designated trade repository should not develop closed, proprietary interfaces that result in vendor lock-in or barriers to entry with respect to competing service providers that rely on the data maintained by the designated trade repository.

Acceptance of reporting

14. Section 14 requires that a designated trade repository accept derivatives data for all derivatives of the asset class or classes set out in its designation order. For example, if the designation order of a designated trade repository includes interest rate derivatives, the designated trade repository is required to accept transaction data for all types of interest rate derivatives that are entered into by a local counterparty. It is possible that a designated trade repository may accept derivatives data for only a subset of a class of derivatives if this is indicated in its designation order. For example, there may be designated trade repositories that accept derivatives data for only certain types of commodity derivatives such as energy derivatives.

Communication policies, procedures and standards

15. Section 15 sets out the communication standard required to be used by a designated trade repository in communications with other specified entities. The reference in paragraph 15(d) to "other service providers" could include persons or companies who offer technological or transaction processing or post-transaction services.

Rules, policies and procedures

17. Section 17 requires that the publicly disclosed written rules and procedures of a designated trade repository be clear and comprehensive, and include explanatory material written in plain language so that participants can fully understand the system's design and operations, their rights and obligations, and the risks of participating in the system. Moreover, a designated trade repository should disclose to its participants and to the public, basic operational information and responses to the CPSS-IOSCO Disclosure framework for financial market infrastructures.

(2) Subsection 17(2) requires that a designated trade repository monitor compliance with its rules and procedures. The methodology of monitoring such compliance should be fully documented.

(3) Subsection 17(3) requires a designated trade repository to implement processes for dealing with non-compliance with its rules and procedures. This subsection does not preclude enforcement action by any other person or company, including the Commission or other regulatory body.

(5) Subsection 17(5) requires a designated trade repository to file its rules and procedures with the Commission for approval, in accordance with the terms and conditions of the designation order. Upon designation, the Commission may develop and implement a protocol with the designated trade repository that will set out the procedures to be followed with respect to the review and approval of rules and procedures and any amendments thereto. Generally, such a rule protocol will be appended to and form part of the designation order. Depending on the nature of the changes to the designated trade repository's rules and procedures, such changes may also impact the information contained in Form 91-507F1. In such cases, the designated trade repository will be required to file a revised Form 91-507F1 with the Commission. See section 3 of this Policy for a discussion of the filing requirements.

Records of data reported

18. A designated trade repository is a market participant under securities legislation and therefore subject to the record-keeping requirements under securities legislation. The record-keeping requirements under section 18 are in addition to the requirements under securities legislation.

(2) Subsection 18(2) requires that records be maintained for 7 years after the expiration or termination of a transaction. The requirement to maintain records for 7 years after the expiration or termination of a transaction, rather than from the date the transaction was entered into, reflects the fact that transactions create on-going obligations and information is subject to change throughout the life of a transaction.

Comprehensive risk-management framework

19. Requirements for a comprehensive risk-management framework of a designated trade repository are set out in section 19.

Features of framework

A designated trade repository should have a written risk-management framework (including policies, procedures, and systems) that enable it to identify, measure, monitor, and manage effectively the range of risks that arise in, or are borne by, a designated trade repository. A designated trade repository's framework should include the identification and management of risks that could materially affect its ability to perform or to provide services as expected, such as interdependencies.

Establishing a framework

A designated trade repository should have comprehensive internal processes to help its board of directors and senior management monitor and assess the adequacy and effectiveness of its risk-management policies, procedures, systems, and controls. These processes should be fully documented and readily available to the designated trade repository's personnel who are responsible for implementing them.

Maintaining a framework

A designated trade repository should regularly review the material risks it bears from, and poses to, other entities (such as other FMIs, settlement banks, liquidity providers, or service providers) as a result of interdependencies, and develop appropriate risk-management tools to address these risks. These tools should include business continuity arrangements that allow for rapid recovery and resumption of critical operations and services in the event of operational disruptions and recovery or orderly wind-down plans should the trade repository become non-viable.

General business risk

20. (1) Subsection 20(1) requires a designated trade repository to manage its general business risk effectively. General business risk includes any potential impairment of the designated trade repository's financial position (as a business concern) as a consequence of a decline in its revenues or an increase in its expenses, such that expenses exceed revenues and result in a loss that must be charged against capital or an inadequacy of resources necessary to carry on business as a designated trade repository.

(2) For the purposes of subsection 20(2), the amount of liquid net assets funded by equity that a designated trade repository should hold is to be determined by its general business risk profile and the length of time required to achieve a recovery or orderly wind-down, as appropriate, of its critical operations and services, if such action is taken.

(3) Subsection (3) requires a designated trade repository, for the purposes of subsection (2), to hold liquid net assets funded by equity equal to no less than six months of current operating expenses.

(4) For the purposes of subsections 20(4) and (5), and in connection with developing a comprehensive risk-management framework under section 19, a designated trade repository should identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern, and assess the effectiveness of a full range of options for recovery or orderly wind-down. These scenarios should take into account the various independent and related risks to which the designated trade repository is exposed.

Based on the required assessment of scenarios under subsection 20(4) (and taking into account any constraints potentially imposed by legislation), the designated trade repository should prepare appropriate written plans for its recovery or orderly wind-down. The plan should contain, among other elements, a substantive summary of the key recovery or orderly wind-down strategies, the identification of the designated trade repository's critical operations and services, and a description of the measures needed to implement the key strategies. The designated trade repository should maintain the plan on an ongoing basis, to achieve recovery and orderly wind-down, and should hold sufficient liquid net assets funded by equity to implement this plan (see also subsections 20(2) and (3) above). A designated trade repository should also take into consideration the operational, technological, and legal requirements for participants to establish and move to an alternative arrangement in the event of an orderly wind-down.

Systems and other operational risk requirements

21. (1) Subsection 21(1) sets out a general principle concerning the management of operational risk. In interpreting subsection 21(1), the following key considerations should be applied:

• a designated trade repository should establish a robust operational risk-management framework with appropriate systems, policies, procedures, and controls to identify, monitor, and manage operational risks;

• a designated trade repository should review, audit, and test systems, operational policies, procedures, and controls, periodically and after any significant changes; and

• a designated trade repository should have clearly defined operational-reliability objectives and policies in place that are designed to achieve those objectives.

(2) The board of directors of a designated trade repository should clearly define the roles and responsibilities for addressing operational risk and approve the designated trade repository's operational risk-management framework.

(3) Paragraph 21(3)(a) requires a designated trade repository to develop and maintain an adequate system of internal control over its systems as well as adequate general information-technology controls. The latter controls are implemented to support information technology planning, acquisition, development and maintenance, computer operations, information systems support, and security. Recommended Canadian guides as to what constitutes adequate information technology controls include "Information Technology Control Guidelines" from the Canadian Institute of Chartered Accountants and "COBIT" from the IT Governance Institute. A designated trade repository should ensure that its information-technology controls address the integrity of the data that it maintains, by protecting all derivatives data submitted from corruption, loss, improper disclosure, unauthorized access and other processing risks.

Paragraph 21(3)(b) requires a designated trade repository to thoroughly assess future needs and make systems capacity and performance estimates in a method consistent with prudent business practice at least once a year. The paragraph also imposes an annual requirement for designated trade repositories to conduct periodic capacity stress tests. Continual changes in technology, risk management requirements and competitive pressures will often result in these activities or tests being carried out more frequently.

Paragraph 21(3)(c) requires a designated trade repository to notify the Commission of any material systems failure. The Commission would consider a failure, malfunction, delay or other disruptive incident to be "material" if the designated trade repository would in the normal course of its operations escalate the incident to, or inform, its senior management that is responsible for technology, or the incident would have an impact on participants. The Commission also expects that, as part of this notification, the designated trade repository will provide updates on the status of the failure, the resumption of service, and the results of its internal review of the failure.

(4) Subsection 21(4) requires that a designated trade repository establish, implement, maintain and enforce business continuity plans, including disaster recovery plans. The Commission believes that these plans should allow the designated trade repository to provide continuous and undisrupted service, as back-up systems ideally should commence processing immediately. Where a disruption is unavoidable, a designated trade repository is expected to provide prompt recovery of operations, meaning that it resumes operations within 2 hours following the disruptive event. Under paragraph 21(4)(c), an emergency event could include any external sources of operational risk, such as the failure of critical service providers or utilities or events affecting a wide metropolitan area, such as natural disasters, terrorism, and pandemics. Business continuity planning should encompass all policies and procedures to ensure uninterrupted provision of key services regardless of the cause of potential disruption.

(5) Subsection 21(5) requires a designated trade repository to test its business continuity plans at least once a year. The expectation is that the designated trade repository would engage relevant industry participants, as necessary, in tests of its business continuity plans, including testing of back-up facilities for both the designated trade repository and its participants.

(6) Subsection 21(6) requires a designated trade repository to engage a qualified party to conduct an annual independent assessment of the internal controls referred to in paragraphs 21(3)(a) and (b) and subsections 21(4) and (5). A qualified party is a person or company or a group of persons or companies with relevant experience in both information technology and in the evaluation of related internal controls in a complex information technology environment, such as external auditors or third party information system consultants. The Commission is of the view that this obligation may also be satisfied by an independent assessment by an internal audit department that is compliant with the International Standards for the Professional Practice of Internal Auditing published by the Institute of Internal Audit. Before engaging a qualified party, the designated trade repository should notify the Commission.

(8) Subsection 21(8) requires designated trade repositories to make public all material changes to technology requirements to allow participants a reasonable period to make system modifications and test their modified systems. In determining what a reasonable period is, the Commission of the view that the designated trade repository should consult with participants and that a reasonable period would allow all participants a reasonable opportunity to develop, implement and test systems changes. We expect that the needs of all types of participants would be considered, including those of smaller and less sophisticated participants.

(9) Subsection 21(9) requires designated trade repositories to make available testing facilities in advance of material changes to technology requirements to allow participants a reasonable period to test their modified systems and interfaces with the designated trade repository. In determining what a reasonable period is, the Commission of the view that the designated trade repository should consult with participants and that a reasonable period would allow all participants a reasonable opportunity to develop, implement and test systems changes. We expect that the needs of all types of participants would be considered, including those of smaller and less sophisticated participants.

Data security and confidentiality

22. (1) Subsection 22(1) provides that a designated trade repository must establish policies and procedures to ensure the safety, privacy and confidentiality of derivatives data to be reported to it under the Rule. The policies must include limitations on access to confidential trade repository data and safeguards to protect against persons and companies affiliated with the designated trade repository from using trade repository data for their personal benefit or the benefit of others.

(2) Subsection 22(2) prohibits a designated trade repository from releasing reported derivatives data, for a commercial or business purpose, that is not required to be publicly disclosed under section 39 without the express written consent of the counterparties to the transaction or transactions to which the derivatives data relates. The purpose of this provision is to ensure that users of the designated trade repository have some measure of control over their derivatives data.

Confirmation of data and information

23. Subsection 23(1) requires a designated trade repository to have and follow written policies and procedures for confirming the accuracy of the derivatives data received from a reporting counterparty. A designated trade repository must confirm the accuracy of the derivatives data with each counterparty to a reported transaction provided that the non-reporting counterparty is a participant of the trade repository. Where the non-reporting counterparty is not a participant of the trade repository, there is no obligation to confirm with such non-reporting counterparty.

The purpose of the confirmation requirement in subsection 23(1) is to ensure that the reported information is agreed to by both counterparties. However, in cases where a non-reporting counterparty is not a participant of the relevant designated trade repository, the designated trade repository would not be in a position to confirm the accuracy of the derivatives data with such counterparty. As such, under subsection 23(2) a designated trade repository will not be obligated to confirm the accuracy of the derivatives data with a counterparty that is not a participant of the designated trade repository. Additionally, similar to the reporting obligations in section 26, confirmation under subsection 23(1) can be delegated under section 26(3) to a third-party representative.

A trade repository may satisfy its obligation under section 23 to confirm the derivatives data reported for a transaction by notice to each counterparty to the transaction that is a participant of the designated trade repository, or its delegated third-party representative where applicable, that a report has been made naming the participant as a counterparty to a transaction, accompanied by a means of accessing a report of the derivatives data submitted. The policies and procedures of the designated trade repository may provide that if the designated trade repository does not receive a response from a counterparty within 48 hours, the counterparty is deemed to confirm the derivatives data as reported.

Outsourcing

24. Section 24 sets out requirements applicable to a designated trade repository that outsources any of its key services or systems to a service provider. Generally, a designated trade repository must establish policies and procedures to evaluate and approve these outsourcing arrangements. Such policies and procedures include assessing the suitability of potential service providers and the ability of the designated trade repository to continue to comply with securities legislation in the event of bankruptcy, insolvency or the termination of business of the service provider. A designated trade repository is also required to monitor the ongoing performance of a service provider to which it outsources a key service, system or facility. The requirements under section 24 apply regardless of whether the outsourcing arrangements are with third-party service providers or affiliates of the designated trade repository. A designated trade repository that outsources its services or systems remains responsible for those services or systems and for compliance with securities legislation.

PART 3

DATA REPORTING

Part 3 deals with reporting obligations for transactions and includes a description of the counterparties that will be subject to the duty to report, requirements as to the timing of reports and a description of the data that is required to be reported.

Reporting counterparty

25. Section 25 outlines how the counterparty required to report derivatives data and fulfil the ongoing reporting obligations under the Rule is determined. Reporting obligations on derivatives dealers apply irrespective of whether the derivatives dealer is a registrant.

(1) Subsection 25(1) outlines a hierarchy for determining which counterparty to a transaction will be required to report the transaction based on the counterparty to the transaction that is best suited to fulfill the reporting obligation. For example, for transactions that are cleared through a recognized or exempt clearing agency, the clearing agency is best positioned to report derivatives data and is therefore required to act as reporting counterparty

Although there may be situations in which the reporting obligation falls on both counterparties to a transaction, it is the Commission's view that in such cases the counterparties should select one counterparty to fulfill the reporting obligation to avoid duplicative reporting. For example, if a transaction required to be reported is between two dealers, each dealer has an obligation to report under paragraph 25(1)(b). Similarly, if a transaction is between two local counterparties that are not dealers, both local counterparties have an obligation to report under paragraph 25(1)(d). However, because a reporting counterparty may delegate its reporting obligations under subsection 26(3), the Commission expects that the practical outcome is that one counterparty will delegate its reporting obligation to the other (or a mutually agreed upon third party) and only one report will be filed in respect of the transaction. Therefore, although both counterparties to the transaction examples described above ultimately have the reporting obligation, they may institute contracts, systems and practices to agree to delegate the reporting function to one party. The intention of these provisions is to facilitate one counterparty reporting through delegation while requiring both counterparties to have procedures or contractual arrangements in place to ensure that reporting occurs.

(2) Subsection 25(2) applies to situations where the reporting counterparty, as determined under paragraph 25(1)(c), is not a local counterparty. This provision is intended to cover situations where a non-local reporting counterparty does not report a transaction or otherwise fails to fulfil the reporting counterparty's reporting duties. In such case the local counterparty must act as the reporting counterparty and fulfil the reporting counterparty duties under the Rule. This provision differs from the situations in paragraphs 25(1)(b) and 25(1)(d) because the Commission is of the view that, where a transaction is between a derivatives dealer and an end-user, the derivatives dealer is best positioned to act as reporting counterparty.

The Commission expects that a local counterparty will determine that the non-local reporting counterparty has discharged its reporting obligations by reviewing a confirmation of the transaction report. Where the local counterparty has not received confirmation that its transaction has been reported in accordance with the requirements of this Rule within two business days after the date on which the transaction occurred, under subsection 25(2) it must act as reporting counterparty for the transaction. Where the local counterparty is a participant of the designated trade repository this confirmation would come from the designated trade repository in accordance with subsection 23(1). Where the local counterparty is not a participant it would be necessary for the local counterparty to ensure that it receives the confirmation from the reporting counterparty (or its delegate).

Subsection 31(4) modifies the timing requirement for the reporting of data where a local counterparty has assumed the role of reporting counterparty because of a failure to report by a non-local reporting counterparty. In such cases the local counterparty should report the transaction no later than the end of the third business day after the day on which the data should otherwise have been reported.

The Commission is of the view that, because a registered foreign derivatives dealer is a local counterparty under the rule, there will only be limited situations where this subsection 25(2) applies.

Duty to report

26. Section 26 outlines the duty to report derivatives data.

(1) Subsection 26(1) requires that, subject to sections 40, 41, 42 and 43, derivatives data for each transaction to which one or more counterparties is a local counterparty be reported to a designated trade repository. The counterparty required to report the derivatives data is the reporting counterparty as determined under section 25.

(2) Under subsection 26(2), the reporting counterparty for a transaction must ensure that all reporting obligations are fulfilled. This includes ongoing requirements such as the reporting of life-cycle event data and valuation data.

(3) Subsection 26(3) permits the delegation of all reporting obligations of a reporting counterparty. This includes reporting of initial creation data, life-cycle event data and valuation data. For example, some or all of the reporting obligations may be delegated to a third-party service provider. However, the reporting counterparty remains responsible for ensuring that the derivatives data is accurate and reported within the timeframes required under the Rule.

(4) With respect to subsection 26(4), prior to the reporting rules in Part 3 coming into force, the Commission will provide public guidance on how reports for transactions that are not accepted for reporting by any designated trade repository should be electronically submitted to the Commission.

(5) Subsection 26(5) provides for limited substituted compliance with this Rule where a transaction has been reported to a designated trade repository pursuant to the law of a province of Canada other than Ontario or of a foreign jurisdiction listed in Appendix B, provided that the additional conditions set out in paragraphs (a) and (c) are satisfied.

(6) Paragraph 26(6)(a) requires that all derivatives data reported for a given transaction be reported to the same designated trade repository to which the initial report is submitted or, with respect to transactions reported under section 26(4), to the Commission. For a bi-lateral transaction that is assumed by a clearing agency (novation), the designated trade repository to which all derivatives data for the assumed transactions must be reported is the designated trade repository to which the original bi-lateral transaction was reported.

The purpose of this requirement is to ensure the Commission has access to all reported derivatives data for a particular transaction from the same entity. It is not intended to restrict counterparties' ability to report to multiple trade repositories. Where the entity to which the transaction was originally reported is no longer a designated trade repository, all data relevant to that transaction should be reported to another designated trade repository as otherwise required by the Rule.

(7) The Commission interprets the requirement in subsection 26(7) to report errors or omissions in derivatives data "as soon as technologically practicable" after it is discovered, to mean upon discovery and in any case no later than the end of the business day on which the error or omission is discovered.

(8) Under subsection 26(8), where a local counterparty that is not a reporting counterparty discovers an error or omission in respect of derivatives data that is reported to a designated trade repository, such local counterparty has an obligation to report the error or omission to the reporting counterparty. Once the error or omission is reported to the reporting counterparty, the reporting counterparty then has an obligation under subsection 26(7) to report the error or omission to the designated trade repository or to the Commission in accordance with subsection 26(6). The Commission interprets the requirement in subsection 26(8) to notify the reporting counterparty of errors or omissions in derivatives data to mean upon discovery and in any case no later than the end of the business day on which the error or omission is discovered.

Legal entity identifiers

28. (1) Subsection 28(1) requires that a designated trade repository identify all counterparties to a transaction by a legal entity identifier. It is envisioned that this identifier be a LEI under the Global LEI System. The Global LEI System is a G20 endorsed initiative{5} that will uniquely identify parties to transactions. It is currently being designed and implemented under the direction of the LEI ROC, a governance body endorsed by the G20.

(2) The "Global Legal Entity Identifier System" referred to in subsection 28(2) means the G20 endorsed system that will serve as a public-good utility responsible for overseeing the issuance of legal entity identifiers globally to counterparties who enter into transactions.

(3) If the Global LEI System is not available at the time counterparties are required to report their LEI under the Rule, they must use a substitute legal entity identifier. The substitute legal entity identifier must be in accordance with the standards established by the LEI ROC for pre-LEI identifiers. At the time the Global LEI System is operational; counterparties must cease using their substitute LEI and commence reporting their LEI. The substitute LEI and LEI could be identical.

Unique transaction identifier

29. A unique transaction identifier will be assigned by the designated trade repository to each transaction which has been submitted to it. The designated trade repository may utilize its own methodology or incorporate a previously assigned identifier that has been assigned by, for example, a clearing agency, trading platform, or third-party service provider. However, the designated trade repository must ensure that no other transaction shares the same identifier.

A transaction in this context means a transaction from the perspective of all counterparties to the transaction. For example, both counterparties to a single swap transaction would identify the transaction by the same single identifier. For a bi-lateral transaction that is novated to a clearing agency, the reporting of the novated transactions should reference the unique transaction identifier of the original bi-lateral transaction.

Unique product identifier

30. Section 30 requires that a reporting counterparty identify each transaction that is subject to the reporting obligation under the Rule by means of a unique product identifier. There is currently a system of product taxonomy that may be used for this purpose.{6} To the extent that a unique product identifier is not available for a particular transaction type, a reporting counterparty would be required to create one using an alternative methodology.

Creation data

31. Subsection 31(2) requires that reporting of creation data be made in real time, which means that creation data should be reported as soon as technologically practicable after the execution of a transaction. In evaluating what will be considered to be "technological practicable", the Commission will take into account the prevalence of implementation and use of technology by comparable counterparties located in Canada and in foreign jurisdictions. The Commission may also conduct independent reviews to determine the state of reporting technology.

(3) Subsection 31(3) is intended to take into account the fact that not all counterparties will have the same technological capabilities. For example, counterparties that do not regularly engage in transactions would, at least in the near term, likely not be as well situated to achieve real-time reporting. Further, for certain post-transaction operations, such as trade compressions involving numerous transactions, real time reporting may not currently be practicable. In all cases, the outside limit for reporting is the end of the business day following execution of the transaction.

(4) Subsection 31(4) is intended to take into account the fact that a local counterparty who is required to fulfill the obligations of a reporting counterparty under subsection 25(2) will become aware of a non-local reporting counterparty's failure to report derivatives data only by the end of the second day following the execution of the transaction required to be reported. Accordingly, a local counterparty that must act as reporting counterparty under subsection 25(2) is required to report creation data no later than the end of the third business day following the day on which the data should otherwise have been reported.

Life-cycle event data

32. The Commission notes that, in accordance with subsection 26(6), all reported derivatives data relating to a particular transaction must be reported to the same designated trade repository to which the initial report was made, or to the Commission for transactions for which derivatives data was reported to the Commission in accordance with subsection 26(4).

(1) Life-cycle event data is not required to be reported in real time but rather at the end of the business day on which the life-cycle event occurs. The end of business day report may include multiple life-cycle events that occurred on that day.

Valuation data

33. Valuation data with respect to a transaction that is subject to the reporting obligations under the Rule is required to be reported by the reporting counterparty. For both cleared and uncleared transactions, counterparties may, as described in subsection 26(3), delegate the reporting of valuation data to a third party, but such counterparties remain ultimately responsible for ensuring the timely and accurate reporting of this data. The Commission notes that, in accordance with subsection 26(6), all reported derivatives data relating to a particular transaction must be reported to the same designated trade repository to which the initial report was made, or to the Commission for transactions for which the initial report was made to the Commission in accordance with subsection 26(4).

(1) Subsection 33(1) provides for differing frequency of valuation data reporting based on the type of entity that is the reporting counterparty.

Pre-existing derivatives

34. Section 34 requires that pre-existing transactions that were entered into before July 2, 2014 and that will not expire or terminate on or before December 31, 2014 to be reported to a designated trade repository. Creation data in respect of pre-existing transactions that must be reported pursuant to section 34 must be reported to a designated trade repository no later than December 31, 2014. In addition, only the data indicated in the column entitled "Required for Pre-existing Transactions" in Appendix A will be required to be reported for pre-existing transactions.

Transactions that are entered into before July 2, 2014 and that expire or terminate on or before December 31, 2014 will not be subject to the reporting obligation. These transactions are exempted from the reporting obligation in the Rule, to relieve some of the reporting burden for counterparties and because they would provide marginal utility to the Commission due to their imminent termination or expiry.

The derivatives data required to be reported for pre-existing transactions under section 34 is substantively the same as the requirement under CFTC Rule 17 CFR Part 46 -- Swap Data Recordkeeping and Reporting Requirements: Pre-Enactment and Transition Swaps. Therefore, to the extent that a reporting counterparty has reported pre-existing transaction derivatives data required by the CFTC rule, this would meet the derivatives data reporting requirements under section 34. This interpretation applies only to pre-existing transactions.

PART 4

DATA DISSEMINATION AND ACCESS TO DATA

Data available to regulators

37. (1) Subsection 37(1) requires designated trade repositories to, at no cost to the Commission: (a) provide to the Commission continuous and timely electronic access to derivatives data; (b) promptly fulfill data requests from the Commission; (c) provide aggregate derivatives data; and (d) disclose how data has been aggregated. Electronic access includes the ability of the Commission to access, download, or receive a direct real-time feed of derivatives data maintained by the designated trade repository.

The derivatives data covered by this subsection are data necessary to carry out the Commission's mandate to protect against unfair, improper or fraudulent practices, to foster fair and efficient capital markets, to promote confidence in the capital markets, and to address systemic risk. This includes derivatives data with respect to any transaction or transactions that may impact Ontario's capital markets.

Transactions that reference an underlying asset or class of assets with a nexus to Ontario or Canada can impact Ontario's capital markets even if the counterparties to the transaction are not local counterparties. Therefore, the Commission has a regulatory interest in transactions involving such underlying interests even if such data is not submitted pursuant to the reporting obligations in the Rule, but is held by a designated trade repository.

(2) Subsection 37(2) requires a designated trade repository to conform to internationally accepted regulatory access standards applicable to trade repositories. Trade repository regulatory access standards have been developed by CPSS and IOSCO. It is expected that all designated trade repositories will comply with the access recommendations in CPSS-IOSCO's final report.{7}

(3) The Commission interprets the requirement for a reporting counterparty to use best efforts to provide the Commission with access to derivatives data to mean, at a minimum, instructing the designated trade repository to release derivative data to the Commission.

Data available to counterparties

38. Section 38 is intended to ensure that each counterparty, and any person acting on behalf of a counterparty, has access to all derivatives data relating to its transaction(s) in a timely manner. The Commission is of the view that where a counterparty has provided consent to a trade repository to grant access to data to a third-party service provider, the trade repository shall grant such access on the terms consented to.

Data available to public

39. (1) Subsection 39(1) requires a designated trade repository to make available to the public, free of charge, certain aggregate data for all transactions reported to it under the Rule (including open positions, volume, number of transactions, and price). It is expected that a designated trade repository will provide aggregate data by notional amounts outstanding and level of activity. Such aggregate data is expected to be available on the designated trade repository's website.

(2) Subsection 39(2) requires that the aggregate data that is disclosed under subsection 39(1), be broken down into various categories of information. The following are examples of the aggregate data required under subsection 39(2):

• currency of denomination (the currency in which the derivative is denominated);

• geographic location of the underlying reference entity (e.g., Canada for derivatives which reference the TSX60 index);

• asset class of reference entity (e.g., fixed income, credit, or equity);

• product type (e.g., options, forwards, or swaps);

• cleared or uncleared;

• maturity (broken down into maturity ranges, such as less than one year, 1-2 years, 2-3 years).

(3) Subsection 39(3) requires a designated trade repository to publicly report the data indicated in the column entitled "Required for public dissemination" in Appendix A of the Rule. For transactions where at least one counterparty is a derivatives dealer, paragraph 39(3)(a) requires that such data be publicly disseminated by the end of the day following the day on which the designated trade repository receives the data. For transactions where neither counterparty is a derivatives dealer, paragraph 39(3)(b) requires that such data be publicly disseminated by the end of the second day following the day on which the designated trade repository receives the data. The purpose of the public reporting delays is to ensure that counterparties have adequate time to enter into any offsetting transaction that may be necessary to hedge their positions. These time delays apply to all transactions, regardless of transaction size.

(4) Subsection 39(4) provides that a designated trade repository must not disclose the identity of either counterparty to the transaction. This means that published data must be anonymized and the names or legal entity identifiers of counterparties must not be published. This provision is not intended to create a requirement for a designated trade repository to determine whether anonymized published data could reveal the identity of a counterparty based on the terms of the transaction.

PART 5

EXCLUSIONS

40. Section 40 provides that the reporting obligation for a physical commodity transaction entered into between two non-derivatives dealers does not apply in certain limited circumstances. This exclusion only applies if a local counterparty to a transaction has less than $500,000 aggregate notional value under all outstanding derivatives transactions, including the additional notional value related to that transaction. In calculating this exposure, the notional value of all outstanding transactions, including transactions from all asset classes and with all counterparties, domestic and foreign, should be included. The notional value of a physical commodity transaction would be calculated by multiplying the quantity of the physical commodity by the price for that commodity. A counterparty that is above the $500,000 threshold is required to act as reporting counterparty for a transaction involving a party that is exempt from the reporting obligation under section 40. In a situation where both counterparties to a transaction qualify for this exclusion, it would not be necessary to determine a reporting counterparty in accordance with section 25.

This relief applies to physical commodity transactions that are not excluded derivatives for the purpose of the reporting obligation in paragraph 2(d) of OSC Rule 91-506 Derivatives: Product Determination. An example of a physical commodity transaction that is required to be reported (and therefore could benefit from this relief) is a physical commodity contract that allows for cash settlement in place of delivery.

PART 7

EFFECTIVE DATE

Effective date

43. (2) The requirement under subsection 39(3) to make transaction level data reports available to the public does not apply until December 31, 2014.

(3) Where the counterparty is a derivatives dealer or recognized or exempted clearing agency, subsection 42(3) provides that no reporting is required until July 2, 2014.

(4) For non-dealers, subsection 42(4) provides that no reporting is required until September 30, 2014. This provision only applies where both counterparties are non-dealers. Where the counterparties to a transaction are a dealer and a non-dealer, the derivatives dealer will be required to report according to the timing outlined in subsection 42(3).

(5) Subsection 43(5) provides that no reporting is required for pre-existing transactions that terminate or expire by December 31, 2014.

{1} The PFMI Report is available on the Bank for International Settlements' website (www.bis.org) and the IOSCO website (www.iosco.org).

{2} For example, see International Financial Reporting Standard 13, Fair Value Measurement.

{3} Publication available on the BIS website (www.bis.org) and the IOSCO website (www.iosco.org).

{4} Section 21.4 of the Act provides that the Commission may impose terms and conditions on an application for voluntary surrender. The transfer of derivatives data/information can be addressed through the terms and conditions imposed by the Commission on such application.

{5} See http://www.financialstabilityboard.org/list/fsb_publications/tid_156/index.htm for more information.

{6} See http://www2.isda.org/identifiers-and-otc-taxonomies/ for more information.

{7} See report entitled "Authorities' Access to TR Data" available at http://www.bis.org/publ/cpss110.htm.