Coming Soon: Amendments to Canada’s OTC Derivatives Trade Reporting Regime

The Canadian Securities Administrators (“CSA”) have released several updates in the last year to Canada’s trade reporting regime for over-the-counter (“OTC”) derivatives. In July 2024, all members of the CSA published final amendments and changes to the Trade Reporting Rules (as defined below) and their respective companion policies (collectively, the “Final Amendments”). The CSA have since published certain temporary relief and additional resources to support market participants in their implementation of the Final Amendments. The Final Amendments will come into force in all Canadian jurisdictions on July 25, 2025.

Background

In Canada, the regulation of instruments as “derivatives” depends on the legislation and rules in effect in the applicable Canadian jurisdiction(s). These include the “Trade Reporting Rules”, the purposes of which are to improve transparency in the Canadian derivatives markets and ensure that designated trade repositories operate in a manner that promotes the public interest. The Trade Reporting Rules consist of Ontario Securities Commission (“OSC”) Rule 91-507 Trade Repositories and Derivatives Data Reporting (“OSC Rule 91-507”) (applicable in Ontario), Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (“Regulation 91-507”) (applicable in Québec), Manitoba Securities Commission (“MSC”) Rule 91-507 Trade Repositories and Derivatives Data Reporting (applicable in Manitoba) and Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (“MI 96-101”) (applicable in the remaining Canadian jurisdictions).

As we discussed in a previous post, in June 2022, all members of the CSA published for comment proposed amendments and changes to the Trade Reporting Rules and their respective companion policies (collectively, the “Proposed Amendments”).[1] The Proposed Amendments had been developed in response to coordinated international efforts to streamline and harmonize derivatives data reporting standards. In the CSA’s view, harmonizing and clarifying both the data elements and the technical format and values for reporting would alleviate regulatory burden on market participants, by reducing the data that they provide and enabling them to harmonize their reporting systems across multiple global regulators. The CSA believe that this should reduce the complexity of market participants’ reporting systems, decrease certain ongoing operational and compliance costs and strengthen data quality and consistency.

Final Amendments

The CSA received submissions from 13 commenters, who expressed general support for the harmonization of the Trade Reporting Rules with global requirements and the reduction in regulatory burden that might be achieved. The CSA found many of the comments to be persuasive and incorporated them in the Final Amendments. Among other things, the Final Amendments are intended to provide:

• a more flexible approach to determining which counterparty to a derivative is required to report it;
• increased domestic harmonization and alignment with respect to derivatives regulation and policy;
• improvements designed to enhance data accuracy and consistency, such as data validation and verification, consistent with the requirements of other global regulators; and
• clearer guidance for market participants through a new technical manual (the “CSA Derivatives Data Technical Manual” or “Technical Manual”) and substantial redrafts of the companion policies to the Trade Reporting Rules.

With the coming into force of the Final Amendments, internationally harmonized data elements will include the unique transaction identifier (“UTI”), the unique product identifier (“UPI”) and other data elements reflected in Appendix A [Minimum Data Elements or Fields Required to be Reported to a Designated or Recognized Trade Repository] (“Appendix A”) to the Trade Reporting Rules, as amended. Five data elements will, however, be unique to Canada; specifically: (i) Country and Province or Territory of Individual (data element #9); (ii) Jurisdiction of Counterparty 1 (data element #10); (iii) Jurisdiction of Counterparty 2 (data element #11); (iv) Inter-affiliate indicator (data element #20); and (v) Platform anonymous execution indicator (data element #23).

The CSA Derivatives Data Technical Manual was also developed to support market participants with consistent reporting under the Trade Reporting Rules. Similar to the approach taken by the United States Commodity Futures Trading Commission (“CFTC”), the Technical Manual provides guidance on administrative matters, such as the format and values for reporting in line with international data standards, with examples. While the Proposed Amendments had contemplated a distinct technical manual for each of the four Trade Reporting Rules, the Final Amendments fortunately include a single Technical Manual applicable in all Canadian jurisdictions in an effort to reduce regulatory burden and promote consistent reporting.

Changes following the Proposed Amendments

Other notable changes that were adopted following the publication of the Proposed Amendments include:

• New title: The title of three of the Trade Reporting Rules was revised from “Trade Repositories and Derivatives Data Reporting” to “Derivatives: Trade Reporting” for simplicity and alignment with other recent derivatives instruments;
• Domestically harmonized definition of “local counterparty”: Derivatives involving a local counterparty are required to be reported. The CSA harmonized the definition of “local counterparty” under the Trade Reporting Rules to the extent possible, in response to requests from market participants;
• Burden reduction for non-dealers: The CSA extended the reporting deadline for derivatives between two non-dealers and harmonized the concept of “affiliated entity” under the Trade Reporting Rules for alignment with National Instrument 93-101 Derivatives: Business Conduct. This change will render the scope of the inter-affiliate exemption consistent across the Trade Reporting Rules for derivatives where both counterparties are non-dealers;
• Domestically harmonized reporting hierarchies: The reporting hierarchy under section 25 of the Trade Reporting Rules determines which counterparty to a derivative is required to report it. The OSC replaced the existing hierarchy in OSC Rule 91-507 with the alternative hierarchy that had been included in the Proposed Amendments. As the new hierarchy will distinguish between financial and non-financial derivatives dealers, the OSC believes that it will alleviate existing regulatory burden on non-financial derivatives dealers while avoiding increased regulatory burden on financial derivatives dealers. While the other Canadian jurisdictions did not adopt similar amendments, the OSC expects this change to result in substantially harmonized reporting hierarchies in Canada in practice;
• Clarification regarding notice to the regulator of significant errors and omissions: The companion policies to the Trade Reporting Rules were revised to provide detailed guidance for reporting counterparties regarding the requirement to notify the regulator of significant errors and omissions with respect to derivatives data under subsection 26.3(2) of the Trade Reporting Rules;
• Porting derivatives to a different designated or recognized trade repository: The Trade Reporting Rules were revised to provide a process for reporting counterparties to transfer to a different designated or recognized trade repository;
• Position reporting: Reporting counterparties are generally required to report ongoing data for each open derivative (regarding e.g., lifecycle events, valuation and collateral and margin). The CSA had initially proposed position level reporting to enable reporting counterparties to report ongoing data with respect to contracts for difference as a netted aggregate of multiple derivatives that have identical contract specifications, rather than separately for each derivative. The CSA have since extended this option to commodity derivatives that also meet the relevant criteria, in an effort to further reduce regulatory burden. Reporting counterparties will, however, still be required to report creation data separately for each derivative;
• Updates to data elements: The CSA removed data elements relating to excess collateral that had been proposed in Appendix A to the Trade Reporting Rules, as they do not align with data elements required by the CFTC. The CSA also added certain critical data elements (CDEs, which are published and updated by the Committee on Derivatives Identifiers and Data Elements (CDIDE) of the Regulatory Oversight Committee (ROC)), to reflect recent updates to global standards, provide more specificity and clarity to proposed fields and account for data that is not included in the UPI;
• Domestically harmonized hierarchy for assigning the UTI: The CSA introduced a flexible and harmonized hierarchy to determine which counterparty is required to assign the UTI and to whom it is required to be transmitted. This change is intended to improve efficiency in the generation and reporting of this identifier;
• Domestically harmonized terminology relating to reportable derivatives: As some Trade Reporting Rules currently refer to “transactions” that are required to be reported while others refer to “derivatives”, the CSA adopted a harmonized terminology that reflects that each transaction must be reported as a unique derivative. This is not intended to result in any substantive change in reporting but will allow for a single set of data elements and a single Technical Manual, which will enable market participants to continue to report the same data elements in the same manner for all of their Canadian derivatives trade reporting;
• Requirements applicable to designated or recognized trade repositories: The CSA are committed to ensuring that the Trade Reporting Rules appropriately reflect the Principles for financial market infrastructures issued by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). In light of certain comments received, the CSA tailored the requirements applicable to designated or recognized trade repositories, in part to ensure consistency among North American regulatory requirements and clarify the CSA’s expectations regarding corrections to data that is available to regulators and/or publicly disseminated. The CSA believe that by requiring less frequent submissions regarding changes that are not significant and clarifying their expectations regarding changes that are significant, regulatory burden on designated or recognized trade repositories will be reduced; and
• Implementation period: The CSA provided for a one-year implementation period, which, in their view, balances the need of market participants to manage their implementation of global regulatory changes with the benefits of ensuring that Canada’s derivatives trade reporting requirements remain globally consistent. In November 2022, the CSA published CSA Staff Notice 96-303 Derivatives Data Reporting Transition Guidance, which we discussed in a previous post, to provide guidance to market participants before the Final Amendments come into force.

New requirements applicable to derivatives trading facilities

Significantly, the Trade Reporting Rules will also require derivatives trading facilities to report anonymous derivatives that are intended to be cleared, as proposed. Section 36.1 of the companion policies to the Trade Reporting Rules, as amended, includes a helpful summary of the provisions applicable to these market participants. Since the publication of the Proposed Amendments, the CSA have tailored the data elements that derivatives trading facilities will be required to report and provided them with additional time to determine whether a participant, or its customer, is a local counterparty under paragraph (c) of the definition of “local counterparty” under the Trade Reporting Rules.

Exemptions under the Trade Reporting Rules

The Trade Reporting Rules will continue to provide reporting exemptions with respect to certain commodity derivatives, derivatives between governmental entities and derivatives between affiliated entities.

The CSA have also harmonized, to the extent possible, an important reporting exemption with respect to derivatives between a non-resident derivatives dealer and a non-local counterparty (e.g., two foreign derivatives dealers), such that a reporting counterparty will not be required to report derivatives data relating to a derivative if the derivative is required to be reported solely because one or both counterparties is a local counterparty under paragraph (b) of the definition of “local counterparty” under the applicable Trade Reporting Rule. This exemption will not, however, be available if the derivative involves a counterparty that is: (i) an individual who is a resident of the local jurisdiction; or (ii) in Québec, a counterparty that is a local counterparty under paragraph (b) of the definition of “local counterparty” under Regulation 91-507 and a qualified person under section 82 of the Derivatives Act (Québec).

Temporary Relief

The CSA have since announced substantively harmonized exemptions from certain current and future requirements under the Trade Reporting Rules. This relief has been or will be implemented through coordinated local blanket orders. While the language of the blanket orders may not be identical on account of legislative differences, the outcome is intended to be the same in all Canadian jurisdictions.

Exemptions for end-users

In CSA Notice Regarding Coordinated Blanket Order 96-932 Re Temporary Exemptions from Certain Derivatives Data Reporting Requirements, the CSA introduced the following exemptions from the current Trade Reporting Rules to enable OTC derivatives end-users to benefit from certain intended reductions in regulatory burden without having to wait until the Final Amendments come into force:

• Reporting of creation data: This exemption, applicable in all Canadian jurisdictions, provides a reporting counterparty that is not a qualified reporting counterparty (as defined in the Final Amendments) with an extended period of time to report creation data, which they must report no later than the end of the second business day following the execution date of a transaction;
• Reporting of life-cycle event data: This exemption, applicable in all Canadian jurisdictions, provides a reporting counterparty that is not a qualified reporting counterparty (as defined in the Final Amendments) with an extended period of time to report life-cycle event data, which they must report no later than the end of the second business day following the date on which the life-cycle event occurred;
• Reporting of valuation data: This exemption, applicable in all Canadian jurisdictions, exempts a reporting counterparty that is neither a derivatives dealer nor a recognized or exempt or reporting clearing agency or reporting clearing house from reporting valuation data;
• Reporting of commodity derivatives: This exemption, applicable in Ontario, Manitoba and Québec,[2] exempts a reporting counterparty that is a local counterparty and not a qualified reporting counterparty (each as defined in the Final Amendments), subject to certain conditions, from reporting commodity derivatives below a specified notional threshold; and
• Reporting of derivatives between affiliated entities: This exemption, applicable in Ontario and Manitoba,[3] exempts a reporting counterparty from reporting a transaction where both parties to the transaction are not qualified reporting counterparties and are affiliated entities (each as defined in the Final Amendments).

This relief is in effect and will expire on July 25, 2025, the date that the Final Amendments come into force, unless it is extended by the CSA.

Exemption relating to the UPI for commodity derivatives

As the Trade Reporting Rules require that each type of derivative required to be reported be identified by means of a UPI, reporting counterparties currently report a code that is based on a taxonomy of derivatives assigned or adopted by the designated or recognized trade repository to which the derivative is reported. In accordance with international standards and to support regulators’ ability to link and aggregate data consistently, the Final Amendments will require that market participants use UPIs assigned by the Derivatives Service Bureau (“DSB”) instead. This requirement is in effect in respect of all asset classes in the European Union, the United Kingdom, Australia and Singapore and is expected to be implemented in Japan and Hong Kong this year.

While the CFTC has implemented the requirement in respect of the credit, equity, foreign exchange and interest rate asset classes, it has not published an implementation date in respect of the commodity asset class. The CSA have in turn received numerous requests from market participants to delay the implementation of the DSB UPI for commodity derivatives in Canada. As all designated or recognized trade repositories in Canada are provisionally registered with the CFTC and many derivatives are required to be reported in Canada and the United States, trade repositories and reporting counterparties may use systems that report the same data elements in both jurisdictions.

In CSA Notice Regarding Coordinated Blanket Order 96-933 Re Temporary Exemptions from Derivatives Data Reporting Requirements relating to the Unique Product Identifier for Commodity Derivatives and CSA Staff Notice 96-306 Coordinated Blanket Order 96-933 Re Temporary Exemptions from Derivatives Data Reporting Requirements relating to the Unique Product Identifier for Commodity Derivatives, the CSA introduced an exemption to enable: (i) market participants to continue to report UPIs for commodity derivatives as required under the current Trade Reporting Rules once the Final Amendments come into force; and (ii) designated or recognized trade repositories to reflect this exemption in their validation procedures.

This relief will take effect on July 25, 2025, the date that the Final Amendments come into force. In Ontario, this relief will expire on January 24, 2027, unless it is extended or revoked by the OSC. The CSA otherwise expect this relief to be revoked in all Canadian jurisdictions at an appropriate time. While the CSA intend to coordinate revocation to align with the CFTC’s implementation of the DSB UPI for commodity derivatives, this relief may be revoked earlier for the purpose of harmonizing with international standards or supporting effective oversight. The CSA do not, however, intend to recommend revocation before the CFTC implements the DSB UPI for commodity derivatives without consulting market participants.

Additional Resources

More recently, the CSA published the following additional resources to support market participants in their implementation of the Final Amendments:

• CSA Staff Notice 96-307 Frequently Asked Questions About Derivatives Trade Reporting (the “FAQs”): The FAQs are intended to clarify how certain requirements under the Trade Reporting Rules should be implemented while preserving flexibility for market participants to operationalize the requirements in the context of their business. The FAQs are not exhaustive but consider and provide the CSA’s current views on key issues and questions that market participants have posed. The CSA may update the FAQs as necessary; and
• CSA Staff Notice 96-308 Derivatives Trade Reporting: Notice of Significant Error or Omission (the “Form of Notice”): Under subsection 26.3(2) of the Trade Reporting Rules, as amended, reporting counterparties must notify the regulator of significant errors and omissions with respect to derivatives data. While market participants will not be required to use the Form of Notice, it was developed in response to requests for a streamlined form and contains information that the CSA would generally request on being made aware of a significant error or omission. The CSA therefore suggest that using the Form of Notice may reduce the frequency of questions that they may initially ask a reporting counterparty in respect of an error or omission.

For interest, the OSC has also released its 2024 Report on Canadian OTC Derivatives, which gathers and summarizes publicly available data on Canada’s OTC derivatives markets in 2024.

What’s Next?

Market participants continue to work towards implementing the “Canadian re-write” by July 25, 2025. While the Technical Manual, temporary relief and additional resources provide welcome guidance, further regulatory support may prove essential as market participants adapt to the new trade reporting regime. Certain requirements, such as the reporting of significant errors and omissions, continue to inspire questions, notwithstanding the publication of the FAQs and Form of Notice. Given the complexities of trade reporting, the co-existence of four Canadian Trade Reporting Rules and ongoing international efforts to enhance derivatives data reporting standards, a pragmatic regulatory approach that gives market participants latitude to progressively refine their operations once the Final Amendments are in force will be crucial.

Separately, the CSA are also monitoring changes to benchmark reference rates, including recent updates relating to the Canadian Dollar Offered Rate (CDOR), United States dollar (USD) London Inter-Bank Offered Rate (“LIBOR”), Euro Inter-Bank Offered Rate (EURIBOR) and British pound (GBP) LIBOR, which will affect indices that are required to be publicly disseminated. The CSA note that they will continue to monitor these developments as they affect trading liquidity and will assess whether other products are suitable for public dissemination at a later date.

[1] The OSC, Autorité des marchés financiers (“AMF”) and MSC also proposed minor changes to OSC Companion Policy 91-506CP Derivatives: Product Determination (applicable in Ontario), Policy Statement to Regulation 91-506 respecting Derivatives Determination (applicable in Québec) and MSC Companion Policy 91-506CP Derivatives: Product Determination (applicable in Manitoba). These proposed changes were intended to clarify the current interpretation that, similar to other financial commodities that do not come within the exclusion under section 2 of the corresponding product determination rules, certain crypto assets that are also “financial commodities” are not excluded under this section of the rules. The remaining members of the CSA proposed a substantially similar change to the companion policy to MI 96-101. As the CSA did not receive any comments on this aspect of the Proposed Amendments, these changes were published in the Final Amendments as proposed.

[2] MI 96-101 already provides for a substantively equivalent exclusion in the remaining Canadian jurisdictions.

[3] MI 96-101 and the AMF’s Decision n° 2015-PDG-0089 already provide for substantively equivalent exclusions in the remaining Canadian jurisdictions.

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