The Ontario Securities Commission (OSC) is proposing new rules for clearing agencies that operate in Ontario, which call for them to meet standards agreed by global regulators as part of the effort to enhance the supervision of over-the-counter (OTC) derivatives markets in the wake of the financial crisis.
The OSC today published for comment a local Rule 24-503 Clearing Agency Requirements that sets out its approach for recognizing, or exempting, clearing firms to carry on business in the province; and, establishes ongoing requirements for recognized clearing agencies.
In general, the rules would require firms to meet the standards adopted by global regulators, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), in 2012. The proposed rule indicates that the CPSS-IOSCO principles “are intended to enhance the safety and efficiency in clearing, settlement and recording arrangements, and more broadly, to limit systemic risk and foster transparency and financial stability.”
The OSC says that it is committed to working with the clearing agencies that would be impacted by these rules to help them meet the new standards. It notes that the affected firms are currently assessing their operations against the global standards, and are developing plans to address any gaps. “OSC staff will continue to work with these clearing agencies during this transition,” it notes.
“It is important that we maintain high standards for Ontario clearing agencies to ensure they are well placed to withstand financial shocks,” said Howard Wetston, chair and CEO of the OSC. “Fostering robust infrastructure will strengthen the resiliency of Ontario’s capital markets.”
Additionally, the OSC is participating in a group of regulators, along with staff from the Autorité des marchés financiers (AMF), B.C. Securities Commission (BCSC), and the Bank of Canada, which was formed to achieve consistent implementation of the CPSS-IOSCO standards in Canada. It notes that the group has developed guidance to clarify the application of certain aspects of the new standards, and that it will continue to work together to develop further guidance as necessary.
The OSC’s proposed rule is out for a 90-day comment period, ending March 19, 2014.
Québec’s Autorité des marchés financiers also published its own proposed rules setting requirements for clearing houses, central securities depositories and settlement systems, which also follow the CPSS-IOSCO principles.
The AMF notes that the Manitoba Securities Commission is also publishing related consultation materials today; and, it says that is expects the B.C. Securities Commission, the Alberta Securities Commission, the Financial and Consumer Affairs Authority of Saskatchewan, New Brunswick’s Financial and Consumer Services Commission, and the Nova Scotia Securities Commission, to publish a multilateral rule and policy similar to the AMF’s proposal.
Separately, the CPSS and IOSCO proposed a methodology today for ensuring the oversight of third-party service providers that are considered critical to financial market infrastructure firms, such as clearing agencies. It notes that the operational reliability of these firms may be dependent on critical third-party firms, such as information technology and messaging providers. And, while infrastructure firms are ultimately responsible for their own operational reliability, a regulator may use the proposed methodology to set expectations for critical service providers, it says. Comments are due by February 20, 2014.