Canadian securities regulators have published their latest consultation paper on the development of a fledgling framework for regulating over-the-counter derivatives, focusing on surveillance and enforcement.
The CSA is working on a regulatory framework for OTC derivatives as part of Canada’s commitments to the G20 in response to the global financial crisis. This latest paper, which is the second in a planned series of eight papers prepared by the CSA Derivatives Committee, sets out a series of proposals that are designed to improve regulatory oversight of OTC derivatives transactions.
Under the framework proposed by the committee, Canadian securities regulators would conduct comprehensive surveillance and monitoring of OTC derivatives, obtain the authority to enact market conduct rules, and take enforcement action against misconduct in the OTC derivatives markets.
The paper notes that the committee believes that effective surveillance, harmonized market conduct rules and consistent enforcement, “will bring about greater transparency in the OTC derivatives markets, combat improper market conduct” and help fulfill the G20 commitments.
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Several of the issues highlighted in the paper will require legislative changes. The paper recommends that provincial regulators obtain the authority to implement specific rules to address various market conduct issues, allowing them to deal with issues such as market manipulation, fraud, insider trading, and abusive trading. The paper notes that they will also have to obtain the authority to extend existing compliance, investigation and enforcement powers to OTC derivatives markets; and that they will need the authority to access data about the products and players in the OTC derivatives market, the authority to share that data with foreign regulators, and that existing access to information legislation may have to be revised to protect the confidentiality of data collected for surveillance purposes. In other areas, further research by provincial regulators will be required, the paper notes, including the development of a comprehensive surveillance system.
“To improve the regulation of OTC derivatives markets, the G20 has emphasized the importance of transparency in these markets and their protection against abuse,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission.
“To implement this phase of the G20 commitments, the CSA Derivatives Committee has developed proposals that would assist securities regulators in monitoring market participants and enforcing new standards of conduct that have been developed to deter abuses in these markets. We hope that these proposals will generate necessary commentary and feedback from market participants that will assist us in assessing them.”
The comment period expires January 25, 2012.