Canadian securities regulators have published a paper setting out their proposed recommendations for central counterparty clearing in the over-the-counter derivatives market.

The Canadian Securities Administrators (CSA) published its latest consultation paper Wednesday on plans for a new regulatory framework for the OTC derivatives market. This newest paper details the CSA Derivatives Committee’s recommendations for clearing transactions through regulated central counterparties (CCPs).

“The adoption of requirements relating to CCP clearing will be a key element in addressing the reform of financial markets in Canada. The introduction of requirements for CCP clearing of previously bilaterally cleared or uncleared derivatives transactions will not only greatly enhance the transparency of markets for regulators, but will also enhance the overall mitigation of risks,” it says.

The paper proposes to make the CCP clearing of eligible OTC derivatives mandatory, as it aims to fulfill commitments to the G20, with regulators determining the derivatives that should be subject to mandatory CCP clearing. Pre-existing transactions could be novated to the CCP on a voluntary, it suggests. The report also includes recommendations on clearing timeframes, exemptions, fees, access, and the regulation and governance of CCPs, among other things.

“The importance of bringing central clearing to OTC markets has been recognized by the G-20 as one of the reform elements in the ongoing effort to reduce systemic risk in the financial markets,” said Bill Rice, chairman of the CSA and chairman and CEO of the Alberta Securities Commission. “This paper is part of the CSA’s commitment to creating a Canadian solution to the question of central clearing.”

The comment period on this latest paper expires September 21. And, the CSA notes that some market participants were waiting to read the clearing paper before sending comments on an earlier paper about end-user exemptions, so it will also welcome end-user exemption comments with respect to clearing.

Still to come this year are papers on a variety of issues, such as registration, exchange trading, and capital and collateral.