The Ontario government plans to introduce amendments to provincial securities legislation to improve oversight of the over-the-counter derivatives market.

In its economic update Thursday, the government said that it is proposing amendments to the Securities Act to allow the Ontario Securities Commission to develop a regulatory framework for OTC derivatives.

“These amendments would allow for new rules specifically designed for OTC derivatives and would also include derivatives within the scope of existing insider-trading offences,” it says.

Additionally, the government said that it is proposing amendments to provide for regulatory oversight of credit rating agencies and to strengthen the oversight of alternative trading systems. The province also reiterated its support for a national securities regulator, and repeated its claim that the regulator should be based in Toronto.

Last month, the Canadian Securities Administrators released a discussion paper on the regulation of OTC derivatives; which governments of the G20 have pledged to improve in the wake of the financial crisis. Absent a national regulator, fulfilling those pledges to enhance the regulation of OTC markets is going to require legislative change in a number of provinces, as they have historically taken divergent approaches to derivatives regulation generally.

The CSA paper calls for: mandatory reporting of all derivatives trades; central clearing of OTC derivatives; the imposition of capital and collateral requirements; and that the provincial regulators obtain the authority to mandate electronic trading of OTC derivatives in the short term, as well as the authority to conduct surveillance, develop market conduct standards, and obtain the authority to investigate and bring enforcement action against abusive practices in the OTC derivatives market.

The consultation paper is out for comment until January 14.

IE