Canadian Derivatives Market Continues to Develop

Terry Flanagan

The Canadian derivatives market is relatively well developed, exhibits good levels of electronic trading and has been one of the stronger performers, according to a report by research firm Celent.

In the report, Celent analyzes the exchange-traded and OTC derivatives markets in Canada, along with some recent regulations. Like many others, the Canadian market was affected by the global financial crisis, but it has been able to recover and grow. However, the past year has been difficult.

TMX Montreal Exchange, the main derivatives player in Canada, is ranked 17th in the world, experiencing 3.8% growth in volume in 2012. This can be considered a good performance in a year in which 11 of the top 20 exchanges saw a decline in their traded volumes.

“The Canadian derivatives market has experienced an understated, but relatively stable performance since the financial crisis,” said Dr. Anshuman Jaswal, senior analyst with Celent’s Securities & Investments Group and author of the report. “It seems poised to take advantage of this showing in the coming years.”

In September 2009, Canada and other members of the G20 committed themselves to reforming and improving oversight of OTC derivatives markets. On November 2, 2010 the Canadian Securities Administrators’ (CSA) Derivatives Committee published for comment Consultation Paper 91-401, which outlined high-level proposals relating to the regulation of OTC derivatives, including matters such as clearing, trade reporting, electronic trading, capital and collateral and end-user exemptions.

In December 2012, CSA published Consultation 91-301 on the Derivatives Product Determination Rule and Trade Repositories and Derivatives Data Reporting Rule, collectively referred to as the “Model Reporting Rules.”

The purpose of the Model Reporting Rules was to define the types of contracts or instruments that are required to be reported to a trade repository, establish requirements for the operation of trade repositories, and establish requirements for transaction data reporting.

The Product Determination Rule identified the contracts or instruments that were required to be reported to a trade repository. The TR Rule described requirements for the operation and ongoing regulation of designated or recognized trade repositories, and the mandatory reporting of derivatives transaction data by market participants.

The Depository Trust & Clearing Corporation (DTCC) is looking to seek designation of one of its existing Trade Repositories as a foreign Trade Repository in Canada.

“DTCC applauds the Ontario Securities Commission for revising a number of the provisions of the previously proposed model rules to take into account the comments of the industry,” said Marisol Collazzo, managing director at DTCC/DerivSERV, in a comment letter. “The current proposed OSC rules are a step in the right direction toward international harmonization.”

DTCC recommends that OSC modify its rules to allow firms to report lifecycle events on either a message by message approach or end of business day snapshot reflecting all updates that occurred on the record on the given day.

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