Canadian Securities Regulators Adopt New Rules for OTC Derivatives Clearing
On January 19, 2017, the Canadian Securities Administrators (CSA) announced two new instruments affecting over-the-counter (OTC) derivatives trading in Canada. National Instrument 94-101 Mandatory Central Counterparty Clearing of Derivatives (“NI 94-101”) and National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (“NI 94-102”), represent part of the ongoing implementation of Canada’s commitment under the G20 agreement of 2009 to reform derivatives markets in response to the global financial crisis.
In some jurisdictions, ministerial approvals are required for the implementation of these instruments. Assuming all necessary approvals are obtained, NI 94-101 will come into effect on April 4, 2017, and NI 94-102 will come into effect on July 3, 2017.
Mandatory Central Counterparty Clearing of Derivatives
NI 94-101 imposes mandatory central counterparty clearing for certain standardized OTC derivatives. NI 94-101 is comprised of two main parts: (i) the classification of certain interest rate derivatives (IRD) as “mandatory clearable derivatives,” and (ii) the requirements for counterparty clearing of mandatory clearable derivatives by certain counterparties (including exemptions).
The first part of NI 94-101 classifies certain types of IRDs denominated in U.S. dollars, euros, British pounds and Canadian dollars as “mandatory clearable derivatives.” Appendix “A” of NI 94-101 contains a comprehensive list of mandatory clearable derivatives. The CSA has attempted to harmonize the list with the practices already in place in the United States, Europe and Australia.
The second part of NI 94-101 provides that a local counterparty to a transaction in a mandatory clearable derivative must submit that derivative to a clearing agency when each counterparty meets one or more of the following criteria:
a) the counterparty is a participant subscribing to the services of a regulated clearing agency for a mandatory clearable derivative;
b) the counterparty is an affiliated entity of a participant described in a) and has an aggregate gross notional amount exceeding $1 billion in outstanding OTC derivatives, excluding intragroup transactions; or
c) the counterparty is a local counterparty that, together with its local affiliated entities, has an aggregate gross notional amount exceeding $500 billion in outstanding OTC derivatives, excluding intragroup transactions.
NI 94-101 lists a number of exempt entities which are not subject to the clearing requirements, including certain governmental and intergovernmental entities. The instrument also exempts transactions between affiliated entities that have consolidated financial statements as well as transactions undertaken to consolidate swap positions among a number of counterparties. A counterparty relying on either exemption must keep detailed records to demonstrate its eligibility for the exemption.
Customer Clearing and Protection of Customer Collateral and Positions
NI 94-102 is designed to protect customer collateral and positions when clearing OTC derivatives, and to improve clearing agencies’ resilience to default by a clearing intermediary. NI 94-102 mandates new requirements for clearing intermediaries and clearing agencies in three main areas:
- Segregation and Use of Customer Collateral: NI 94-102 outlines new rules for clearing agencies and clearing intermediaries in respect of handling a customer’s collateral. Specific requirements relate to the collection, holding and maintenance of customer collateral, the identification of excess margin, the collection of initial margin (for clearing agencies), as well as the segregation, use and investment of customer collateral. Clearing intermediaries are also subject to additional risk management requirements in connection with providing clearing services to local customers.
- Recordkeeping and Disclosure: NI 94-102 requires clearing agencies and clearing intermediaries to keep up-to-date records and supporting documentation to facilitate the identification and protection of a customer’s positions and collateral. Clearing agencies and clearing intermediaries are also required to disclose certain information to their customers relating to the use, transfer and investment of their collateral.
- Portability of Customer Collateral and Positions: NI 94-102 sets out the requirements for a clearing agency to facilitate the transfer of a customer’s positions and collateral in the context of a clearing intermediary’s default or at a customer’s request. It also requires a clearing intermediary that provides clearing services to an indirect intermediary to have policies and procedures for transferring the positions and collateral of a customer of the indirect intermediary.
Not all clearing agencies and clearing intermediates are subject to this instrument. NI 94-102 provides a mechanism for substituted compliance, whereby clearing agencies and clearing intermediaries located outside of Canada may be exempt from the instrument if they comply with the comparable requirements of a foreign jurisdiction.
Authors
Insights
-
REITs
The Legal Industry Reviews Edition 11 - REITs Chapter
Bill Gorman, Brenda Gosselin, and Stephen Pincus have co-authored The Canadian REIT Structure in the 11th edition of The Legal Industry Reviews Canada.In this chapter, they examine the evolution of… -
Capital Markets
CSA Proposes Broad Amendments to the Issuer Bid, Take-Over Bid and Beneficial Ownership Reporting Regimes
The Canadian Securities Administrators (CSA) published a notice and request for comment on a broad package of proposed amendments to Canada’s issuer bid, take-over bid and early warning reporting… -
REITs
The Legal Industry Reviews Edition 10 - REITs Chapter
Bill Gorman, Brenda Gosselin, and Stephen Pincus have co-authored The Canadian REIT Structure in the 10th edition of The Legal Industry Reviews Canada.In this chapter, they examine the evolution of… -
Capital Markets
Canadian Securities Administrators Adopt Semi-Annual Reporting Pilot Project
On March 19, 2026, the Canadian Securities Administrators (CSA) announced the adoption of a pilot project (the “SAR Pilot”) that permits eligible venture issuers to voluntarily report on a… -
Capital Markets
Proxy Advisors Release Updated Canadian Voting Guidelines for 2026
Ahead of the 2026 proxy season, Institutional Shareholder Services (ISS) and Glass Lewis, North America’s two leading proxy advisory firms, have released updates to their Canadian benchmark proxy… -
Capital Markets
SCC Affirms Broad and Contextual Interpretation of “Material Change”
The Supreme Court of Canada (SCC) has provided further guidance on what may constitute a “material change” under Ontario securities law and the leave test for bringing a claim for failure to make…
Featured Work
-
Entertainment
WildBrain announces a C$20 million substantial issuer bid
Goodmans LLP is acting for WildBrain Ltd. in connection with its substantial issuer bid to purchase, for cancellation, a number of common shares of the company for an aggregate purchase price not… -
Mergers and Acquisitions
Onex Partners and co-investors acquire AirSprint
Goodmans LLP acted as M&A legal counsel to Onex Partners in connection with the acquisition of AirSprint Inc. by Onex and its co-investors… -
REITs
Minto Apartment REIT completes going-private transaction with Crestpoint and Minto Group
Goodmans LLP acted for Minto Apartment Real Estate Investment Trust (the “REIT”) in connection with its going-private transaction with Crestpoint Real Estate Investments Limited Partnership… -
Mergers and Acquisitions
Jamieson Wellness to be acquired by Kirin Holdings in a deal valued at approximately C$2.5 billion
Goodmans LLP is acting for Jamieson Wellness Inc. in connection with its definitive arrangement agreement with Kirin Holdings Company, Limited, pursuant to which Kirin has agreed to acquire all of the… -
Capital Markets
MDA Space closes C$600 million senior unsecured notes offering
Goodmans LLP acted for MDA Space Ltd. in connection with its private placement offering of C$600 million aggregate principal amount of 6.50% senior unsecured notes due… -
Mining
Cadillac Mines Corporation closes C$440 million IPO
Goodmans LLP acted as Canadian legal counsel to Cadillac Mines Corporation in connection with its C$440 million initial public offering of common shares and special flow-through shares, and its…
News & Events
-
Aging and Healthcare
Goodmans Honoured with Top-Tier Recognition from Chambers
We are proud to announce Goodmans has received top-tier recognition from Chambers in the Chambers Canada 2027 Guide. Recognition from Chambers is based on independent research and direct client… -
Capital Markets
Goodmans Welcomes Dominique Carli
Goodmans is delighted to announce Dominique Carli has joined the firm as an Associate. Dom’s practice focuses on various areas of corporate law including mergers and acquisitions, private equity… -
Banking and Finance
Goodmans Lawyers Recognized in the Lexpert Special Editions: Finance 2026 and Mergers & Acquisitions 2026
We are delighted to share the Lexpert Special Editions: Finance 2026 and Mergers and Acquisitions 2026 continue to feature Goodmans lawyers among Canada's best.Congratulations to the 34 lawyers…