The Canadian Derivatives Clearing Corporation – ss. 21.2, 144
Headnote
Subsection 144(1) of the Securities Act (Ontario) -- application for order varying the Commission's order recognizing the Canadian Derivatives Clearing Corporation (CDCC) as a clearing agency -- variation required to streamline and update applicable regulatory reporting requirements and to reduce regulatory burden -- requested order granted.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 21.2, 144(1).
IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED ("Act") AND IN THE MATTER OF THE CANADIAN DERIVATIVES CLEARING CORPORATION
ORDER
(Sections 21.2 and 144 of the Act)
WHEREAS the Ontario Securities Commission (Commission) issued an order dated April 18, 2014 recognizing the Canadian Derivatives Clearing Corporation (CDCC) as a clearing agency pursuant to section 21.2 of the Act (CDCC Recognition Order);
AND WHEREAS the Commission considers the proper operation of a clearing agency as essential to investor protection and maintaining a fair and efficient capital market, and the Commission may recognize a clearing agency, pursuant to section 21.2 of the Act, if it is satisfied that it is in the public interest to do so;
AND WHEREAS the Commission has received an application under section 144 of the Act to vary and restate the CDCC Recognition Order to reflect the streamlining of certain reporting requirements, to reduce regulatory burden and to modernize the order (Application);
AND WHEREAS CDCC has agreed to the applicable terms and conditions set out in the Schedule to the CDCC Recognition Order;
AND WHEREAS based on the Application, the Commission has determined that:
(a) CDCC continues to satisfy the criteria for recognition set out in National Instrument 24-102 Clearing Agency Requirements;
(b) it is in the public interest to continue to recognize CDCC as a clearing agency pursuant to section 21.2 of the Act, subject to terms and conditions that are set out in Schedule A to this order; and
(c) it is not prejudicial to the public interest to vary and restate the current Recognition Order;
IT IS ORDERED, pursuant to section 144 of the Act, that the Application to vary and restate the CDCC Recognition Order is granted.
IT IS ORDERED, pursuant to section 21.2 of the Act, that CDCC continues to be recognized as a clearing agency; provided CDCC complies with the terms and conditions set out in the Schedule to the CDCC Recognition Order, as applicable.
DATED this 15th day of June, 2023.
SCHEDULE A -- TERMS AND CONDITIONS
Part I -- Definitions
For the purposes of this Schedule A:
"affiliated entity" has the meaning ascribed to it in subsection 1.2(1) of National Instrument 24-102 Clearing Agency Requirements;
"CDCC" means the Canadian Derivatives Clearing Corporation;
"Clearing Member" means a clearing member that uses the services offered by CDCC which are governed by the CDCC's Rules;
"Critical Services" mean activities, functions or services of such a nature that any interruption in their provision could lead to the collapse of or present a serious impediment to the performance of one or more critical functions of the clearing agency;
"financial risk model" means the mechanisms adopted by CDCC to manage the risk of potential loss in the provision of clearing services for securities and derivatives transactions due to the failure of a Clearing Member to fulfill its obligations, and for greater certainty:
(i) includes margin and clearing fund calculation models, stress and backtesting policies and procedures for determining the adequacy of CDCC's total financial resources, collateral and treasury management policies and procedures, and other tools to manage CDCC's credit and liquidity risk, but
(ii) does not include mechanisms to manage business or operational risk;
"IT Systems" means CDCC's information technology systems supporting the services or the business operations of CDCC;
"Ontario securities law" has the meaning ascribed to it in subsection 1(1) of the Act;
"PFMIs" means the principles contained in the CPMI-IOSCO Principles for Financial Market Infrastructures, as amended from time to time, or any successor principles or recommendations;
"report" includes electronic data files and similar documents, as the context permits;
"Rule" has the meaning ascribed to it in section 2 of the Rule Protocol at Appendix A to this Schedule; and
"TMX Group" means TMX Group Limited.
Part II -- Terms and Conditions
1 OWNERSHIP OF CDCC
1.1 CDCC must not make any changes to its ownership structure without the prior approval of the Commission.
2 REGULATION OF CDCC
2.1 CDCC must continue to meet the criteria for recognition under applicable Ontario securities law.
3 PUBLIC INTEREST RESPONSIBILITY
3.1 CDCC must conduct its business and operations in a manner that is consistent with the public interest, and the mandate of its board of directors must expressly include CDCC's public interest responsibility.
4 GOVERNANCE
4.1 CDCC must promote within CDCC a governance structure that minimizes the potential for any conflict of interest between CDCC and its shareholder(s) that could adversely affect the clearing of products cleared by CDCC or the effectiveness of CDCC's risk management policies, controls and standards.
4.2 CDCC's governance arrangements must be designed to fulfill its public interest responsibility under s. 3.1 and to balance the interests of its shareholders and its Clearing Members and other users of its services.
4.3 CDCC must actively consider any conflict of interest or potential conflict of interest that arises as a result of any CDS/CDCC mirror board structure, and if CDCC identifies any conflict of interest or potential conflict of interest that arises as a result of such a CDS/CDCC mirror board structure, CDCC will notify the Commission as soon as possible and provide the Commission with:
(a) a written summary of the relevant facts relating to the conflict of interest, or potential conflict of interest;
(b) a detailed description of how the conflict of interest will be resolved; and
(c) timing to resolve the conflict of interest.
4.4 The CDCC governance structure must provide for the use of one or more external advisory committees to provide advice, comments and recommendations to assist the board of directors of CDCC, and such committees must meet the following requirements:
(a) membership and attendance must, in accordance with the mandate of the respective committee, be open to all Clearing Members that connect to or use the services provided by CDCC;
(b) the committees may on any matters that they deem appropriate, and must if requested by the Commission, report directly to the Commission without first requiring board approval or notification of such reporting; and
(c) a staff representative of the Commission may attend any meetings of the committees as an observer.
4.5 CDCC must obtain prior Commission approval before:
(a) making changes to its constating documents;
(b) making changes to the structure of its board of directors or any of its board committees.
4.6 CDCC must notify the Commission in writing at least 30 days before:
(a) making changes to the structure of its marketplace committee or of any of its Clearing Member committees; or
(b) making changes to the mandates of its board of directors, board committees, marketplace committee, or Clearing Member committees.
4.7 If Commission staff do not object in writing within 15 days of receiving written notice under paragraph 4.6, the Commission shall be deemed not to object to the changes.
4.8 CDCC must establish and maintain a risk and audit committee of its board of directors, whose mandate includes, at a minimum, the following:
(a) providing advice and recommendations to the board of directors to assist it in fulfilling its risk management responsibilities, including reviewing and assessing CDCC's risk management policies and procedures, the adequacy of the implementation of appropriate procedures to mitigate and manage such risks and CDCC's participation standards and collateral requirements;
(b) monitoring the financial performance of CDCC and providing financial management oversight and direction to the business and affairs of CDCC; and
(c) advising the board of directors on the fairness, reasonableness and competitiveness of its pricing and fees in the context of the Canadian capital market and trends relating to comparable services offered by clearing houses worldwide.
4.9 The risk and audit committee's composition must be as follows:
(a) a minimum of five directors;
(b) an independent chair; and
(c) at least two industry directors who represent a diversity of Clearing Members
(d) a majority of directors who are either independent or who represent a diversity of Clearing Members.
4.10 In the event that CDCC fails to meet the requirements of this Part, it must immediately advise the Commission and take appropriate measures to promptly remedy such failure.
5 FITNESS
5.1 CDCC must take reasonable steps to ensure that each director and officer of CDCC is a fit and proper person. CDCC must, among other things, consider whether the past conduct of each director or officer affords reasonable grounds for the belief that the director or officer will perform his or her duties with integrity and in a manner that is consistent with the public interest responsibility of CDCC.
6 ACCESS
6.1 With respect to the Fixed Income CCP Service or any other CCP service for transactions in the cash markets and only for as long as CDCC offers such services:
(a) CDCC must allow any person or company, including other third party post-trade service providers, that meets CDCC's minimum operational requirements, to interface or connect to any of its services or systems on a commercially reasonable basis;
(b) the Rules or any other arrangements between CDCC and its Clearing Members or between CDCC and a cash marketplace must:
(i) be designed to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions and to remove impediments to the prompt and accurate clearance and settlement of securities transactions;
(ii) not unreasonably create an impediment to competition including in respect of securities trades that are executed on marketplaces, or processed by third party post-trade service providers, not owned or controlled by TMX Group Limited; and
(iii) without limiting the generality of the foregoing, not unreasonably prohibit, limit or impede, directly or indirectly, the ability of Clearing Members to engage other third party post-trade service providers or use their services.
7. FEES
7.1 CDCC must provide timely notice to its Clearing Members, the public and the Commission of any changes to fees charged by CDCC for its services.
7.2 CDCC must submit concurrently to the Commission all the reports filed with other regulatory authorities regarding the review of the fees and fee models related to clearing or other services of CDCC and any of its affiliates.
7.3 CDCC's process for setting fees for any of its services must provide for meaningful input from the risk and audit committee of its board of directors.
8 PFMI COMPLIANCE REPORTS
8.1 CDCC must promptly notify the Commission in writing each time it publishes a report on its website regarding its compliance with the PFMIs.
9 RISK CONTROLS
9.1 CDCC must have clearly defined and transparent procedures for the management of risk which specify the respective responsibilities of CDCC and its Clearing Members.
9.2 CDCC must, as required by the Commission, engage an independent qualified party, acceptable to the Commission, to conduct an assessment of CDCC's financial risk model and prepare a report on the findings, conclusions and any recommendations. The Commission will have the ability to provide input into the scope of such assessment, and may include an assessment of how CDCC's financial risk model balances the need for appropriate risk management and maintenance of fair and open access. CDCC must provide the written report to its board of directors promptly after the report's completion and then to the Commission within 30 days of providing it to its board.
9.3 CDCC must seek prior Commission approval at least 60 days before making material changes to its risk management framework. CDCC must assess the materiality of a proposed change based on the effect of such a change on CDCC, CDCC Clearing Members, the Canadian financial system or the control of risk for the IT Systems supporting CDCC's Critical Services.
9.4 CDCC must notify the Commission in writing at least 20 days prior to implementing (i) a change to its risk management framework that would not have a material effect on any of CDCC, CDCC Clearing Members, the Canadian financial system or the control of risk for the IT Systems supporting CDCC's Critical Services, or (ii) any technical/housekeeping changes made to its risk management framework.
9.5 If the Commission disagrees with CDCC's categorization of the change to its risk management framework under paragraph 9.4, CDCC must obtain the Commission's approval for the change under 9.3.
9.6 CDCC must provide the Commission with an updated recovery plan at least annually.
9.7 CDCC must provide the Commission with a written description of the scope of its annual internal audit plan in advance of such plan being provided to the audit committee for approval, and must provide the Commission at least 30 days prior written notice before finalizing the scope of the plan.
9.8 CDCC must submit quarterly a written report detailing all of its internal audit activities during the quarter (including with respect to shared services). The report must include any corrective measures undertaken by CDCC to address the internal audit gaps in the report.
10 OUTSOURCING
10.1 CDCC must notify the Commission in writing at least 45 days prior to entering into or materially amending any outsourcing arrangement (including outsourcing to affiliated entities of CDCC) related to any of its Critical Services.
10.2 CDCC must notify the Commission in writing at least 15 days prior to renewing any outsourcing arrangement (including outsourcing to affiliated entities of CDCC) related to any of its Critical Services.
10.3 CDCC must promptly notify the Commission in writing of any material issues that arise in connection with its outsourcing arrangements with respect to Critical Services.
11 RULES
11.1 CDCC's rules and the process for adopting new rules or amending existing rules must be transparent to Clearing Members and the general public.
11.2 CDCC must comply with the Rule Protocol included at Appendix A.
12 ENFORCEMENT OF RULES AND DISCIPLINE
12.1 The rules of CDCC must set out appropriate sanctions in the event of non-compliance by Clearing Members.
12.2 CDCC must reasonably monitor Clearing Member activities and impose sanctions to ensure compliance by Clearing Members with its rules.
13 CONFIDENTIALITY OF INFORMATION
13.1 CDCC must not release Clearing Members' confidential information to a person or company other than CDCC's affiliates, the Clearing Member, a regulation services provider, CDCC's regulators or another securities regulatory authority unless:
(a) the Clearing Member has consented in writing to the release of the information;
(b) disclosure of the information is permitted by, and made in accordance with, the CDCC Rules;
(b) the release of the information is required by Ontario securities law or other applicable law; or
(c) the information has been publicly disclosed by another person or company, and CDCC reasonably believes that the disclosure was lawful.
13.2 CDCC must implement reasonable safeguards and procedures to protect Clearing Members' information, including limiting access to such information to employees of CDCC, or persons or companies retained by CDCC to operate the system.
13.3 CDCC must implement adequate oversight procedures to ensure that the safeguards and procedures established under paragraph 13.2 are followed.
14 PROVISION OF INFORMATION
14.1 On request by the Commission, CDCC must promptly provide the Commission with any and all data, information and analyses in the custody or control of CDCC or any of its affiliates, without limitations, restrictions or conditions, including, without limiting the generality of the foregoing:
(a) data, information and analyses relating to all its or their businesses; and
(b) data, information and analyses of third parties in its or their custody and control.
14.2 CDCC must provide the Commission with access to copies of all notices, bulletins and similar forms of communication that it sends its Clearing Members in respect of their participation in CDCC.
14.3 CDCC must share information and otherwise cooperate with recognized self-regulatory organizations, investor protection funds and other appropriate regulatory bodies.
14.4 CDCC must, on a commercially reasonable basis and subject to appropriate confidentiality protections being in force, share information and otherwise cooperate with other recognized or exempt clearing agencies, recognized or exempt exchanges, recognized or exempt quotation and trade reporting systems, and registered alternative trading systems.
14.5 CDCC must make available to all Clearing Members any reports required under paragraph 9.2 of this Schedule, subject to redaction of any information that CDCC reasonably believes is competitively sensitive.
14.6 The disclosure or sharing of information by CDCC or any of its affiliates pursuant to paragraphs 14.1, 14.3 and 14.4 is subject to any confidentiality provisions contained in agreements entered into between CDCC and the Bank of Canada pertaining to information received from the Bank of Canada.
15 COMPLIANCE
15.1 If CDCC, or its directors or officers, becomes aware of a breach or a possible breach of any of the terms and conditions applicable to CDCC under this order, such person must, within two business days after becoming aware of the breach or possible breach, notify the risk and audit committee of the breach or possible breach. The director or officer of CDCC must provide to the risk and audit committee details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or possible breach.
15.2 The risk and audit committee must, within two business days after being notified of the breach or possible breach, notify the Commission and confirm that the breach or possible breach is under investigation as required by paragraph 15.3 below.
15.3 The risk and audit committee must promptly cause an investigation to be conducted of the breach or possible breach reported under paragraph 15.2. Once the risk and audit committee has made a determination as to whether there has been a breach, or that there is an impending breach, of any terms and conditions applicable to CDCC under this order, the risk and audit committee must, within two business days of such determination, notify the Commission of its determination and must provide details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or impending breach, and any actions that will be taken to address it.
16 FINANCIAL VIABILITY
16.1 CDCC must provide the Commission its annual budget, accompanied by the underlying assumptions, approved by its board of directors.
17 SYSTEMS CAPACITY, INTEGRITY AND SECURITY
17.1 At least 45 days prior to implementing a material change affecting its IT Systems, CDCC must provide the Commission with a written description of the change.
17.2 For any change to its IT Systems other than a change contemplated in paragraph 17.1, CDCC must provide the Commission with a written description of the change, within 30 days following the end of the calendar quarter during which the change occurred.
18 REPORTING OBLIGATIONS
18.1 CDCC must comply with Appendix B to this Schedule setting out its reporting obligations to the Commission.
PART III -- Terms and Conditions Applicable to TMX Group
19 PUBLIC INTEREST RESPONSIBILITY
19.1 TMX Group must conduct, and must ensure that CDCC conducts, its business and operations in a manner that is consistent with the public interest.
20 FEES
20.1 TMX Group must ensure that none of its affiliated entities provide, through any fee schedule, fee model or any contract with any marketplace participant or other market participant, any discount, rebate, allowance, price concession or similar arrangement on any services or products offered by the affiliated entity that is conditional upon the purchase of any service or product provided by CDCC.
21 ALLOCATION OF RESOURCES
21.1 TMX Group must, for so long as CDCC carries on business as a clearing agency, allocate sufficient financial and other resources to CDCC to ensure that it can carry out its functions in a manner that is consistent with the public interest and in compliance with Ontario securities law.
21.2 TMX Group must notify the Commission immediately upon becoming aware that it is or will be unable to allocate sufficient financial and other resources to CDCC, as required under paragraph 21.1.
22 PROVISION OF INFORMATION
22.1 On request by the Commission, TMX Group must, and must cause CDCC to, promptly provide the Commission with any and all data, information and analysis in CDCC's custody or control, without limitations, restrictions or conditions, including data, information and analysis relating to all of CDCC' businesses.
22.2 TMX Group must, and must cause CDCC to share information and otherwise cooperate with recognized self-regulatory organizations, investor protection funds and other appropriate regulatory bodies.
22.3 TMX Group must, and must cause CDCC to, on a commercially reasonable basis and subject to appropriate confidentiality protections being in force, share information and otherwise cooperate with other recognized or exempt entities.
22.4 The disclosure or sharing of information by TMX Group and CDCC pursuant to paragraphs 22.1, 22.2 and 22.3 is subject to any confidentiality provisions contained in agreements entered into with the Bank of Canada.
23 CONFLICTS OF INTEREST
23.1 TMX Group must establish, maintain, and require compliance with policies and procedures that identify and manage any conflicts of interest or potential conflicts of interest, perceived or real, arising from its interest in CDCC.
23.2 The policies established in accordance with paragraph 23.1 must be made publicly available on TMX Group's website.
23.3 TMX Group must review the effectiveness of the policies and procedures established under paragraph 23.1 on a regular, and at least annual, basis.
23.4 TMX Group must regularly review compliance with the policies and procedures established in accordance with paragraph 23.1, and must document each review and any deficiencies and how those deficiencies were remedied.
23.5 TMX Group must provide a report detailing the reviews conducted under paragraphs 23.3 and 28.4 to the Commission on an annual basis.
24 COMPLIANCE
24.1 TMX Group must do everything within its control to cause CDCC to carry out its activities as a clearing agency recognized under section 21.2 of the Act and in compliance with Ontario securities law, and to observe the PFMI Principles.
24.2 Beginning with the fiscal year ending on December 31, 2023, TMX Group must certify in writing to the Commission, in a certificate signed by its chief executive officer and general counsel, annually or at other times required by the Commission, that TMX Group is in compliance with the terms and conditions applicable to it in this order and describe in detail:
(a) the steps taken to require compliance;
(b) the controls in place to verify compliance; and
(c) the names and titles of employees who have oversight of compliance.
24.3 If TMX Group, or its directors or officers, becomes aware of a breach or a possible breach of any of the terms and conditions applicable to TMX Group in this order, such person must, within two business days after becoming aware of the breach or possible breach, notify the governance and regulatory oversight committee of TMX Group of the breach or possible breach. The director or officer of TMX Group must provide to the governance and regulatory oversight committee details sufficient to describe the nature, date and effect (actual and anticipated) of the breach or possible breach.
24.4 The governance and regulatory oversight committee must, within two business days after being notified of the breach or possible breach, notify the Commission and confirm that the breach or possible breach is under investigation as required by paragraph 24.5 below.
24.5 The governance and regulatory oversight committee must promptly cause an investigation to be conducted of the breach or possible breach reported under paragraph 24.4. Once the governance and regulatory oversight committee has made a determination as to whether there has been a breach, or that there is an impending breach, of any terms and conditions applicable to TMX Group in this order, the governance and regulatory oversight committee must, within two business days of such determination, notify the Commission of its determination and must provide details sufficient to describe the nature, date and effect (actual or anticipated) of the breach or impending breach, and any actions that will be taken to address it.
APPENDIX A
RULE PROTOCOL REGARDING THE REVIEW AND APPROVAL OF CDCC RULES BY THE COMMISSION
1. Purpose of the Protocol
This Protocol sets out the procedures for the submission of a Rule by CDCC and the review and approval of a Rule by the Commission. The Commission will, to the extent possible, align and coordinate its process for reviewing and approving a Rule with that of other regulators having jurisdiction over such review and approval.
2. Definitions
In this Protocol:
"Rule" means a proposed new or amendment to or deletion of a clearing rule, operating procedure, manual or similar instrument or document of CDCC setting out the respective rights and obligations between CDCC and its Clearing Members or among the Clearing Members.
All other terms have the respective meanings ascribed to them in the Recognition Order and in securities legislation as that term is defined in National Instrument 14-101 Definitions.
3. Classification of Rules
CDCC must classify a Rule as either "Material" or "Technical/Housekeeping" for the purposes of the approval process set out in this Protocol.
(a) Technical/Housekeeping Rules
For the purpose of this Protocol, a "Technical/Housekeeping" Rule means a Rule that:
(i) relates to non-core clearing services offered by CDCC and/or does not have a material impact on Clearing Members of CDCC, or the Canadian financial markets;
(ii) involves matters of a technical nature in routine operating procedures and administrative practices relating to CDCC services;
(iii) makes consequential amendments to implement a Material Rule that has been published for comment pursuant to this Protocol, and does not contain any additional material amendments that have not previously disclosed in the notice accompanying the Material Rule;
(iv) makes amendments to ensure consistency or compliance with an existing Rule, securities legislation or other regulatory requirement;
(v) corrects spelling, punctuation, typographical or grammatical mistakes, inaccurate cross-referencing, or stylistic formatting, including changes to headings or paragraph numbers; or
(vi) is in respect of a new derivative that does not have novel features and is not connected to a new asset class or a new category of products.
(b) Material Rules
A Rule that is not a Technical/Housekeeping Rule, as defined in subsection 3(a) above, is a "Material" Rule.
4. Procedures for Review and Approval of Material Rules
(a) Prior Notice of a Significant Material Rule
CDCC must notify Commission staff in writing at least 20 days prior to submitting a Material Rule that it anticipates will result in a significant change in its policy, will involve amendments to a significant number of Rules or may be the subject of significant public comment. Commission staff will not begin a formal review of the Material Rule until all relevant documents have been submitted.
(b) Documents to be Submitted with a Material Rule
At least 10 business days prior to publishing a Material Rule under subsection 4(e), CDCC must submit the following documents to the Commission:
(i) a cover letter that contains the following information:
A. the classification of the Rule by CDCC;
B. CDCC's rationale for that classification; and
C. a statement that the Rule is not contrary to the public interest.
(ii) the Rule and, where applicable, a blacklined version of the Rule indicating the proposed changes to an existing Rule;
(iii) a notice of publication that contains the following information:
A. a description of the current Rule, including its nature and purpose, and a description of the nature and purpose of the new Rule, including a description of the new Rule's impact on the rights and obligations of CDCC Clearing Members;
B. a description and analysis of the possible effects of the Rule on CDCC, CDCC Clearing Members and other market participants and the securities and financial markets in general, including but not limited to any impact on competition, risks and the costs of compliance, and where applicable, a comparison of the Rule to international standards;
C. a description of the context in which the Rule was developed, the process followed, the issues considered, consultation done, the alternative approaches considered, the reasons for rejecting the alternatives and a review of the implementation plan;
D. where applicable, a description of the Rule's impact on technological systems used by Clearing Members, other market participants or CDCC and, where possible, an implementation plan, including a description of how and when the Rule will be implemented;
E. where applicable, a brief description and comparative analysis of any comparable rules planned or implemented by other clearing agencies;
F. a statement that CDCC has determined that the Rule is not contrary to the public interest; and
G. an explanation that all comments should be sent to CDCC with a copy to the Commission, and that CDCC will make available to the public on request all comments received during the comment period.
(c) Confirmation of Receipt
Commission staff will confirm receipt of documents submitted by CDCC under subsection 4(b) within 3 business days.
(d) Notice of Publication Date
At least 5 business days prior to publishing a Material Rule under subsection 4(e), CDCC must provide the Commission with notice in writing of the date on which the Rule will be published by CDCC.
(e) Publication of a Material Rule by CDCC
CDCC must publish on its website the notice and Rule submitted by CDCC under subsection 4(b) for a comment period of at least 30 days (comment period), beginning on the date on which the notice first appears on its website. CDCC must inform Commission staff in writing that the Rule has been published as soon as practicable following its publication, and must provide Commission staff with a link to the publication. Where requested by Commission staff, CDCC must provide a longer public comment period.
(f) Publication of Notice of Material Rule Submission by Commission Staff
As soon as practicable after publication of a Material Rule by CDCC, Commission staff will publish a notice that contains the following information:
(i) CDCC has submitted a Material Rule for approval by the Commission;
(ii) a brief description of the Rule;
(iii) a link to the Rule on the CDCC website; and
(iv) the date on which CDCC has indicated the comment period will close.
(g) Review by Commission Staff
Commission staff will use their best efforts to conduct their initial review of the Material Rule and provide comments to CDCC during the comment period. However, there will be no restriction on the amount of time necessary to complete the review of the Material Rule.
(h) CDCC Responses to Commission Staff's Comments and Public Comments
(i) Within 5 days of the end of the comment period, CDCC must confirm to Commission staff in writing whether it received any public comments. If requested by Commission staff, CDCC will provide Commission staff with a copy of any public comments it has received.
(ii) Within 60 days of the end of the comment period, CDCC must provide Commission staff with a summary of all public comments received and its responses to those comments.
(iii) If CDCC fails to respond to comments from Commission staff within 120 days after receipt of their comment letter, it will be deemed to have withdrawn the Material Rule unless Commission staff agree otherwise based on written submissions provided by CDCC.
(i) Decision by the Commission and Publication of Approval Notice
Commission staff will use their best efforts to prepare the Material Rule for approval within 30 days of the later of (a) receipt of written responses from CDCC to staff's comments or requests for additional information, and (b) receipt of the summary of public comments and CDCC's response to the public comments, or confirmation from CDCC that there were no comments received. If at any time during the review period, Commission staff determine that they have further comments or require further information from CDCC in order to prepare the materials for Commission review, the review period will be extended by an additional period of 30 days commencing on the day that Commission staff receive responses to the comments, or the information requested.
Commission staff will notify CDCC of the Commission's decision regarding the Material Rule within 5 business days of the Commission's decision. If the Commission approves the Material Rule, Commission staff will prepare and publish a short notice of approval.
(j) Publication by CDCC
As soon as practicable after receiving a notice of approval under subsection 4(i), CDCC must publish the following information on its website:
(i) a short summary of the Material Rule;
(ii) CDCC's summary of the public comments received and CDCC's response to the comments, or as applicable a statement that CDCC did not receive public comments on the Material Rule;
(iii) if changes were made to the version of the Rule published for public comment, a blacklined copy of the revised Material Rule; and
(v) the effective date of the Rule, which must be at least 5 business days following the date of publication of the notice under this subsection.
(k) Significant Revisions to a Material Rule
When a Material Rule is revised subsequent to its publication for comment in a way that Commission and CDCC staff determine has a material effect on the substance of the Rule or its effect, CDCC must publish the revision and an explanatory notice on its website for a second 30 day comment period. Where requested by Commission staff, CDCC must provide a longer public comment period. The request for comment must include CDCC's summary of and responses to the comments that were submitted in response to the previous request for comments, together with an explanation of the revisions to the Material Rule and the supporting rationale for the amendment. A notice of the revisions may also be published by Commission staff.
(l) Withdrawal of a Material Rule
If CDCC withdraws or is deemed to have withdrawn a Rule that was previously submitted, it must provide a notice of withdrawal to the Commission and publish the notice on its website. A notice will also be published by Commission staff.
5. Procedures for Review and Approval of a Technical/Housekeeping Rule
(a) Documents to be Submitted
For a Technical/Housekeeping Rule, CDCC must submit to the Commission the following documents electronically, or by other means as agreed to by the Commission staff and CDCC from time to time:
(i) a cover letter that indicates the classification of the Rule and the rationale for that classification;
(ii) the Rule and, where applicable, a blacklined version of the Rule indicating the proposed changes to an existing Rule; and
(iii) a short notice of publication to be published by CDCC on its website that contains the following information:
A. a brief description of the Technical/Housekeeping Rule,
B. the reasons for the Technical/Housekeeping classification, and
C. the effective date of the Technical/Housekeeping Rule, or a statement that the Technical/Housekeeping Rule will be effective on a date subsequently determined by CDCC.
(b) Confirmation of Receipt
Commission staff will within 3 business days send to CDCC a confirmation of receipt of the documents submitted by CDCC under subsection 5(a).
(c) Effective Date of Technical/Housekeeping Rules
The Technical/Housekeeping Rule will be effective upon a date determined by CDCC, and in any event no earlier than 10 days following its publication on the CDCC website and 15 business days following its submission to the Commission.
(d) Publication of Notice of Technical/Housekeeping Rule Submission by Commission Staff
As soon as practicable after providing CDCC with a confirmation of receipt under subsection 5(b), Commission staff will publish a notice that contains the following information:
(i) CDCC has submitted a Technical/Housekeeping Rule to the Commission;
(ii) a brief description of the Rule;
(iii) a link to the Rule on the CDCC website; and
(iv) if known, the date on which CDCC has indicated that the Rule will come into effect.
(e) Disagreement with Classification
Where CDCC has classified a Rule as "Technical/Housekeeping" and Commission staff disagree with the classification:
(i) Commission staff will communicate to CDCC, in writing, the reasons for disagreeing with the classification of the Rule within 15 business days after receipt of CDCC's submission.
(ii) After receipt of Commission staff's written communication, CDCC must promptly publish a notice that the Rule has been reclassified as a Material Rule and that it will follow the procedure for review and approval of a Material Rule.
(iii) CDCC must re-classify the Rule as Material and the Commission will review the Rule under the procedures set out in section 4.
(f) Comments received on Technical/Housekeeping Rules
If comments are raised in response to the publication of the notice or the implementation of the Technical/Housekeeping Rule, Commission staff may review the Rule in light of the comments received. Commission staff may determine that the Rule was incorrectly classified and require that the Rule be classified as a Material Rule and reviewed and approved by the Commission in accordance with the procedures set out in section 4 with necessary modifications. If the Commission subsequently disapproves the Material Rule, CDCC must immediately withdraw or repeal the Material Rule and inform its Clearing Members of the disapproval.
6. Immediate Implementation of a Material Rule
(a) Criteria for Immediate Implementation
CDCC may make a Material Rule effective immediately where CDCC determines that there is an urgent need to implement the Material Rule because of a substantial and imminent risk of material harm to CDCC, Clearing Members, other market participants, or the Canadian capital markets, or due to a change in operation imposed by a third party supplying services to CDCC and its Clearing Members.
(b) Prior Notification to Commission
Where CDCC determines that immediate implementation is necessary, CDCC must advise Commission staff in writing as soon as possible prior to the implementation of the Rule. Such written notice must include an analysis to support the need for immediate implementation.
(c) Notification to Clearing Members
Prior to implementing the Material Rule, CDCC must publish a notice on its website that includes the Rule and a brief description of the Rule.
(d) Disagreement on Need for Immediate Implementation -- Prior to Rule Implementation
If Commission staff do not agree that immediate implementation is necessary, the process for resolving the disagreement prior to implementation of the Rule will be as follows:
(i) Where feasible, prior to the Rule's implementation Commission staff will notify CDCC, in writing, of the disagreement, or request more time to consider the immediate implementation.
(ii) Commission staff and CDCC will discuss and resolve any concerns raised by Commission staff.
(iii) If Commission staff continue to disagree that immediate implementation is necessary, CDCC must not proceed with immediate implementation and must follow the procedure set out in section 4 with any necessary modifications as may be agreed to by CDCC and Commission staff.
(e) Disagreement on Need for Immediate Implementation -- Following Rule Implementation
If Commission staff do not agree that immediate implementation is necessary, the process for resolving the disagreement following the implementation of the Rule will be as follows:
(i) Commission staff will notify CDCC, in writing, of the disagreement as soon as possible.
(ii) Commission staff and CDCC will discuss and resolve any concerns raised by Commission staff.
(iii) If Commission staff conclude that immediate implementation was not necessary, CDCC must withdraw the Rule and post a notice of withdrawal on its website.
(iv) If CDCC wishes to proceed with the Rule, it must follow the procedure set out section 4 with any necessary modifications as may be agreed to by CDCC and Commission staff.
(f) Review of Material Rules Implemented Immediately
A Material Rule that has been implemented immediately must be published, reviewed and approved in accordance with the procedures set out in section 4 with necessary modifications. If the Commission subsequently disapproves the Material Rule, CDCC must immediately repeal the Material Rule and inform its Clearing Members of the disapproval.
7. Miscellaneous Provisions
(a) Waiving Provisions of the Protocol
Commission staff may waive any part of this Protocol upon request from CDCC. Such a waiver must be granted in writing by Commission staff.
(b) Amendments
This Protocol and any provision hereof may be amended at any time or times with the agreement of the Commission and CDCC.
APPENDIX B
REPORTING OBLIGATIONS
In addition to complying with the obligations set out in Schedule A to the Recognition Order and the requirements of National Instrument 24-102 Clearing Agency Requirements, CDCC must also comply with the reporting obligations set out below.
1. Prior Notification
1.1 CDCC must provide to Commission staff prior notification of a decision to enter into an agreement, memorandum of understanding or other similar arrangement with any governmental or regulatory body, self-regulatory organization, clearing agency, stock exchange, other marketplace or market.
2. Immediate and Prompt Notification
2.1 CDCC must inform the Commission immediately upon becoming aware of any event or occurrence that has caused or could reasonably be expected to cause an adverse material effect on:
(a) CDCC;
(b) its Clearing Members;
(c) any of its services; or
(d) the Canadian financial markets.
2.2 The events or occurrences triggering the notification requirement in 2.1 include but are not limited to:
(a) a Clearing Member being declared a "non-conforming Member" or otherwise being considered in default;
(b) fraudulent activity; or
(c) a significant breach of CDCC's rules by one or more Clearing Members.
2.3 CDCC must provide to the Commission prompt notice of:
(a) the appointment of any new director or officer, including a description of the individual's employment history; and
(b) the receipt of notice of resignation from, or the resignation of a director or officer or the auditors of CDCC, including a statement of the reasons for the resignation.
2.4 CDCC must immediately notify the Commission if it:
(a) becomes the subject of any order, directive or other similar action of a governmental or regulatory authority;
(b) becomes aware that it is the subject of a criminal or regulatory investigation; or
(c) becomes aware that it is or will become the subject of a material lawsuit.
2.5 CDCC must provide the Commission with prompt access to all notices, bulletins and similar forms of communication that CDCC sends its Clearing Members in accordance with paragraph 14.2 of Schedule A, and must immediately notify the Commission of and provide a copy to the Commission of any such communication that CDCC deems to be of critical importance to its Clearing Members, including any communications made on an emergency basis.
2.6 CDCC must promptly notify the Commission of all reportable incidents in accordance with applicable regulatory incident management protocols.
3. Quarterly Reporting
3.1 CDCC must submit quarterly, or at any other frequency determined by the Commission, risk management reports related to Clearing Member positions and the adequacy of CDCC's financial resources and liquidity resources, including but not limited to the required levels of margins, default funds and liquidity funds, as well as stress testing and back testing results.
3.2 The reports required to be submitted to the Commission under 3.1 include but are not limited to the data and information described in Annex I to this Appendix and the list of reports included as Annex II to this Appendix, as may be modified from time to time with the agreement of Commission staff and CDCC.
3.3 CDCC must submit quarterly any approved minutes of meetings of board committees, management committees, and user groups, as well as approved minutes of all meetings of the board of directors.
3.4 CDCC must submit quarterly to the Commission a list of all breaches reported of this Recognition Order, if any, and must include a reference to the paragraphs of the Order that were breached.
3.5 CDCC must submit quarterly to the Commission a list of the risk management reports, internal audit reports and any other reports prepared by, or based on reviews conducted by, an independent party that have been issued in the previous quarter, and on request by the Commission must promptly provide copies of those reports to Commission staff.
3.6 CDCC must submit quarterly to the Commission an assessment of the risks it faces and its plans for addressing those risks.
3.7 CDCC must submit quarterly to the Commission risk-related reports on cybersecurity and a risk events report.
3.8 CDCC must provide the Commission with a written report detailing all of its internal audit activities during the quarter in accordance with paragraph 9.8 of Schedule A.
4. Annual Reporting
4.1 CDCC must provide to the Commission annually CDCC's strategic plan.
4.2 CDCC must provide to the Commission at least annually its updated recovery plan as set out in paragraph 9.6 of Schedule A.
4.3 CDCC must provide the Commission annually with a written description of the scope of its annual internal audit plan in accordance with paragraph 9.7 of Schedule A.
4.6 CDCC must provide the Commission with its annual budget in accordance with paragraph 16.1 of Schedule A.
5. Annual Reporting Obligations of TMX Group
5.1 TMX Group must provide to the Commission annually a report regarding the effectiveness of, and compliance with, its policies and procedures regarding conflicts of interest as described in paragraph 23.1 of Schedule A, in accordance with paragraph 23.5 of Schedule A.
5.2 TMX Group must provide to the Commission annually or at other times required by the Commission a written certification of its compliance with the applicable terms of this Recognition Order, as well as the steps taken to require compliance, the controls in place to verify compliance, and the names and titles of employees who have oversight of compliance, in accordance with paragraph 24.2 of Schedule A.
ANNEX I TO APPENDIX B
Data and other information to be submitted to the Commission by CDCC
1. Definitions
1.1 In this Annex I to Appendix B of the Recognition Order,
(a) "new OTC derivatives" means derivatives, within the meaning of the Act, that are not currently cleared by CDCC on the effective date of this Recognition Order; and
(b) "Ontario-based Member" means a Clearing Member that has a head office or principal place of business in Ontario.
2. Scope and Form of Reporting Obligations
2.1 All data and other information submitted by CDCC under this Annex I must be submitted in a form and a manner acceptable to Commission staff.
2.2 This Annex I may be amended from time to time with the agreement of Commission staff and CDCC, without a formal amendment to the Recognition Order.
3. Quarterly Reporting
3.1 CDCC must submit quarterly:
(a) statistical information in respect of fixed income transactions cleared and settled through the Fixed Income CCP Service;
1) total number of transactions and net settlement value by category (blind, bilateral and cash);
2) total net settlement value of unsettled / failed CCP repo transactions divided by ISIN; and
3) total number and dollar value of all net settlement positions for future dated end leg transactions, separated into the following buckets:
(i) value date being less than or equal to T+1
(ii) value date greater than T+1 and less than or equal to T+7
(iii) value date greater than T+7 and less than or equal to T+29
(iv) value date greater than T+29 and less than or equal to T+90
(v) value date being after T+90
(b) aggregate volume of Bourse-traded products cleared by CDCC by asset class during the quarter for each Ontario-based Member;
(c) aggregate notional values of new OTC derivatives cleared by CDCC by asset class during the quarter, as well as total notional values of new OTC derivatives cleared by CDCC by asset class during the quarter for each Ontario-based Member;
(d) the aggregate total margin amount (initial and variation) and clearing fund contributions required by CDCC ending on the last trading day during the quarter, as well as the total margin amount (initial and variation), and clearing fund contributions for each Ontario-based Member that clears fixed income transactions and / or new OTC derivatives at CDCC;
(e) a list of Ontario-based Members who have received permission or approval by CDCC during the quarter to perform client clearing at CDCC;
(f) the identity, LEI and jurisdiction of incorporation (including the jurisdiction of the ultimate parent) of each Clearing Member that provides client clearing services to Ontario residents, including, where known,
1) the name and LEI of each Ontario resident receiving such services; and
2) the notional value and aggregate volume of all products cleared by asset class for and on behalf of each Ontario resident during the quarter;
(g) a summary of risk management analysis related to the adequacy of required margin (initial and variation) and the level of the clearing funds, including but not limited to stress testing and back testing results;
(h) the name, jurisdiction of incorporation and LEI of each Clearing Member; and
(i) any other information in relation to products cleared by CDCC for Clearing Members as may be required by the Commission from time to time.
ANNEX II TO APPENDIX B
Reports Required to be Submitted to the Commission by CDCC
1. Scope and Form of Reporting Obligations
1.1 All reports submitted by CDCC under this Annex II must be submitted in a form and a manner acceptable to Commission staff.
1.2 The list of reports in the table below does not limit the scope of CDCC's reporting obligations under the CDCC Recognition Order or Ontario securities law, nor does it limit the information to be provided by CDCC to the Commission on request under paragraph 14.1 of Schedule A to the Recognition Order.
1.3 This Annex II may be amended from time to time with the agreement of Commission staff and CDCC, without a formal amendment to the Recognition Order.
2. Table of Reports to be Submitted:
Item
Document Name/Content
Frequency and Timing
1.
BoC CDCC Data (Positions, Margin, Member file) (.CSV)
Weekly -- maximum one-week lag
2.
Cash Settlement (.xlsx)
Weekly -- maximum one-week lag
3.
Collateral file (.xlsx)
Weekly -- maximum one-week lag
4.
Liquidity exposure information (.xlsx)
Weekly -- maximum one-week lag
1. Liquidity Data
2. Liquidity Report
5.
Sufficiency (.xlsx)
Weekly -- maximum one-week lag
6.
CDCC Liquidity Risk Report (Word)
Weekly -- maximum one-week lag
7.
Backtesting (Word)
Weekly -- maximum one-week lag