The Regulatory Compliance team at Essentia Advisory Partners, an EPAM Company, attended the 2024 ISDA Canada Conference in Toronto on September 19, 2024. The event reinforced our commitment to excellence in regulatory compliance and provided key insights into the evolving Canadian and global derivatives markets.
Key developments and ISDA initiatives discussed at the conference will enhance our ability to help clients navigate stricter regulations while improving market efficiency.
1. NAVIGATING CANADIAN REGULATORY UPDATES
Business Conduct Rule (CSA Rule 93-101):
The rule outlines obligations for derivatives dealers and advisers to protect market integrity through fair dealing and transparency. Topics covered included:
- Enhanced Client Protection: Clear rules on fair communication and ethical conduct in derivatives trading.
- Market Integrity Measures: Preventing market manipulation and fraud by implementing robust compliance frameworks.
CDIC “Resolution Stay” Rules (Canada By-law No. 2 – Eligible Financial Contracts):
Focused on how financial institutions should manage resolution stays on termination rights during distress, specifically:
- Bail-in Mechanisms: Requirements for loss-absorption capabilities.
- Contractual Recognition: Obligations to include specific language acknowledging these stay rules in derivatives contracts.
2. CANADIAN TRADE REPORTING AMENDMENTS (Going Live July 25, 2025)
The Canadian Securities Administrators (CSA) outlined amendments and revisions to OSCA Rule 91-507 & National Instrument 96-101 – Trade Reporting and Record Keeping aimed at strengthening transparency and risk mitigation in the derivatives market, including:
- Expanded Reporting Requirements: New obligations for additional data fields and asset classes, addressing gaps in current reporting.
- Harmonization Efforts: Focus on aligning Canada’s reporting with international standards, such as the CPMI-IOSCO principles.
- Introduction of UPI Model and extended reporting deadlines for end-users.
3. EVOLUTION OF CDS DETERMINATIONS COMMITTEES
Credit Derivatives Determinations Committees (DCs) are responsible for making binding decisions about events ( ActionType/EventType model newly introduced globally) affecting credit default swaps (CDS), such as defaults or restructuring events.
The proposed reform of the Credit Derivatives Determinations Committees (CDDC), outlined in ISDA’s Credit Derivatives Determinations Committees Rules:
- Governance Improvements: Enhancing impartiality in credit event determinations.
- Stakeholder Engagement: Involving broader market participants in decision-making, leading to more transparency and efficiency. Proposed changes involve increased disclosure of deliberations and expanding participation among industry members.
4. GLOBAL REGULATORY ISSUES & ISDA SOLUTIONS
US Treasury Clearing (CFTC Rule 39.13 and SEC Rule 17Ad-22):
Regulatory bodies in the US are increasingly pushing for mandatory clearing of US Treasury trades to enhance market stability. Discussions centered around expanding clearing obligations for US Treasury securities, highlighting:
- Mandated Clearing Requirements: Regulatory developments from both CFTC and SEC.
- Cross-border Implications: How these rules affect global participants dealing in US Treasuries.
US Capital Rules (Basel Endgame, Basel III Final Rule):
Basel III reforms require banks to hold more capital against derivatives exposures to improve financial stability. The finalization of Basel III reforms has key impacts on capital adequacy:
- Capital Adequacy Requirements: Increased buffers for trading book exposures under the Basel III framework.
- Standardized Approaches: New rules impacting the calculation of risk-weighted assets (RWAs) for derivatives.
5. ISDA DOCUMENTATION INITIATIVES
Updating FX Definitions (ISDA 2021 FX and Currency Option Definitions):
ISDA’s updated FX Definitions modernize the framework for documenting foreign exchange and currency options transactions. Updates to ISDA’s FX definitions to reflect the evolving nature of the market:
- Inclusion of New Product Types: Reflecting developments in FX markets.
- Documentation Improvements: Making the standard documentation clearer and more adaptable.
ISDA Create, MyLibrary, and Notices Hub:
ISDA has developed digital tools for automating legal documentation (ISDA Create), organizing contract templates (MyLibrary), and managing notifications (Notices Hub). ISDA’s digital platforms aim to streamline legal operations:
- ISDA Create: Automating the creation and negotiation of derivatives documentation.
- MyLibrary and Notices Hub: Improving document management and legal notice communication, per ISDA’s operational standards.
6. COLLATERAL MANAGEMENT EVOLUTION
Regulation on Collateral Optimization (Uncleared Margin Rules – UMR Phase 6, CFTC Regulation 23.151):
Presentations focused on regulatory-driven changes and optimization in collateral management:
- Initial Margin Requirements: Compliance strategies for UMR, particularly the growing collateral demands.
- Collateral Optimization: Utilizing technology to improve liquidity and reduce funding costs while meeting regulatory standards.
CONCLUSION
The 2024 ISDA Canada Conference was key in aligning Essentia Advisory Partners, an EPAM Company, with the latest regulatory changes. Our involvement reflects our commitment to staying ahead of market and regulatory shifts, ensuring we continue to deliver exceptional value to our clients.
Through direct engagement with Canadian regulators, we are better positioned to guide clients through compliance challenges in the derivatives market. Essentia Advisory Partners offers deep insight into how new regulations impact daily trading and operations.
For more information on how we can support your Regulatory Compliance initiatives, please contact Nate Branscombe, Managing Director, at Nate_Branscombe@epam.com, or Rahim Kabani, Director, at Rahim_Kabani@epam.com.
About the Author
Rahim Kabani, Director at Essentia Advisory Partners, and EPAM Company, leads the Regulatory Compliance initiative. With extensive experience in global regulatory compliance, he helps clients navigate financial reporting and regulations.