Canada Derivatives Trade Reporting

Canada Derivatives Trade Reporting

Overview

Canada Trade Reporting Requirements

What has driven this regulation?

In order for Canada to meet its G20 commitments made in 2009 to improve oversight and enhance transparency in over-the-counter (OTC) derivatives markets, there has been an ongoing coordination of efforts by Canadian securities regulators to implement reforms. These efforts have resulted in the adoption of harmonized derivatives rules across Canada that will require the reporting of transaction data related to OTC derivatives trades executed with clients (“counterparties”) regardless of the company's jurisdiction (the “Canadian Reporting Requirements”). The requirement to report trades to a designated trade repository provides the regulatory authorities with transparency and access to aggregate derivatives trade data in order to facilitate the identification and mitigation of systemic risk. Trade repositories are regulated entities that centrally collect and maintain the records of all derivatives trade data.

The initial compliance date for reporting for British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Northwest Territories, Yukon and Nunavut was July 29, 2016.

Mandatory trade reporting entered into force in 2014 for Ontario, Manitoba and Quebec.

At HSBC, we are adapting our systems and procedures to comply with these requirements and we are committed to helping our clients understand these new rules.

Last updated: 3 August 2016

Key Aspects of the Requirements

What are the Key Aspects of the Canadian Reporting Requirements?

Under the rules, HSBC is required to report transaction data related to trades in a wide variety of OTC derivatives executed with our clients who are considered a ‘local counterparty’ in one or more Canadian province or territory, as well as foreign entities.

Examples of derivatives that are subject to reporting include:

  • interest rate swaps
  • foreign exchange (FX) forwards, options and swaps
  • equity, commodity and precious metals derivatives

Examples of derivatives that are not subject to reporting include:

  • FX spot physically settled within two business days
  • commodity transactions that can only be settled by physical delivery
  • bank deposits and similar deposits
  • exchange-traded derivatives

The rules outline a form of reporting hierarchy to determine which party is responsible to report the transaction data. If you are a ‘local counterparty’ end user of OTC derivatives and not a derivatives dealer, the obligation to report will usually fall on the other party you transact with if they are a derivatives dealer.

For example, an entity may be considered a Canadian ‘local counterparty’ under the rules if it is:

(i) organized, incorporated, has its head office or principle place of business in a Canadian province or territory; or

(ii) an affiliate of a Canadian local counterparty described in i) above and that Canadian local counterparty is responsible or liable for all or substantially all of its liabilities (not only derivatives liabilities). As a result, HSBC will need to obtain such information from clients.

As part of the transaction data that must be reported, HSBC must report certain information specific to the client making the trade including its Legal Entity Identifier (LEI) and in which Canadian provinces/territories it is considered a ‘local counterparty’.

What are the key compliance dates?

  • July 29, 2016: Reporting of new trades by derivatives dealers or reporting clearing agencies for all Canadian provinces
  • December 1, 2016: Reporting of pre-existing transactions for the remaining jurisdictions (for trades entered into before July 29, 2016
  • TBD: Public reporting by trade repositories

Last updated: 19 May 2016

How we comply

Information Required to Comply

HSBC will need to know your organization's LEI as well as in which, if any, Canadian provinces or territories you are considered a 'local counterparty'. The criteria that you must consider to determine your status as a 'local counterparty' includes, but is not limited to, your organization's place of incorporation, principal place of business, and location of head office. Your organization could be a 'local counterparty' in more than one Canadian province or territory.

1) The Legal Entity Identifier (LEI)

The LEI is a 20-character code used to identify entities or companies that enter into financial transactions such as trades in OTC derivatives. It is an initiative endorsed by the Group of 20 Finance Ministers and Central Bank Governors and administered by the Global LEI system (a group of global regulators). The LEI is used in other jurisdictions such as the US and Europe where similar trade reporting rules have already been implemented. LEIs can only be obtained from entities endorsed by the Global LEI System. The Global LEI system is not yet operational. However, in the meantime, you can request a pre-LEI code which will be identical to your LEI once the Global LEI system is operational.

The LEI (or pre-LEI) can be obtained online from an LEI provider, such as the Global Markets Entity Identifier (GMEI) Utility. LEI issuance could take several days or longer and currently costs USD $200 for initial registration and USD $100 for annual maintenance. The process and costs associated with obtaining LEIs will vary depending on the LEI provider. The Ontario Securities Commission (OSC) website has information on LEIs that your organization may find helpful..

2) The Canadian Representation Letter

The Canadian Representation Letter #1- Trade Reporting and Other Obligations (the “Canadian Representation Letter”), has been published by International Swaps and Derivatives Association, Inc. (ISDA). The letter contains standardized questions and representations about your organization in order for HSBC to determine in which provinces/territories you are considered a 'local counterparty', if any. In addition, the letter allows you to provide us with other information, such as your organization's LEI, consent to disclosure to regulators and trade repositories, and additional agreements with respect to reporting responsibility for derivatives dealers. ISDA has a dedicated website that provides resources such as webinars on how to complete the representation letter, summary documents on trade reporting requirements and Frequently Asked Questions (FAQ).The OSC has published a document containing Frequently Asked Questions (FAQ) that will provide additional guidance. Note: some of these materials (including the FAQs) were published in 2014 when reporting rules only impacted local counterparties in Manitoba, Québec and Ontario.

You can download the Canadian Representation Letter below and return your completed letter to HSBC at: CanadaTradeReporting-1@hsbc.ca:

Alternatively, you can submit the Canadian Representation Letter through Markit® ISDA Amend, an online service provided jointly by ISDA and Markit®, where the Canadian Representation Letter can be provided to multiple counterparties at once. ISDA Amend is free for the buy-side or end-users of derivatives. Below are the steps to submit it through Markit® ISDA Amend:

Below are the steps to submit it through Markit ISDA Amend:

  1. Obtain an LEI/Pre-LEI through GMEI or another LEI provider as outlined above.
  2. If you are not registered already, register for Markit® Counterparty Manager on Markit® ISDA Amend website.
  3. Once registered and provided a Markit® username and password, login to Markit® Counterparty Manager - ISDA Amend and apply to the Canadian Representation Letter.
  4. If you are completing the Canadian Representation Letter on Markit®, please ensure that you submit it to each HSBC entity with which you have a derivatives trading relationship.
HSBC Entity LEI
HSBC Bank Canada DMB80L5QKUQ124HSYW98
HSBC Bank PLC MP6I5ZYZBEU3UXPYFY54
HSBC Bank USA, National Association 1IE8VN30JCEQV1H4R804


For additional help in completing the Canadian Representation Letter through Markit®, you can access a webinar under the "Webcasts" section of their site (note: this was published in 2014 when reporting rules only impacted local counterparties in Manitoba, Québec and Ontario). Please contact Markit® if you have any questions regarding the ISDA Amend tool:

Email: MCPsupport@markit.com
Telephone: ISDA Amend Hotline US: + 1 212 488 4049

Please provide your completed Canadian Representation Letter via email or ISDA Amend as soon as possible but no later than July 29, 2016.

Should you have any questions, please do not hesitate to contact your HSBC account manager or email us at CanadaTradeReporting-1@hsbc.ca. We also encourage your organization to seek appropriate legal advice as to the Canadian Reporting Requirements that are applicable to you.

Last updated: 9 June 2016