OSC notice sets out staff's regulatory approach to clearing agency recognition
The Securities Act (Ontario) is scheduled to be amended as of March 1, 2011, to include a new section 21.2(0.1), which will prohibit clearing agencies from carrying on business in Ontario unless they are recognized by the OSC or receive an exemption from the recognition requirement. The term “clearing agency” is defined in the Act as a person or company that,
(a) acts as an intermediary in paying funds or delivering securities, or both, in connection with trades and other transactions in securities,
(b) provides centralized facilities for the clearing of trades and other transactions in securities, including facilities for comparing data respecting the terms of settlement of a trade or transaction, or
(c) provides centralized facilities as a depository of securities,
but does not include,
(d) the Canadian Payments Association or its successors,
(e) a stock exchange or a quotation and trade reporting system,
(f) a registered dealer, or
(g) a bank, trust company, loan corporation, insurance company, treasury branch, credit union or caisse populaire that, in the normal course of its authorized business in Canada, engages in an activity described in clause (a), but does not also engage in an activity described in clause (b) or (c).
In preparation for the implementation of these new restrictions the staff of the Ontario Securities Commission (OSC) today published OSC Staff Notice 24-702 – Regulatory Approach to Recognition and Exemption from Recognition of Clearing Agencies. The staff notice sets out OSC Staff's regulatory approach to applications for clearing agency recognition and exemptions. Specifically, the notice describes the criteria that the OSC will consider in determining whether to grant recognition and the circumstances under which the OSC would potentially recommend an exemption. The staff notice states that generally, staff recommend that a clearing agency that performs certain key functions or provides certain facilities, such as central depository, central counterparty, multilateral netting and/or guarantor functions, be recognized and subject to the OSC’s full clearing agency regulation and oversight as discussed in the notice. However, there are certain circumstances that may warrant the granting of an exemption, such as in respect of an entity that provides limited services or facilities and does not present significant risks to the capital market. Exemptions may also be considered for a foreign-based clearing agency that intends to operate in Ontario if the clearing agency is subject to an appropriate regulatory and oversight regime in a foreign jurisdiction. Further, the notice states that the application process will involve the clearing agency's application as well as a draft order being published in the OSC Bulletin and the OSC website for a 30-day comment period before a final order is submitted to the OSC for approval.
