Canadian Regulators Approve Trade Repositories, CME Group Provides Exclusive Insight

As new Canadian over-the-counter (OTC) trade reporting requirements are scheduled to take effect on October 31, the Ontario Securities Commission, the Manitoba Securities Commission (MSC) and the Autorité des Marchés Financiers (AMF) announced the three official trade repositories yesterday.

The companies which have been designated as trade repositories in Ontario are CME Group Inc’s (NASDAQ:CME) Chicago Mercantile Exchange Inc., the DTCC Data Repository (U.S.) LLC and Intercontinental Exchange Inc’s (NYSE:ICE) Ice Trade Vault LLC.

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OTC Derivatives Reporting in Canada

Under Ontario securities laws, clearing agencies and dealers will be required to report certain OTC derivatives transactions to a designated trade repository by October 31, 2014, while OTC derivatives market participants in all other provinces are required to report by June 30, 2015.

Under the rules, transaction data related to trades in a wide variety of OTC derivatives executed with companies or entities who are considered a ‘local counterparty’ in one or more Canadian provinces and territories must be reported to a designated trade repository.

CME Group’s Perspective

Forex Magnates’ reporters spoke to the Global Head of Trade Repository Services at the CME Group Inc (NASDAQ:CME), Jonathan Thursby, to get the company’s perspective on the new OTC derivatives trade reporting mechanism which is about to be implemented in Canada.

Mr. Thursby expressed, “Its quite good that there are multiple trade repositories – it allows for a healthy amount of competition. In the case of the CME, we’ve noticed that we’re going to be upwards of 80% cheaper in some of our solutions when compared to our competitors. Customers want to discharge their reporting obligations in the most cost effective way and they have multiple venues to choose from.”

He explained that GME Group’s reporting solution permits the company’s clients, who are trading or clearing on one of CME Group’s facilities and are obliged to report the trade, to make sure that an STP activity is seamless to the end customer. The company has implemented this solution in every other jurisdiction where it is offering trade repository services (US and the European Union).

Our reporters inquired about the company’s observations on trade reporting in the FX market and Mr. Thursby shared, “FX trade reporting has been going well for the CME Group as we have found the most success in FX markets as far as concentration of our client base and overall activity levels are concerned. In Canada that is continuing to hold true and we’re seeing a very favorable response from FX market participants to the solution we are delivering to the market.”

“CME entered trade reporting and extended in Canada because we felt that the issue is very complex and our whole solution is aiming to find a simplified approach to trade reporting, including when firms clear on CME’s markets. We effectively have made the act of clearing equate to the act of reporting so we are talking all reporting obligations for our customers.” Mr. Thursby explained.

CME Group Implements an ISDA FpML Reporting Solution

For the first time, the company has implemented the FpML (Financial products Markup Language) open source XML standard for electronic dealing and processing of OTC derivatives. The standard establishes the industry protocol for sharing information on, and dealing in, financial derivatives and structured products.

It is developed under the guidance of the International Swaps and Derivatives Association (ISDA), and in a truly open source spirit is available to all at no cost and open to contribution from everybody.

Mr. Thursby explained, “The FpML standard is already used by many companies in the industry for internal communications. They can now lower their integration costs to facilitate trade reporting to the CME Group’s repository. It’s a really big improvement especially for the bank community and we’re going to be extending support for FpML to other regions following its introduction into Canada.”

Canadian Regulatory Structure

Our reporters asked Mr. Thursby why only three Canadian provinces have approved the list of trade repositories and he replied, “The various legislative bodies in each of the provinces have yet to enact a law.”

“This is concerning primarily the western provinces. We expect that they will have the legislation finalized and will implement trade reporting next year. The CME Group will extend its pan-Canadian trade repository to the other provinces when they come online,” he explained.

The move by Canadian regulators catches up with other major regulatory regions like the US, as the U.S. Commodity Futures Trading Commission (CFTC) has led the OTC trade reporting effort, followed by the European Union, where European Market Infrastructure Regulation (EMIR) reporting has been implemented with the guidance of the European Securities and Markets Authority (ESMA) earlier this year.