September 16, 2021 Introduction

The Canadian Securities Administrators (the CSA or we) are publishing the proposed amendments (the Proposed Amendments) to National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (NI 94-102), for a 60-day comment period expiring on November 15, 2021.

We are issuing this notice to solicit comments on the Proposed Amendments.

Background

On May 20 2021, in order to facilitate the rule-making process for the Proposed Amendments, the CSA published Notice 94-304 - Frequency of the requirement to deliver Form 94-102F3 Customer Collateral Report: Regulated Clearing Agency (Notice 94-304) announcing that all jurisdictions, except the Ontario Securities Commission (the OSC), were making/issuing, as applicable in the local jurisdiction, parallel orders of general application (the Orders) reducing the frequency of the requirement for regulated clearing agencies1 to deliver Form 94-102F3 Customer Collateral Report: Regulated Clearing Agency (Form 94-102F3). The Orders came into effect on August 1, 2021. 2

The OSC made amendments to NI 94-102, which have the same effect as the Orders. These amendments came into force on August 1, 20213.

The CSA, except the OSC, are now proposing to amend NI 94-102 to reduce the frequency of the requirement to deliver Form 94-102F3.

1 A regulated clearing agency is defined in NI 94-102 as “(a) in British Columbia, Manitoba and Ontario, a person or company recognized or exempt from recognition as a clearing agency in the local jurisdiction, and (b) in Alberta, Newfoundland and Labrador, New Brunswick, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon, a person or company recognized or exempt from recognition as a clearing agency or clearing house pursuant to the securities legislation of any jurisdiction of Canada”.

2    Blanket Order 94-502, available on the website of the securities regulatory authority in the local jurisdiction.

3    See, in Ontario, Amendment to National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions, published May 20, 2021. The Amendments, which do not include any new requirements, were made by the OSC on an expedited basis, and without prior publication for comment, as permitted under paragraph 143.2(5)(b) of the Securities Act (Ontario).

Substance and Purpose of the Proposed Amendments

As detailed in Notice 94-304, the Proposed Amendments were developed by the CSA as a way to reduce regulatory burden without compromising investor protection or adversely impacting systemic risk.

The CSA recognize that clearing intermediaries that receive customer collateral are also required to deliver information to the securities regulatory authority in either Form 94-102F1 Customer Collateral Report: Direct Intermediary or Form 94-102F2 Customer Collateral Report: Indirect Intermediary, as applicable, each of which presents a snapshot of the value of collateral held or posted by each reporting clearing intermediary. The CSA note, however, that Form 94-102F3 provides a snapshot of the value of customer collateral received by the regulated clearing agency from each clearing intermediary and the location where the regulated clearing agency holds this customer collateral and its value. This information is not otherwise available to the CSA.

Furthermore, reporting Form 94-102F3, together with Form 94-102F1 and Form 94-102F2, allows for data reconciliation, and allows the CSA to detect and respond to major changes in the derivatives clearing market, as well as to monitor customer collateral arrangements in support of the development and implementation of rules that protect customer assets and are responsive to market practices.

Reducing the frequency of the requirement to deliver Form 94-102F3 from monthly to quarterly generates time and cost savings for regulated clearing agencies, without compromising the CSA’s ability to detect major changes in the derivatives clearing market and to ensure the proper identification of customer collateral and the clearing intermediaries, regulated clearing agencies and permitted depositories that hold it.

Summary of the Proposed Amendments

Except in Ontario and subject to the Orders, section 43 of NI 94-102 currently requires a regulated clearing agency that receives customer collateral to electronically deliver a completed Form 94- 102F3 to the relevant regulator or securities regulatory authority, within 10 business days of the end of each calendar month.

The CSA is proposing to amend NI 94-102 to reduce the frequency of the requirement to deliver Form 94-102F3 from monthly to quarterly. As a result of the Proposed Amendments, a regulated clearing agency will be required to electronically deliver a completed Form 94-102F3 within 10 days of the end of each calendar quarter.

Contents of Annexes

The following annexes form part of this notice:

•         Annex A – Proposed Amendments to National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions

•         Annexe B - Blackline of National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions showing the proposed amendments

•         Annex C – Local Matters, where applicable

Request for Comments

Please provide your comments in writing by November 15, 2021. We cannot keep submissions confidential because securities legislation in certain provinces requires publication of a summary of the written comments received during the comment period.

In addition, all comments received will be posted on the websites of each of the Alberta Securities Commission at www.albertasecurities.com and the Autorité des marchés financiers at www.lautorite.qc.ca. Therefore, you should not include personal information directly in comments to be published. It is important that you state on whose behalf you are making the submission.

Thank you in advance for your comments.

Please address your comments to each of the following:

Alberta Securities Commission Autorité des marchés financiers

Financial and Consumer Services Commission (New Brunswick) Financial and Consumer Affairs Authority of Saskatchewan Manitoba Securities Commission

Nova Scotia Securities Commission Nunavut Securities Office

Office of the Superintendent of Securities, Newfoundland and Labrador Office of the Superintendent of Securities, Northwest Territories

Office of the Yukon Superintendent of Securities

Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island

Please send your comments only to the following addresses. Your comments will be forwarded to the remaining jurisdictions:

Me Philippe Lebel

Corporate Secretary and Executive Director, Legal Affairs

Autorité des marchés financiers Place de la Cité, tour Cominar

2640, boulevard Laurier, bureau 400 Québec (Québec) G1V 5C1

Fax: 514 864-6381

consultation-en-cours@lautorite.qc.ca

Grace Knakowski Secretary

Ontario Securities Commission 20 Queen Street West

22nd floor

Toronto (Ontario) M5H 3S8 Fax : 416 593-2318

comments@osc.gov.on.ca

Questions

If you have questions about this CSA Notice, please contact any of the following:

ANNEX “A”

PROPOSED AMENDMENTS TO NATIONAL INSTRUMENT 94-102 DERIVATIVES: CUSTOMER CLEARING AND PROTECTION OF CUSTOMER COLLATERAL AND POSITIONS

1.  National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions is amended by this Instrument.

2.  Section 43 is replaced with the following:

Customer collateral report – regulatory

43. A regulated clearing agency that receives customer collateral must electronically deliver to the regulator or securities regulatory authority, within 10 business days of the end of each calendar quarter, a completed Form 94-102F3 Customer Collateral Report: Regulated Clearing Agency.

3.  Form 94-102F3 Customer Collateral Report: Regulated Clearing Agency is amended by replacing footnote 3 with the following:

3 The Reporting Period is the calendar quarter for which the form is submitted.

4.  This Instrument comes into force on •.

ANNEX B

NATIONAL INSTRUMENT 94-102

DERIVATIVES: CUSTOMER CLEARING AND PROTECTION OF CUSTOMER COLLATERAL AND POSITIONS

PART 1

DEFINITIONS, INTERPRETATION AND APPLICATION

Definitions and interpretation

1.   (1)    In this Instrument

“Canadian financial institution” has the meaning ascribed to it in National Instrument 45- 106 Prospectus Exemptions;

“cleared derivative” means a derivative that is, directly or indirectly, submitted to and cleared by a clearing agency;

“clearing intermediary” means a direct intermediary or an indirect intermediary;

“customer” means a counterparty to a cleared derivative other than a clearing intermediary or a regulated clearing agency;

“customer collateral” means all cash, securities and other property if any of the following apply:

(a)    the cash, securities or other property is received or held by a clearing intermediary or regulated clearing agency from, for or on behalf of a customer, and is intended to or does margin, guarantee, secure, settle or adjust a cleared derivative of the customer;

(b)    the cash, securities or other property is posted on behalf of a customer by a clearing intermediary to satisfy the margin requirements arising from the customer’s cleared derivatives;

“direct intermediary” means a person or company that

(a)    with respect to a cleared derivative, is a participant of the regulated clearing agency at which the cleared derivative is cleared,

(b)    directly provides clearing services for a customer in respect of a cleared derivative entered into by, for or on behalf of the customer, and

(c)    requires, receives or holds collateral from, for or on behalf of the customer in providing clearing services;

“excess margin” means customer collateral in respect of a customer’s cleared derivatives that

(a)                is delivered to a regulated clearing agency or clearing intermediary from, for or on behalf of the customer, and

(b)               has a value in excess of the amount required by the regulated clearing agency to clear and settle the cleared derivatives of the customer;

“indirect intermediary” means a person or company that

(a)                indirectly provides clearing services for a customer in respect of a cleared derivative entered into by, for or on behalf of the customer, and

(b)               requires, receives or holds collateral from, for or on behalf of the customer in providing clearing services;

“initial margin” means, in relation to a regulated clearing agency’s margin system that manages credit exposures to its participants, collateral that is required by the regulated clearing agency to cover potential changes in the value of a customer’s cleared derivatives over an appropriate close-out period in the event of a default;

“local customer” means a customer that, in respect of a local jurisdiction, is any of the following:

(a)               an individual who is resident in the local jurisdiction;

(b)               a person or company, other than an individual, to which any of the following apply:

(i)                                   the person or company is organized under the laws of the local jurisdiction;

(ii)                               the head office of the person or company is in the local jurisdiction;

(iii)                           the principal place of business of the person or company is in the local jurisdiction;

“participant” means a person or company that has entered into an agreement with a regulated clearing agency to access the services of the regulated clearing agency and is bound by the regulated clearing agency’s rules and procedures;

“permitted depository” means a person or company that is any of the following:

(a)                a Canadian financial institution or Schedule III bank;

(b)               a regulated clearing agency;

(c)                the central bank of Canada or of a permitted jurisdiction;

(d)               in Québec, a person recognized or exempt from recognition as a central securities depository under the Securities Act (Québec);

(e)                a person or company

(i)    whose head office or principal place of business is in a permitted jurisdiction,

(ii)    that is a banking institution or trust company of a permitted jurisdiction, and

(iii)    that has shareholders’ equity, as reported in its most recent audited financial statements, of not less than the equivalent of $100 000 000;

(f)                 with respect to customer collateral that it receives from a customer or a clearing intermediary for which it provides clearing services, a registered investment dealer as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

(g)               with respect to customer collateral that it receives from a customer or a clearing intermediary for which it provides clearing services, a prudentially regulated entity

(i)    whose head office or principal place of business is located outside of Canada, and

(ii)    that is subject to and in compliance with the laws of a permitted jurisdiction relating to clearing services and the requiring, receiving and holding of customer collateral;

“permitted investment” means cash or a security or other financial instrument with minimal market and credit risk that is capable of being liquidated rapidly with minimal adverse price effect;

“permitted jurisdiction” means a foreign jurisdiction that is any of the following:

(a)                                  a country where the head office or principal place of business of a Schedule III bank is located, and a political subdivision of that country;

(b)                                 if a customer has provided express written consent to the clearing intermediary or the regulated clearing agency clearing a cleared derivative in a foreign currency, the country of origin of the foreign currency used to denominate the rights and obligations under the cleared derivative entered into by, for or on behalf of the customer, and a political subdivision of that country;

“position” means the economic interest of a counterparty in an outstanding cleared derivative at a point in time;

“prudentially regulated entity” means a person or company that is subject to and in compliance with the laws of a foreign jurisdiction that is a permitted jurisdiction under paragraph (a) of the definition of “permitted jurisdiction”, relating to minimum capital requirements, financial soundness and risk management;

“qualifying central counterparty” means a person or company to which all of the following apply:

(a)    it is recognized, exempt from recognition or otherwise registered or authorized to operate as a central counterparty in a jurisdiction of Canada or a foreign jurisdiction by a government or regulatory authority;

(b)    it is subject to regulation that is consistent with the Principles for market infrastructures published by the Bank for International Settlements’ Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions in April 2012, as amended from time to time;

“regulated clearing agency” means

(a)    in British Columbia, Manitoba and Ontario, a person or company recognized or exempt from recognition as a clearing agency in the local jurisdiction, and

(b)    in Alberta, Newfoundland and Labrador, New Brunswick, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon, a person or company recognized or exempt from recognition as a clearing agency or clearing house pursuant to the securities legislation of any jurisdiction of Canada;

“Schedule III bank” means an authorized foreign bank named in Schedule III of the Bank Act (Canada);

“segregate” means to separately hold or separately account for a customer’s positions or customer collateral.

(2)    In this Instrument, a person or company is an affiliated entity of another person or company if one of them controls the other or each of them is controlled by the same person or company.

(3)    In this Instrument, a person or company (the first party) is considered to control another person or company (the second party) if any of the following apply:

(a)    the first party beneficially owns or directly or indirectly exercises control or direction over securities of the second party carrying votes which, if exercised, would entitle the first party to elect a majority of the directors of the second party, unless the first party holds the voting securities only to secure an obligation;

(b)    the second party is a partnership, other than a limited partnership, and the first party holds more than 50% of the interests of the partnership;

(c)    the second party is a limited partnership and the general partner of the limited partnership is the first party;

(d)    the second party is a trust and the trustee of the trust is the first party.

(4)    In this Instrument, in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan and Yukon, “derivative” means a “specified derivative” as defined in Multilateral Instrument 91-101 Derivatives: Product Determination.

Application

2.   (1)    This Instrument does not apply to any of the following:

(a)    a regulated clearing agency whose head office or principal place of business is in a foreign jurisdiction except with respect to a cleared derivative entered into by, for or on behalf of a local customer;

(b)    a clearing intermediary that provides clearing services except with respect to a cleared derivative entered into by, for or on behalf of a local customer.

(2)                This Instrument applies to

(a)               in Manitoba,

(i)    a derivative other than a contract or instrument that, for any purpose, is prescribed by any of sections 2, 4 and 5 of Manitoba Securities Commission Rule 91-506 Derivatives: Product Determination not to be a derivative, and

(ii)    a derivative that is otherwise a security and that, for any purpose, is prescribed by section 3 of Manitoba Securities Commission Rule 91-506 Derivatives: Product Determination not to be a security,

(b)               in Ontario,

(i)    a derivative other than a contract or instrument that, for any purpose, is prescribed by any of sections 2, 4 and 5 of Ontario Securities Commission Rule 91-506 Derivatives: Product Determination not to be a derivative, and

(ii)    a derivative that is otherwise a security and that, for any purpose, is prescribed by section 3 of Ontario Securities Commission Rule 91-506 Derivatives: Product Determination not to be a security, and

(c)               in Québec, a derivative specified in section 1.2 of Regulation 91-506 respecting derivatives determination, other than a contract or instrument specified in section 2 of that regulation.

(3)                Despite subsection (2), this Instrument does not apply to an option on a security.

(4)                In British Columbia, Newfoundland and Labrador, the Northwest Territories, Nunavut, Prince Edward Island and Yukon, subsection (3) does not apply to a security that is a derivative as defined in subsection 1(4).

PART 2

TREATMENT OF CUSTOMER COLLATERAL BY A CLEARING INTERMEDIARY

Segregation of customer collateral – clearing intermediary

3.   (1) A clearing intermediary must segregate a customer’s positions and customer collateral from the positions and property of other persons or companies including the positions and property of the clearing intermediary.

(2)        A clearing intermediary must segregate the positions and customer collateral of a customer of an indirect intermediary from the positions and property of the indirect intermediary.

Holding of customer collateral – clearing intermediary

4.                 A clearing intermediary must hold all customer collateral

(a)    in one or more accounts at a permitted depository that are clearly identified as holding customer collateral, and

(b)    in separate accounts from the property of all persons who are not customers.

Excess margin – clearing intermediary

5.                   A clearing intermediary must at least once each business day identify and record the value of excess margin it holds that is attributable to each customer for which the clearing intermediary provides clearing services.

Use of customer collateral – clearing intermediary

6.   (1) A clearing intermediary must not use or permit the use of customer collateral except in accordance with this section and sections 7 and 8.

(2)                               A clearing intermediary must not use or permit the use of customer collateral of a customer except to do any of the following:

(a)                margin, guarantee, secure, settle or adjust a cleared derivative of the customer;

(b)               with respect to excess margin, guarantee, secure or extend the credit of the customer.

(3)                               Other than with respect to excess margin used in accordance with paragraph (2)(b), a clearing intermediary must not create or permit to exist any lien or other encumbrance on a cleared derivative of a customer or customer collateral in respect of the cleared derivative unless the lien or other encumbrance secures an obligation resulting from the cleared derivative in favour of any of the following:

(a)                the customer;

(b)               the regulated clearing agency or clearing intermediary responsible for clearing the cleared derivative.

Investment of customer collateral – clearing intermediary

7.   (1) A clearing intermediary must not invest customer collateral or enter into an agreement for resale or repurchase of customer collateral except in accordance with subsections (2) and (3).

(2)               A clearing intermediary may

(a)               invest customer collateral in a permitted investment, and

(b)               enter into an agreement for resale or repurchase of customer collateral if all of the following apply:

(i)                 the agreement is for the resale or repurchase of a permitted investment;

(ii)               the agreement is in writing;

(iii)             the term of the agreement is no more than one business day, or reversal of the transaction is possible on demand;

(iv)             written confirmation specifying the terms of the agreement is delivered by the counterparty to the agreement to the clearing intermediary immediately on entering into the agreement;

(v)               the agreement is not entered into with an affiliated entity of the clearing intermediary.

(3)               A loss resulting from an investment or use of a customer’s customer collateral in accordance with subsection (1) or subsection (2) by the clearing intermediary must be borne by the clearing intermediary making the investment and not by the customer.

Use of customer collateral – indirect intermediary default

8.   (1) A clearing intermediary must not use customer collateral of a customer of an indirect intermediary for which the clearing intermediary provides clearing services to satisfy an obligation of the indirect intermediary.

(2) Despite subsection (1), a clearing intermediary may use the customer collateral  of  a customer to fully or partially satisfy an obligation of an indirect intermediary that arises or is accelerated as a consequence of the indirect intermediary’s default only if the obligation is attributable to a cleared derivative of the customer.

Acting as a clearing intermediary

9.   (1) A person or company must not act as a clearing intermediary for a customer unless the person or company is any of the following:

(a)    a person or company that is subject to and is in compliance with the laws of a jurisdiction of Canada relating to minimum capital requirements, financial soundness and risk management;

(b)    a person or company that is registered as a dealer under securities legislation in a local jurisdiction;

(c)    a person or company that is

(i)                                  a prudentially regulated entity, and

(ii)                               subject to and in compliance with the laws of a permitted jurisdiction relating to clearing services and the requiring, receiving and holding of customer collateral.

(2) A clearing intermediary must not provide clearing services for a customer unless  the  clearing services are provided in respect of derivatives that are cleared by a regulated clearing agency.

Risk management – clearing intermediary

10.               A clearing intermediary that provides or proposes to provide clearing services for an indirect intermediary must adopt and implement rules, policies or procedures reasonably designed to

(a)    identify, monitor and reasonably mitigate material risks arising from the provision of clearing services, and

(b)    manage a default of the indirect intermediary.

Risk management – indirect intermediary

11.   (1) An indirect intermediary must establish and implement rules, policies or procedures reasonably designed to identify, monitor and reasonably mitigate the material risks to the clearing intermediary or its customers arising from the provision of indirect clearing services for a customer.

(2) An indirect intermediary that receives clearing services from a clearing intermediary must provide the clearing intermediary with all information reasonably required to identify, monitor and reasonably mitigate any material risks arising from the provision of indirect clearing services for customers.

PART 3

RECORDKEEPING BY A CLEARING INTERMEDIARY

Retention of records – clearing intermediary

12.   (1) A clearing intermediary must keep a record required under this Part and Part 4, and all supporting documentation,

(a)    in a readily accessible and safe location and in a durable form,

(b)    in the case of a record or supporting documentation that relates to a cleared derivative, for a period of 7 years following the date on which the cleared derivative expires or is terminated, and

(c)    in any other case, for a period of 7 years following the date on which a customer’s last cleared derivative that is cleared for or on behalf of the customer through the clearing intermediary expires or is terminated.

(2) Despite subsection (1), in Manitoba, with respect to a customer or clearing intermediary located in Manitoba, the time period applicable to records and supporting documentation kept pursuant to subsection (1) is 8 years.

Daily records – clearing intermediary

13.   (1) A clearing intermediary that receives customer collateral must calculate and record all of the following at least once each business day in its records:

(a)    for each customer, the amount of customer collateral it requires from, for or on behalf of the customer;

(b)    the total amount of customer collateral it requires from, for or on behalf of all customers.

(2)               For each indirect intermediary that a clearing intermediary provides clearing services for, the clearing intermediary must calculate and record all of the following at least once each business day in its records:

(a)    the amount of customer collateral it requires from, for or on behalf of each customer of each indirect intermediary;

(b)    the total amount of customer collateral it requires from, for or on behalf of all customers of each indirect intermediary.

(3)               For each customer, a clearing intermediary must record all of the following in its records:

(a)    each permitted depository at which it holds customer collateral of the customer;

(b)    calculated at least once each business day, the current value of any customer collateral received from, for or on behalf of the customer, including all of the following:

(i)                 any accruals on the customer collateral creditable to the customer;

(ii)               any gains or losses in respect of the customer collateral;

(iii)             any charges accruing to the customer;

(iv)             any distributions or transfers of the customer collateral.

Daily records – direct intermediary

14.               For each customer, a direct intermediary must record all of the following at least once each business day in its records:

(a)    the total amount of customer collateral required for the cleared derivatives of the customer by each regulated clearing agency;

(b)    the total amount of the customer’s excess margin held by the direct intermediary.

Daily records – indirect intermediary

15.               For each customer, an indirect intermediary must record all of the following at least once each business day in its records:

(a)    the total amount of collateral required for the cleared derivatives of the customer by each clearing intermediary through which the indirect intermediary clears;

(b)    the sum of the amounts for the customer referred to in paragraph (a);

(c)    the total amount of the customer’s excess margin held by the indirect intermediary.

Identifying records – direct intermediary

16.               A direct intermediary must keep records that, at any time, enable it to identify all of the following in its own accounts and in the accounts held with each regulated clearing agency through which it provides clearing services:

(a)    the positions and property of the direct intermediary;

(b)    the positions and value of customer collateral held for or on behalf of each of the direct intermediary’s customers.

Identifying records – indirect intermediary

17.               An indirect intermediary must keep records that, at any time, enable it to identify all of the following in its own accounts and in the accounts held with each clearing intermediary through which it provides clearing services:

(a)    the positions and property of the indirect intermediary;

(b)    the positions and value of customer collateral held for or on behalf of each of the indirect intermediary’s customers.

Identifying records – multiple clearing intermediaries

18.               A clearing intermediary that provides clearing services in respect of a cleared derivative for an indirect intermediary must keep records that, at any time, enable it and each of its indirect intermediaries to identify all of the following in the accounts held with the clearing intermediary:

(a)    the positions and property of the indirect intermediary;

(b)    the positions and value of customer collateral held for or on behalf of the indirect intermediary’s customers.

Records of investment of customer collateral – clearing intermediary

19.               A clearing intermediary that invests customer collateral must keep records of all of the following with respect to each investment of customer collateral:

(a)    the date of the investment;

(b)    the name of each person or company through which the investment was made;

(c)    a daily market valuation of the investment, including any unrealized gain or loss on the investment and related supporting documentation;

(d)    a description of each asset or instrument in which the investment was made;

(e)    the identity of each permitted depository where each asset or instrument in which the investment was made is deposited;

(f)    the date on which the investment was liquidated or otherwise disposed of and the realized gain or loss;

(g)    the name of each person or company liquidating or disposing of the investment.

Records of currency conversion – clearing intermediary

20.               A clearing intermediary must keep a record of each conversion of customer collateral from one currency to another.

PART 4

REPORTING AND DISCLOSURE BY A CLEARING INTERMEDIARY

Clearing intermediary delivery of disclosure by regulated clearing agency

21.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, a clearing intermediary must provide the customer, or an indirect intermediary for which it provides clearing services, with all of the following:

(a)    the written disclosure provided under subsection 41(1) by each regulated clearing agency the direct intermediary uses to clear a cleared derivative for the customer or indirect intermediary;

(b)    the investment guidelines and policy provided under subsection 45(1) by each regulated clearing agency that invests customer collateral attributable to the customer.

(2) After accepting the first cleared derivative from, for or on behalf of a customer, each time that the clearing intermediary receives written disclosure in accordance with subsection 41(2) or subsection 45(2) from a regulated clearing agency that invests customer collateral attributable to the customer, the clearing intermediary must provide the written disclosure to the customer, or indirect clearing intermediary for which it provides clearing services, within a reasonable period of time.

Disclosure to customer by clearing intermediary

22.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, a clearing intermediary must provide written disclosure to the customer describing the treatment of customer collateral not held at a regulated clearing agency, including the impact of relevant bankruptcy and insolvency laws, in the event of a default by the clearing intermediary.

(2)  After accepting the first cleared derivative from,  for or on behalf of a customer of, each  time there is a change to the written disclosure referred to in subsection (1), the clearing intermediary must provide written disclosure to the customer, within a reasonable period of time, describing the change.

Disclosure to customer by indirect intermediary

23.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, an indirect intermediary must provide written disclosure to the customer including a description of all of the following:

(a)    the material risks associated with receiving clearing services through an indirect intermediary;

(b)    the rules, policies or procedures for transferring positions and customer collateral to another clearing intermediary or liquidating positions and customer collateral, in the event of the indirect intermediary’s default.

(2)  After accepting the first cleared derivative from,  for or on behalf of a customer of, each  time there is a change to the rules, policies or procedures referred to in paragraph (1)(b), the indirect intermediary must provide written disclosure to the customer, within a reasonable period of time, describing the change.

Customer information – clearing intermediary

24.   (1) A direct intermediary must provide all of the following to a regulated clearing agency:

(a)    before submitting to the regulated clearing agency the first cleared derivative for or on behalf of a customer of the direct intermediary, or of an indirect intermediary for which the direct intermediary provides clearing services, information sufficient to identify the customer and the customer’s positions and customer collateral;

(b)    at least once each business day after providing the information referred to in paragraph (a), information that identifies the customer’s positions and the current value of the customer’s customer collateral.

(2)                                  An indirect intermediary must provide all of the following to a clearing intermediary through which it provides clearing services:

(a)    before submitting to the clearing intermediary the first cleared derivative for or on behalf of a customer, information sufficient to identify the customer and the customer’s positions and customer collateral;

(b)    at least once each business day after providing the information referred to in paragraph (a), information that identifies the customer’s positions and the current value of the customer’s customer collateral.

Customer collateral report – regulatory

25.   (1) A direct intermediary that receives customer collateral must electronically deliver to the regulator or securities regulatory authority, within 10 business days of the end of each calendar month, a completed Form 94-102F1 Customer Collateral Report: Direct Intermediary.

(2) An indirect intermediary that receives customer collateral must electronically deliver to the regulator or securities regulatory authority, within 10 business days of the end of each calendar month, a completed Form 94-102F2 Customer Collateral Report: Indirect Intermediary.

Customer collateral report – customer

26.   (1) A clearing intermediary must make available to each customer from, for or on behalf of whom it receives customer collateral, a report, calculated and available on a daily basis, setting out all of the following:

(a)    the current value of each position of the customer;

(b)    the current value of customer collateral received from, for or on behalf of the customer that is held by the clearing intermediary or at a permitted depository;

(c)    the current value of the customer collateral received from, for or on behalf of the customer that is posted with any of the following:

(i)                                  a regulated clearing agency;

(ii)                               another clearing intermediary.

(2)               A clearing intermediary must make available to each indirect intermediary from which it receives customer collateral a report, calculated and available on a daily basis, setting out all of the following:

(a)                the current value of each position of each customer of the indirect intermediary;

(b)                the current value of customer collateral received from the indirect intermediary for or on behalf of each customer of the indirect intermediary that is held by the clearing intermediary or at a permitted depository;

(c)                the current value of the customer collateral received from the indirect intermediary for or on behalf of each customer of the indirect intermediary that is posted with any of the following:

(i)                 a regulated clearing agency;

(ii)               another clearing intermediary.

Disclosure of investment of customer collateral

27.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, a clearing intermediary that invests customer collateral must disclose in writing its investment guidelines and policy directly to the customer, or, if applicable, to the indirect intermediary that is providing clearing services to the customer.

(2) A clearing intermediary that invests customer collateral must within a reasonable period of time disclose in writing any change to the investment guidelines and policy referred to in subsection (1) directly to the customer or, if applicable, to the indirect intermediary that is providing clearing services to the customer.

PART 5

TREATMENT OF CUSTOMER COLLATERAL BY A REGULATED CLEARING AGENCY

Collection of initial margin

28.               A regulated clearing agency must collect initial margin for each customer on a gross basis.

Segregation of customer collateral – regulated clearing agency

29.               A regulated clearing agency must segregate a customer’s positions and customer collateral from the positions and property of other persons or companies including the positions and property of the regulated clearing agency.

Holding of customer collateral – regulated clearing agency

30.               A regulated clearing agency must hold all customer collateral

(a)    in one or more accounts at a permitted depository that are clearly identified as holding customer collateral, and

(b)    in separate accounts from all other property that is not customer collateral.

Excess margin – regulated clearing agency

31.               A regulated clearing agency must at least once each business day identify and record the value of excess margin it holds for or on behalf of the customers of each clearing intermediary.

Use of customer collateral – regulated clearing agency

32.   (1) A regulated clearing agency must not use or permit the use of customer collateral except in accordance with this section and sections 33 and 34.

(2)    A regulated clearing agency must not use or permit the use of customer collateral of a customer except to do any of the following:

(a)                margin, guarantee, secure, settle or adjust a cleared derivative of the customer;

(b)               with respect to excess margin, guarantee, secure or extend the credit of the customer.

(3)    Other than with respect to excess margin used in accordance with paragraph (2)(b), a regulated clearing agency must not create or permit to exist any lien or other encumbrance on a cleared derivative of a customer or customer collateral in respect of the cleared derivative unless the lien or other encumbrance secures an obligation resulting from the cleared derivative in favour of any of the following:

(a)                the customer;

(b)               the regulated clearing agency or a clearing intermediary responsible for clearing the cleared derivative.

Investment of customer collateral – regulated clearing agency

33.   (1) A regulated clearing agency must not invest customer collateral or enter into an agreement for resale or repurchase of customer collateral except in accordance with subsections (2) and (3).

(2)               A regulated clearing agency may

(a)               invest customer collateral in a permitted investment, and

(b)               enter into an agreement for resale or repurchase of customer collateral if all of the following apply:

(i)                 the agreement is for resale or repurchase of a permitted investment;

(ii)               the agreement is in writing;

(iii)             the term of the agreement is no more than one business day, or reversal of the transaction is possible on demand;

(iv)             written confirmation specifying the terms of the agreement is delivered by the counterparty to the agreement to the regulated clearing agency immediately on entering into the agreement;

(v)               the agreement is not entered into with an affiliated entity of the regulated clearing agency.

(3)               A loss resulting from an investment or use of a customer’s customer collateral in accordance with subsection (1) or subsection (2) by the regulated clearing agency must be borne by the regulated clearing agency making the investment or by a clearing intermediary that is a participant of the regulated clearing agency and not by any customer.

Use of customer collateral – clearing intermediary default

34.   (1) A regulated clearing agency must not use customer collateral to satisfy an obligation of a clearing intermediary to which the regulated clearing agency provides clearing services.

(2) Despite subsection (1), a regulated clearing agency may use the customer collateral of a customer to fully or partially satisfy an obligation of a clearing intermediary that arises or is accelerated as a consequence of the clearing intermediary’s default only if the obligation is attributable to a cleared derivative of the customer.

Risk management – NI 24-102 applies

35.               Part 3 of National Instrument 24-102 Clearing Agency Requirements applies to a regulated clearing agency and, for that purpose, a reference in that instrument to a “recognized clearing agency” is to be read as a reference to a “regulated clearing agency”.

PART 6

RECORDKEEPING BY A REGULATED CLEARING AGENCY

Retention of records – regulated clearing agency

36.               A regulated clearing agency must keep a record required under this Part and Part 7, and all supporting documentation, in a readily accessible and safe location and in a durable form, until the date on which the cleared derivative that the record or supporting documentation relates to expires or is terminated.

Daily records – regulated clearing agency

37.   (1) A regulated clearing agency that receives customer collateral must calculate and record all of the following at least once each business day in its records:

(a)    for each customer, the amount of customer collateral it requires from, for or on behalf of the customer;

(b)    the total amount of customer collateral it requires from, for or on behalf of all customers.

(2)               A regulated clearing agency must record all of the following in its records:

(a)                each permitted depository at which it holds customer collateral;

(b)               calculated at least once each business day, the current value of the customer collateral received from, for or on behalf of the customers of each direct intermediary including all of the following:

(i)                 any   accruals   on   the   customer collateral creditable to the direct intermediary’s customers;

(ii)               any gains or losses in respect of the customer collateral;

(iii)             any charges accruing to the direct intermediary’s customers;

(iv)             any distributions or transfers of the customer collateral.

Identifying records – regulated clearing agency

38.               A regulated clearing agency must keep records that, at any time, enable it and each of its direct intermediaries to identify all of the following in the accounts held at the regulated clearing agency:

(a)    the positions and property held for the direct intermediary;

(b)    the positions and value of customer collateral held for or on behalf of the direct intermediary’s customers;

(c)    the positions and value of customer collateral held for or on behalf of customers of each indirect intermediary for which the direct intermediary provides clearing services.

Records of investment of customer collateral – regulated clearing agency

39.               A regulated clearing agency that invests customer collateral must keep records of all of the following with respect to each investment of customer collateral:

(a)    the date of the investment;

(b)    the name of each person or company through which the investment was made;

(c)    a daily market valuation of the investment, including any unrealized gain or loss on the investment and related supporting documentation;

(d)    a description of each asset or instrument in which the investment was made;

(e)    the identity of each permitted depository where each asset or instrument in which the investment is made is deposited;

(f)    the date on which the investment was liquidated or otherwise disposed of and the realized gain or loss;

(g)    the name of each person or company liquidating or disposing of the investment.

Records of currency conversion – regulated clearing agency

40.               A regulated clearing agency must keep a record of each conversion of customer collateral from one currency to another.

PART 7

REPORTING AND DISCLOSURE BY A REGULATED CLEARING AGENCY

Disclosure to direct intermediaries by regulated clearing agency

41.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, a regulated clearing agency must provide written disclosure to the direct intermediary through which the derivative is cleared including a description of all of the following:

(a)    the rules, policies or procedures of the regulated clearing agency that govern the segregation and use of customer collateral and the transfer or liquidation of a cleared derivative of a customer in the event of a direct intermediary’s default;

(b)    the impact of laws, including bankruptcy and insolvency laws, on the customer, its positions and customer collateral in the event of a direct intermediary’s default;

(c)    the circumstances under which an interest or ownership rights in customer collateral may be enforced by the regulated clearing agency, the direct intermediary or the customer.

(2) After accepting the first cleared derivative from, for or on behalf of a customer, each time there is a change to the rules, policies or procedures referred to in paragraph (1)(a), the regulated clearing agency must provide written disclosure to the direct intermediary through which the derivative is cleared, within a reasonable period of time, describing the change.

Customer information – regulated clearing agency

42.               A regulated clearing agency must have rules, policies or procedures reasonably designed to confirm that the information it receives from a direct intermediary in accordance with subsection 24(1) is complete and received in a timely manner.

Customer collateral report – regulatory

43.               A regulated clearing agency that receives customer collateral must electronically deliver to the regulator or securities regulatory authority, within 10 business days of the end of each calendar month quarter, a completed Form 94-102F3 Customer Collateral Report: Regulated Clearing Agency.

Customer collateral report – direct intermediary

44.               A regulated clearing agency must make available to each direct intermediary from which it receives customer collateral a report, calculated and available on a daily basis, setting out all of the following:

(a)    the current value of each position of each customer of the direct intermediary;

(b)    the current value of customer collateral received from the direct intermediary for or on behalf of each customer of the direct intermediary that is held by the regulated clearing agency;

(c)    the total current value of customer collateral received from the direct intermediary that is held at a permitted depository;

(d)    the location of each permitted depository at which the customer collateral is held.

Disclosure of investment of customer collateral

45.   (1) Before receiving the first cleared derivative from, for or on behalf of a customer, a regulated clearing agency that invests customer collateral must disclose in writing its investment guidelines and policy to the direct intermediary through which the derivative is cleared.

(2)  A regulated clearing agency that invests customer collateral must within a reasonable   period of time disclose in writing any change to the investment guidelines and policy referred to in subsection (1) to the direct intermediary through which the derivative is cleared.

PART 8 TRANSFER OF POSITIONS

Transfer of customer collateral and positions

46.   (1) On default of a direct intermediary, a regulated clearing agency and the defaulting direct intermediary must do all of the following:

(a)    facilitate a transfer of the defaulting direct intermediary’s customers’ positions and customer collateral, or their liquidation proceeds, from the defaulting direct intermediary to one or more non-defaulting direct intermediaries;

(b)    make reasonable efforts to ensure the transfer is facilitated in accordance with the customer’s instructions.

(2)    At the request of a customer, a regulated clearing agency and a non-defaulting direct intermediary must facilitate a transfer of the customer’s positions and customer collateral from the non-defaulting direct intermediary to one or more non-defaulting direct intermediaries if all of the following apply:

(a)               the customer has consented to the transfer;

(b)               the customer’s account is not currently in default;

(c)               the transferred positions will have appropriate margin at the receiving direct intermediary;

(d)               any remaining positions will have appropriate margin at the transferring direct intermediary;

(e)               the receiving direct intermediary has consented to the transfer.

Transfer from a clearing intermediary

47.               A clearing intermediary that provides clearing services for an indirect intermediary must have rules, policies or procedures in respect of the portability and transfer of a customer’s positions and customer collateral that include a reasonable mechanism for transferring the positions and customer collateral of the indirect intermediary’s customers, in the event of a default by the indirect intermediary or at the request of the indirect intermediary’s customer, to one or more non-defaulting clearing intermediaries.

PART 9 SUBSTITUTED COMPLIANCE

Substituted compliance

48.   (1) A clearing intermediary whose head office or principal place of business is in a foreign jurisdiction is exempt from this Instrument in respect of a cleared derivative entered into by, for or on behalf of a local customer if all of the following apply:

(a)    the cleared derivative is cleared for or on behalf of a local customer

(i)                                  in a local jurisdiction other than British Columbia, Manitoba and Ontario by a qualifying central counterparty or a regulated clearing agency, and

(ii)                               in British Columbia, Manitoba and Ontario, by a regulated clearing agency;

(b)    the clearing intermediary is all of the following:

(i)                                  registered, licensed or otherwise authorized to perform the services of a clearing intermediary in a foreign jurisdiction listed in Appendix A;

(ii)                               in compliance with the laws of the foreign jurisdiction applicable to the clearing intermediary set out in Appendix A opposite the name of the foreign jurisdiction relating to clearing services and the requiring, receiving and holding of customer collateral.

(2)    Despite subsection (1), a clearing intermediary relying on the exemption from the Instrument set out in subsection (1) that provides clearing services in respect of a cleared derivative entered into by, for or on behalf of a local customer must comply with the provisions of this Instrument set out in Appendix A opposite the name of the foreign jurisdiction referred to in paragraph (1)(b).

(3)    A regulated clearing agency whose head office or principal place of business is in a foreign jurisdiction is exempt from this Instrument in respect of a cleared derivative entered into by, for or on behalf of a local customer if the regulated clearing agency complies with all of the following:

(a)    the terms and conditions of any recognition or exemption decision made by any securities regulatory authority in respect of the regulated clearing agency;

(b)    the laws of a foreign jurisdiction applicable to the regulated clearing agency set out in Appendix A opposite the name of the foreign jurisdiction relating to clearing services and the requiring, receiving and holding of customer collateral.

(4)    Despite subsection (3), a regulated clearing agency relying on the exemption from the Instrument set out in subsection (3) that provides clearing services in respect of a cleared derivative entered into by, for or on behalf of a local customer must comply with the provisions of this Instrument set out in Appendix A opposite the name of the foreign jurisdiction referred to in paragraph (3)(b).

PART 10 EXEMPTIONS

Exemption – general

49.   (1) The regulator or the securities regulatory authority may grant an exemption from this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.

(2)               Despite subsection (1), in Ontario, only the regulator may grant an exemption.

(3)               Except in Alberta and Ontario, an exemption referred to in subsection (1) is granted under the statute referred to in Appendix B of National Instrument 14-101 Definitions opposite the name of the local jurisdiction.

PART 11 EFFECTIVE DATE

Effective date

50.               This Instrument comes into force on July 3, 2017.

APPENDIX A TO

NATIONAL INSTRUMENT 94-102 DERIVATIVES: CUSTOMER CLEARING AND PROTECTION OF CUSTOMER POSITIONS AND COLLATERAL

Substituted Compliance (Section 48)

PART A

LAWS, REGULATIONS OR INSTRUMENTS OF FOREIGN JURISDICTIONS APPLICABLE TO CLEARING INTERMEDIARIES FOR SUBSTITUTED COMPLIANCE

PART B

LAWS, REGULATIONS OR INSTRUMENTS OF FOREIGN JURISDICTIONS APPLICABLE TO REGULATED CLEARING AGENCIES FOR SUBSTITUTED COMPLIANCE

FORM 94-102F1

CUSTOMER COLLATERAL REPORT: DIRECT INTERMEDIARY

This Form 94-102F1 is to be completed by each direct intermediary in order to comply with its reporting obligations to the local securities regulator under subsection 25(1) of National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (the “Instrument”).

Type of Filing:                             INITIAL                                 AMENDMENT1

[LEI]4

Table A

Table A is to be completed by each direct intermediary that receives customer collateral from a customer in accordance with the Instrument. For calculations in Table A, include all customers that have posted customer collateral with the reporting direct intermediary.

1 Please mark the form as “amendment” if the form is being resubmitted to correct or replace a form previously filed for a Reporting Period. Otherwise, please make the form as “initial”.

2 The Reporting Date must be within 10 business days of the end of the Reporting Period.

3 The Reporting Period is the calendar month for which the form is submitted.

4 Where an LEI is not available, please provide the complete legal name of the reporting direct intermediary together with the complete address of its head office.

5 Please report the number of customers whose customer collateral was included in calculating the value reported in the second column of Table A.

Table B

Table B is to be completed by each direct intermediary that receives customer collateral from an indirect intermediary in accordance with the Instrument. Complete a separate line for each indirect intermediary that has posted customer collateral with the reporting direct intermediary. Where an LEI is not available, please provide the complete legal name of the indirect intermediary.

Table C

Table C is to be completed by each direct intermediary that receives customer collateral from a customer or from an indirect intermediary in accordance with the Instrument. Complete a separate line for each location at which customer collateral is held by or for the reporting direct intermediary. Where an LEI is not available, please provide the complete legal and operating name(s) of the permitted depository.

Table D

Table D is to be completed by each direct intermediary that has posted customer collateral with a regulated clearing agency in accordance with the Instrument. Complete a separate line for each regulated clearing agency with which the reporting direct intermediary has posted customer collateral. Where an LEI is not available, please provide the complete legal and operating name(s) of the regulated clearing agency.

FORM 94-102F2

CUSTOMER COLLATERAL REPORT: INDIRECT INTERMEDIARY

This Form 94-102F2 is to be completed by each person or company that acts as an indirect intermediary in order to comply with its reporting obligations to the local securities regulator under subsection 25(2) of National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (the “Instrument”).

Type of Filing:                             INITIAL                                 AMENDMENT1

Table A

Table A is to be completed by each indirect intermediary that receives customer collateral from a customer in accordance with the Instrument. For calculations in Table A include all customers that have posted customer collateral with the reporting indirect intermediary.

1 Please mark the form as “amendment” if the form is being resubmitted to correct or replace a form previously filed for a Reporting Period. Otherwise, please make the form as “initial”.

2 The Reporting Date must be within 10 business days of the end of the Reporting Period.

3 The Reporting Period is the calendar month for which the form is submitted. .

4 Where an LEI is not available, please provide the complete legal name of the reporting indirect intermediary together with the complete address of its head office.

5 Please report the number of customers whose customer collateral was included in calculating the value reported in the second column of Table A.

Table B

Table B is to be completed by each indirect intermediary that receives customer collateral from a customer in accordance with the Instrument. Complete a separate line for each location at which customer collateral is held by or for the reporting indirect intermediary. Where an LEI is not available, please provide the complete legal and operating name(s) of the permitted depository.

Table C

Table C is to be completed by each indirect intermediary that has posted customer collateral with a direct intermediary in accordance with the Instrument. Complete a separate line for each direct intermediary with which the reporting indirect intermediary has posted customer collateral. Where an LEI is not available, please provide the complete legal and operating name(s) of the direct intermediary.

FORM 94-102F3

CUSTOMER COLLATERAL REPORT: REGULATED CLEARING AGENCY

This Form 94-102F3 is to be completed by each regulated clearing agency in order to comply with its reporting obligations to the local securities regulator under section 43 of National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (the “Instrument”).

Type of Filing:                             INITIAL                                 AMENDMENT11

Table A

Table A is to be completed by each regulated clearing agency that receives customer collateral from a direct intermediary in accordance with the Instrument. Complete a separate line for each direct intermediary that has posted customer collateral with the reporting regulated clearing agency. Where an LEI is not available, please provide the complete legal name of the direct intermediary.

11 Please mark the form as “amendment” if the form is being resubmitted to correct or replace a form previously filed for a Reporting Period. Otherwise, please make the form as “initial”.

12 The Reporting Date must be within 10 business days of the end of the Reporting Period.

13 The Reporting Period is the calendar month quarter for which the form is submitted.

14 Where an LEI is not available, please provide the complete legal name of the reporting regulated clearing agency together with the complete address of its head office.

Table B

Table B is to be completed by each regulated clearing agency that holds customer collateral in accordance with the Instrument. Complete a separate line for each location at which customer collateral is held by or for the reporting regulated clearing agency. Where an LEI is not available, please provide the complete legal and operating name(s) of the permitted depository.