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CSA Rewrite
Published: February 5, 2024
Embarking on a regulatory journey often feels like deciphering a complex code. In the realm of Canadian financial regulations, the ‘Trade Repositories and Derivatives Data Reporting’ rules, collectively governed by the Canadian Securities Administrators (CSA), are undergoing a transformative rewrite.
The CSA has unveiled proposed amendments aimed at streamlining over-the-counter derivatives and aligning them with global data reporting standards.
Let’s delve into the anticipated alterations, drawing parallels with the CFTC Rewrite:
| Theme | CSA Rewrite | CFTC Rewrite | Comment |
|---|---|---|---|
| Unique Product Identifier (UPI) | Adoption of UPI to provide a consistent product taxonomy for reporting derivative products. | ||
| Critical Data Elements (CDE) | CDE (Critical Data Elements) to globally agree the fields, the values and the definitions. CSA – Reportable fields expand to 140, CFTC – Reportable fields expand to 128 | ||
| Unique Transaction Identifier (UTI) | Global UTI standards to enforce common transaction identifiers across the various reporting regimes. | ||
| Event/Action Types | Both introduce Event Type alongside Action Type. | ||
| Collateral/Margin Reporting | Introduction of collateral and margin data reporting | ||
| Data Validation and Verification | Improvements that are designed to enhance data accuracy and consistency, such as data validation and verification, similar to other global regulators. | ||
| Trade Repository (TR) Governance | Updated requirements for TR governance, operations and management of risk to align with international standards. | ||
| Technical Manuals | New technical manuals that provide clarity regarding the format and values for reporting and a substantial redraft of the Trade Reporting Companion Policy. | ||
| CSA Harmonisation | CSA specific |
Increased harmonisation among the CSA, such as a harmonised threshold in the commodity derivatives exclusion for non-dealers and the definition of affiliated entity. |
There are a total of 9 Action Types and 11 Event Types for which the Lifecycle Event combinations are detailed in the Draft Derivatives Data Technical Manual.
From comparison between the CSA and CTFC regimes they appear to be very similar in content with the exception of one additional event type under the CSA proposals namely ‘Inclusion in Position’.
Event Type
| Action type & Event type combinations | Trade (TRDE) | Novation (NOVT) | Compression or Risk Reduction Exercise (COMP) | Early Termination (EART) | Clearing (CLRG) | Exercise (EXER) | Allocation (ALOC) | Clearing & Allocation (CLAL) | Credit Event (CRDT) | Transfer (PORT) | Inclusion in Position |
| Modify (MODI) | |||||||||||
| Correct (CORR) | |||||||||||
| Terminate (TERM) | |||||||||||
| Error (EROR) | |||||||||||
| Revive (REVI) | |||||||||||
| Transfer out (PRTO) | |||||||||||
| Valuation (VALU) | |||||||||||
| Collateral (COLU) | |||||||||||
| Position component |
Reporting counterparties who report under both the existing Canadian and the amended CFTC rules will be subject to differing data reporting standards between 5th Dec 2022 and the effective date of the final CSA Rewrite (the ‘transition period’).
To assist reporting counterparties the CSA have provided the following guidance to facilitate reporting during the Transition Period, to the extent supported by a designated or recognised trade repository:
Type of Derivatives Data
Guidance
Data is reportable under the existing Canadian rules and analogous data is required under the amended CFTC rules.
Reporting counterparties may comply with the existing Canadian rules if they report the data according to a CFTC data element that is comparable.
Data is reportable under the amended CFTC rules but not reportable under the existing Canadian rules.
Data remains not reportable under the existing Canadian rules. Reporting counterparties may, however, report if the relevant data element has been proposed in the CSA proposed amendments and is supported by the Trade Repository.
Data is reportable under the existing Canadian rules but not reportable under the amended CFTC rules.
Data continues to be reportable under the existing Canadian rules and reporting counterparties must continue to report this data.
While managing multiple implementations across diverse reporting regulations can be daunting, the silver lining is that reporting requirements are becoming more standardised.
Please see below some of the main challenges that clients may face when complying with the proposed amendments to the CSA Trade Reporting Rules:
Firms may have narrow timeframes for implementing large-scale regulatory reporting changes and this will require effective planning and execution. When the final rules are published firms may use the opportunity to further increase operational readiness and kick off their delivery programmes in parallel to other regime changes (e.g., MAS, ASIC, HKMA etc).
External resources may require engagement to provide an audit of the systems and process enhancements needed. This however can create an opportunity to improve a client’s overall process and procedure in preparation for future regulatory change.
There is a significant increase in number of Critical Data Elements (CDEs) which require to be reported as per the draft Technical Specifications (128 fields for CFTC, 140 fields for CSA).
Counterparties are required to align to global UPI standards where ANNA-DBS is the sole service provider and there is a cost for doing so.
The CSA have proposed amendments to set out a new hierarchy to determine which entity is responsible for generating the UTI for a transaction.
Business rules and logic require to conform to new prescriptive validation rules. In addition, the reporting of package, or structured, trades are complex.
To date reference has not been made to a historical Backloading requirement under the CSA proposals which may be considered a saving grace rather than a challenge for impacted firms.
The CSA have not yet confirmed in their proposed amendments that they intend to move to the ISO-20022 standard which will update FPML and XML trade messaging.
The CSA are proposing a new concept in that the Clearing Agency has the obligation to report the termination of the original alpha trade despite not reporting that trade themselves. This throws up several logistical and practical considerations for both the Clearing Agency and the party that reported the original transaction.
Some aspects of the amendments, such as alignment with other reporting regime formats and rules, including the CFTC Rewrite, are promising, potentially reducing regulatory challenges.
The CSA has invited feedback from Regulatory and Industry bodies. It remains to be seen whether the CSA will consider those concerns and work to harmonise as far as possible with other global reporting regime updates.
Detailed insights into the impact of these changes will follow once the final CSA amendments are published (expected in 2024) and we intend to publish a subsequent article focusing on divergences from the US CFTC regime and other updates proposed by the CSA.
Our highly skilled consultants can help interpret regulations, implement changes and provide ongoing support. Whether it’s Project Management, Business Analysis, Testing, Quality Analysis or Development Support, we can offer our expertise. Additionally, our partnerships with regulatory reporting technology solutions and top RegTech providers can simplify your compliance needs
Embark on your regulatory journey with First Derivative. Contact us for assistance with CSA today!
Shauna McParland
Managing Consultant, First Derivative – Regulatory Solutions
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Jamie Lavery
Business Analyst, First Derivative – Regulatory Solutions
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Adam Thomas
Senior Leadership Team, First Derivative – Regulatory Solutions
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