ISDA Urges Canada to Reconsider Proposal for Derivatives Registration Regime
By Richard Hill
The International Swaps and Derivatives Association told Canadian securities authorities June 17 that its proposal to register derivatives users could lead to diminished liquidity if implemented.
In a letter to the Canadian Securities Administrators, ISDA said that in light of the relatively small marketplace for derivatives in Canada, regulators should “bear in mind the more limited number and types of counterparties participating in the Canadian market, as well as products traded, when compared to other foreign markets.”
ISDA was responding to a consultation report issued by CSA in April in which it proposed a registration regime based on the activities of derivatives users. Categories of registration would include derivatives dealer, derivatives adviser, and large derivatives participant.
ISDA noted that the only other country contemplating a similar regime is the United States, “which is a market of a size, diversity and liquidity that does not compare to that of the Canadian market.” It added that countries similar to Canada, such as Australia and jurisdictions in Asia, are not contemplating registration requirements.
Global Nature of Markets
In advising the Canadian authorities, ISDA urged them “to consider the global nature of the markets … to ensure that regulations do not restrict the ability of Canada market participants to continue participating in, and remaining competitive in, the global OTC derivatives market.”
In that vein, it told the authorities that Canadian market participants have “expressed concern” that a registration requirement would make derivatives activity “too burdensome or expensive … with the result that Canadian market participants may face a dwindling number of counterparties willing to transact in Canada.”
ISDA, however, said that if registration were to be required, Canada should use de minimis “thresholds” to separate parties that present more systemic risk, as the United States does. Failure to do so, it said, could push market participants out of Canada, “triggering contraction and decreased liquidity.”
ISDA also noted that the proposed registration system would not be done on a nationwide basis but rather through individual provinces. The result, it said, could be more disincentives to operate in Canada. It encouraged the country to explore substitute compliance with foreign regimes as a way to bypass the registration question.