Clearing agencies and clearing houses

A clearing agency is a person or company that facilitates the clearing and settlement of trades and is regulated under section 21.2 of Ontario’s Securities Act.

A clearing house is an entity through which trades in contracts made on a commodity futures exchange are cleared. A clearing house may be part of a commodity futures exchange or may be a separate entity. Clearing houses are regulated under Ontario’s Commodity Futures Act.

With respect to securities, a clearing agency:

  • acts as an intermediary in paying funds and delivering securities
  • provides centralized facilities for clearing trades and comparing trade settlement data
  • provides centralized facilities as a depository of securities

With respect to derivatives, a clearing house provides centralized facilities for the clearing and settlement of trades that:

  • enables each party to the contract to substitute, through novation or otherwise, the credit of the clearing house for the credit of the parties
  • arranges or provides multilateral settlement or netting
  • provides clearing services that mutualize or transfer among participants credit risk

How to become recognized as a clearing agency or clearing house

Application

To operate a clearing agency in Ontario, a person or company must apply to the OSC for one of the following:

A person or company may apply to the OSC for recognition as a clearing house under the Ontario Commodity Futures Act.

An application for recognition as a clearing agency or for an exemption from the recognition requirements should be filed through the OSC's electronic filing portal.

Review

The OSC will assess the application for recognition or exemption as a clearing agency in accordance with National Instrument 24-102 Clearing Agency Requirements (NI 24-102) and will evaluate whether the clearing agency meets the rule’s criteria in the following areas:

  • governance
  • rules and rulemaking
  • systems and technology
  • access standards
  • participant-related fees
  • financial viability and reporting
  • risk management
  • operational reliability
  • protection of assets
  • outsourcing
  • information sharing and regulatory cooperation

Compliance

A clearing agency must comply with the relevant requirements of NI 24-102, as well as any terms and conditions in its recognition or exemption order. NI 24-102 adopts international standards set out in the April 2012 report Principles for Financial Market Infrastructures published by the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).

Regulatory partnerships

The OSC and a number of other Canadian securities regulators entered into a Memorandum of Understanding (MOU) respecting the oversight of clearing agencies, trade repositories and matching service utilities. The MOU outlines the manner in which the jurisdictions cooperate and coordinate in their oversight of these entities in order to promote the entities’ safety and efficiency, and to contribute to the management of systemic risk.

The OSC has also entered into an MOU with the Bank of Canada, Quebec’s Autorité des marchés financiers and the B.C. Securities Commission to promote the safety and efficiency of clearing and settlement systems. The MOU enhances regulatory cooperation and the oversight of commonly regulated clearing and settlement systems to ensure consistency and reduce regulatory burden. The MOU also promotes information sharing.

Recognized clearing agencies

Clearing agencies are central to the functioning of Ontario capital markets. The following is a list of clearing agencies recognized by the OSC for operation in Ontario:

  • Canadian Depository for Securities Limited (CDS)
  • Canadian Derivatives Clearing Corporation (CDCC)
  • FundSERV Inc.
  • LCH. Limited

Exempted clearing agencies

In general, clearing agencies which are exempted from recognition are:

  • based in another country, with limited operations in Ontario
  • regulated by a competent regulatory authority that has an information-sharing agreement with the OSC
  • subject to a regulatory regime comparable to that of the OSC

The following is a list of clearing agencies that the OSC has authorized to operate in Ontario on an exempt basis:

  • Chicago Mercantile Exchange Inc.
  • CLS Bank International 
  • DTCC ITP Matching (Canada) Limited (formerly Omgeo Canada Matching Ltd.)
  • Fixed Income Clearing Corporation
  • Eurex Clearing AG 
  • ICE Clear Credit LLC 
  • ICE NGX
  • LCH SA
  • LME Clear Ltd.
  • Nodal Clear LLC 
  • Options Clearing Corporation 
  • SS&C Technologies Canada Corp. 

Clearing agencies no longer regulated by the OSC

  • CME Clearing Europe Limited
  • ICE Clear Canada, Inc.
  • LCH. Clearnet LLC