Amendments regarding margin requirements for structured products

1. Background

A structured product is a market-linked investment that is packaged as an alternative to a direct investment in the underlying security or basket of securities. There are two main types of structured products:

• Principal protected notes (PPNs)
• Principal at risk notes (PARs)

The Amendments formally recognize a margin methodology for structured products as the existing IDPC Rules did not specifically address margin requirements for these products.

We published for comment proposed amendments in Notice 21-0032. After the feedback received and further analysis, we republished the proposed amendments for comment in Bulletin 23-0095.

2. Comments received

We received one comment letter in response to Bulletin 23-0095 expressing support for the Amendments. We have not provided a response to the comment letter since the commenter has no specific concerns or questions on the Amendments.

3. The Amendments

The Amendments:

• require a fixed margin rate of 50% for principal at risk notes and 30% for principal protected notes that meet eligibility criteria
• clarify the requirements for reporting concentration exposures in structured products on Form 1
• allow an alternative component-based margin methodology for structured products with a principal protection component.

The text of the Amendments to IDPC Rules and IDPC Form 1 is set out in Appendix B and a blackline of the changes is set out in Appendix A.

3.1 Additional non-material changes

The Amendments include the addition of a new subsection within section 5130 which requires subsequent rule subsections to be renumbered. We have made additional non-material changes to amend subsections 5360(2), 5360(3) and 5775(1) to update rule references for the renumbered subsections as shown in Amendment 2 of Appendix A and B.

4. Implementation

The Amendments are effective immediately.

5. Appendices

Appendix A – Blackline copy of Amendments to IDPC Rules and Form 1

Appendix B – Clean copy of Amendments to IDPC Rules and Form 1