Republication of proposed amendments to the IIROC Rules relating to the futures segregation and portability customer protection regime

IIROC is republishing for comment revisions to the previously proposed amendments to the IIROC Rules (Proposed Amendments) relating to the futures segregation and portability customer protection regime. The Proposed Amendments are required to align our requirements with expected rule changes at the Canadian Derivatives Clearing Corporation (CDCC), intended to meet international standards for the protection of clients in the event of a default of a clearing participant. CDCC is proposing a new customer protection segregation and portability (Seg and Port) regime to comply with the international standards.

CDCC’s proposed Seg and Port regime is based on the use of a gross customer margin (GCM) model, and empowers CDCC to more rapidly port (transfer) the clients’ futures contract positions and related collateral from a clearing member that is in default to a different clearing member. The customer protection model introduced by the Seg and Port regime is separate from the IIROC-CIPF customer protection model, and therefore requires corresponding operational and reporting separation to address the two models.

In July 2021, IIROC Notice 21-0113 published with proposed amendments (2021 proposed amendments) to the IIROC Rules and Form 1 to reduce funding drain and restrict linkages between a Dealer Member’s (Dealer) futures business and its other business lines (e.g. securities business).  The Proposed Amendments supplement and clarify the 2021 proposed amendments by adding additional requirements to increase the likelihood for porting of client positions in a Dealer default scenario.

We developed the Proposed Amendments to address:

• the porting model proposed under CDCC’s Seg and Port regime, and
• comments received by the public in response to the 2021 proposed amendments.

The Proposed Amendments:

• require client acknowledgement of the porting disclosure document,
• require that Dealers maintain a client identification record for client accounts subject to the GCM model, and
• include non-material changes to the 2021 proposed amendments.

The Proposed Amendments for republication do not include any additional revisions to Form 1, beyond those already included in the 2021 proposed amendments.

Impacts

We anticipate the Proposed Amendments will benefit Dealers, clients and other stakeholders as they would:

• enhance segregation and portability protections offered by CDCC, while maintaining investor protection within the IIROC-CIPF regime, and
• align margin requirements with futures exchange and clearing corporation requirements for consistency among client types.