International Bond Dealers Welcome in Canadian Fixed Income Market, Regulators Say

logo-cropped-11Regulators clarify rules regarding trading for international dealers in Canada

Source: Financial Post

The Canadian Securities Administrators says it’s willing to grant regulatory relief to ensure that international dealers can participate in the Canadian bond market.

The CSA’s statement is a response to a letter the Canadian Bond Investors’ Association sent to the Ontario Securities Commission and other regulators on Aug. 12. As reported in the Financial Post, the association expressed concern that two regulatory changes made in late 2015 have had the “unintended” consequence of choking off international dealers’ access to Canada’s fixed income securities markets.

Thursday, Canadian Securities Administrators, an umbrella group that sets nation-wide policies for the Canadian securities industry, issued a “staff notice” that clarifies the scope of one of those policies, a document called National Instrument 31-103, which sets the rules on when and how international dealers operating in Canada can trade foreign-currency dominated bonds issued by Canadian companies.

The CSA says the policy allows for international dealers to trade in the Canadian marketplace. And if there are instances where the wording of the stated policy isn’t clear enough, the staff notice “confirms the willingness of CSA Staff to recommend exemptive relief, if required, to facilitate greater access to global fixed income markets by Canadian issuers and Canadian institutional investors.”

“CSA Staff recognize that these are areas of concern for market participants, and have issued this notice to highlight our ongoing consideration of these issues,” said Louis Morisset, chair of the CSA and president and CEO of Quebec’s regulator, the Autorité des marchés financiers.

In the letter sent to regulators on Aug. 12, the CBIA said that two policies were making it difficult for international dealers to trade Canadian bonds. In addition to the problems with NI 31-103, the CBIA also complained of another policy introduced in the Fall of 2015, National Instrument 45-106, which deals with so-called “Maple Bonds” — Canadian-dollar denominated bonds issued by foreign borrowers in Canada’s domestic fixed-income market. Both policies, the letter said, are creating Canadian corporate bond markets that are less liquid, less fair and less efficient because they’ve caused several big international dealers to exit the Canadian market place.

In the staff notice issued Thursday, the CSA confirmed that it has been speaking with the CBIA about the actions taken by foreign dealers in relation to their participation in the Canadian fixed-income market. That said, the staff notice deals only with the NI 31-103 policy.

“We are sensitive to the concerns that a reduction in market liquidity can increase the costs and risks to Canadian asset managers and other institutional investors in terms of complying with their mandates, and to corporate and other debt issuers in obtaining necessary financing,” the notice states.

The CSA acknowledged the current wording of National Instrument 31-103 may affect the willingness of international dealers to participate in the Canadian market, and said it will provide exemptions where needed to bring them back.

“Accordingly, staff are publishing this guidance to confirm that staff are prepared to recommend exemptive relief to permit international dealers to deal with institutional investors to facilitate resales of such debt securities, whether to another institutional investor in Canada or to a person or company outside of Canada, provided such debt securities are not listed, quoted or traded on a marketplace in Canada, subject to conditions the CSA consider appropriate.”