After stakeholder commentary indicated that revisions were needed to the margin requirements for structured products published by the Investment Industry Regulatory Organization of Canada (IIROC), one of the predecessor organizations making up the new Canadian Investment Regulatory Organization (CIRO), CIRO has republished the amendments that will allow qualifying structured products to be margin eligible.
The earlier IIROC rule “would allow the margining of structured products using either a conservative, fixed margin rate or an alternative component margining methodology,” they write. “Following concerns raised in letters received during the public comment period, revisions were made to the 2021 proposal.”
In 2021, the proposed amendments, later adopted in January 2023, required a fixed margin rate of 70 per cent for structured products that meet eligibility criteria. The public comment letters raised concern that the 70 per cent fixed margin rate was overly conservative. In response, the self-regulatory organization has come back with a proposal requiring a fixed margin rate of 50 per cent for principal at-risk notes and 30 per cent for principal protected notes that meet eligibility criteria.
“The main purpose of the proposed amendments is to set a margin methodology for structured products which considers the different risk profiles of the two main structured product types.”
The regulator says comments should be delivered in writing to CIRO, with a copy being sent to the Canadian Securities Administrators (CSA) by September 18, 2023.
