OSC grants critical benchmark status to CDOR

The Ontario Securities Commission (OSC) has designated the Canadian Dollar Offered Rate (CDOR) as a critical benchmark under new rules designed to bring regulatory oversight to a long-overlooked area of the global financial system.

Refinitiv Benchmark Services (UK) Ltd. (RBSL) has been deemed a designated administrator of CDOR in a decision issued by the OSC.

The ruling requires that CDOR and RBSL comply with new rules, which took effect this year, that aim to ensure regulatory oversight for financial benchmarks that are considered critical to the Canadian financial system.

The Canadian Securities Administrators’ (CSA) rules in this area were developed in the wake of the LIBOR market manipulation scandal, which saw traders at global financial firms conspire to manipulate benchmark readings to benefit their own trading positions.

The episode exposed the lack of oversight for financial benchmarks that are at the core of global markets, given their use in a wide range of financial products.

In developing its rules, the CSA cited the growing importance of benchmarks to the Canadian capital markets as motivation for stepping up oversight, and “because misconduct involving benchmarks has led to significant negative impacts on capital markets.”

According to the OSC’s ruling, CDOR is currently used in a wide range of financial instruments that represent a combined notional value of $10.9 trillion.

CDOR also faces a variety of risks — including the risk of the benchmark itself being manipulated and its administrator facing an operational disruption — that could undermine confidence in the Canadian capital markets, harming markets and investors.

Given the benchmark’s critical role in the capital markets and the risks it faces, the OSC said that its staff believe CDOR and RBSL should be designated as a benchmark, and administrator, respectively.

Among other things, this subjects them to regulatory oversight, provides a legal basis for regulators to possibly take enforcement action for misconduct involving benchmarks, and aims to ensure that critical benchmarks remain viable.

Additionally, it brings Canadian rules in line with international regulatory expectations, which were also overhauled in the wake of the LIBOR scandal.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.