AMF revokes Quebec derivatives exemption and issues limited guidance on registration matters - market participants advised to take urgent action

August 14, 2015

The Autorité des marchés financiers (AMF), Quebec's financial services regulator, has issued a notice to firms which can no longer rely on the so-called blanket derivatives exemption under the Quebec Derivatives Act (QDA) that it expects applications for derivatives dealer registration and SRO membership to be submitted by September 4, 2015 i.e., prior to revocation effective September 5 of the AMF’s blanket derivatives exemption.  

As previously noted, Canadian and foreign market participants (including U.S. and other non-Canadian FCMs) which have relied on this exemption should be taking urgent action to review their current derivatives markets activities in Quebec and determine whether to register under the QDA, whether any other statutory relief may be available, whether there may be a basis to apply for focused discretionary relief under the QDA and whether any current client arrangements with Quebec counterparties should be discontinued by the September 5, 2015 deadline.  

Decision No. 2009-PDG-0007 (the Blanket Decision) was always intended by the AMF to provide transitional exemptive relief to the market in conjunction with the enactment of the QDA.  In 2010, the AMF had signaled its intention to give reasonable notice of any proposed changes to the exemption.  The revocation of the Blanket Decision nevertheless introduces fundamental changes to the regulatory framework governing longstanding trading relationships with Quebec institutional clients for the trading of listed futures and options.

As previously reported, last April, the AMF issued Decision No. 2015-PDG-0066 which provides for the revocation of the Blanket Decision effective September 5, 2015 (the Revocation Decision).

The Blanket Decision currently provides an exemption from the dealer and adviser registration requirements and the derivatives qualification requirement under the QDA in relation to trades in specified categories of derivatives previously regulated under the Quebec Securities Act prior to the enactment of the QDA. Among other conditions, the Blanket Decision requires that a person seeking the benefit of these exemptions “carry out their derivatives activities solely with accredited investors within the meaning and according to the conditions set forth in Regulation 45-106 [respecting Prospectus Exemptions]”.

Significantly, the revocation of the Blanket Decision does not affect the statutory exemption under Quebec derivatives legislation for OTC derivatives transactions with “accredited counterparties” undertaken under the terms of that exemption.

The AMF’s most recent notice dealing with the Revocation Decision calls on firms to submit an application on Form 33-109F6 Firm Registration and an application for membership with the Investment Industry Regulatory Organization of Canada (IIROC) by September 4 at the latest. The notice does not provide further guidance on how firms that are currently relying on the Blanket Exemption are expected to address the derivatives qualification requirement under the QDA.

The AMF further states that it “generally expects applicants to have completed the registration and membership application process within six months following the filing of applications”.

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