The Autorité des marchés financiers (AMF), Quebec's financial services regulator, published Decision No. 2015-PDG-0132 (the Extension Decision) yesterday (August 27, 2015). The Extension Decision (released in French only) postpones the effective date of the revocation of the so-called blanket derivatives exemption under the Quebec Derivatives Act (QDA) (the Blanket Decision) by nine months, from September 5, 2015 to June 5, 2016.
The Extension Decision will be particularly welcome news for foreign futures commission merchants (FCMs) which have been trading foreign and MX listed futures for Quebec institutional clients on the basis of various exemptions for a number of years and faced the prospect of having to shut down that business by September 4th. Buy-side institutional clients in the Quebec market will also have more breathing room to adapt their futures trading arrangements in light of decisions made by foreign FCMs to seek derivatives dealer registration in Quebec or discretionary exemptive relief, or to discontinue their current futures trading business in Quebec.
According to its terms, the Extension Decision is intended to give foreign derivatives market participants with trading relationships in the Quebec institutional market more time to register or to implement changes to their operational systems and procedures to support trading through Quebec-registered dealers.
The decision also notes the impact which revocation of the Blanket Decision on September 5 would have had on qualified Quebec-resident investors and on derivatives exchanges operating in Quebec (including specifically the Montréal Exchange), as well as concerns over the preparedness of certain market participants in dealing with the consequences of that revocation.
While the nine-month extension is good news, FCMs which will be seeking to register as derivatives dealers in Quebec will be expected to proceed expeditiously with their registration applications under the QDA and any associated exemption requests. The timeline for the registration process and for obtaining the required membership with the Investment Industry Regulatory Organization of Canada (IIROC) typically unfolds over the course of several months as applicants implement detailed proficiency, compliance, financial, operational and systems-related requirements and controls.
As noted in our previous posts, the revocation of the Blanket Decision will eliminate relief that is currently available under that exemption from the derivatives qualification requirement under the QDA for trades in non-Quebec listed futures. The Extension Decision does not address this issue but the nine-month extension also gives more time for possible legislative changes or replacement exemptions to be implemented to permit trading activities on global futures exchanges for Quebec “accredited counterparties” to continue uninterrupted.
As previously noted, the revocation of the Blanket Decision does not affect the statutory exemption under the QDA for OTC derivatives transactions with Quebec “accredited counterparties” undertaken under the terms of that exemption.
The Extension Decision also provides transitional exemptive relief from the requirement to deliver a risk acknowledgement form (RAF) to individual “accredited investors” in connection with transactions in the specified derivatives covered by the Blanket Decision. The RAF-related exemptive relief will also remain in place until June 5, 2016 when the Blanket Decision is to be revoked.