The Quebec Autorité des marchés financiers (AMF) has published, in English and French, an amended version (the Regulation Amendment) of the Regulation to amend Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting and the related Policy Statement (Regulation 91-507), which requires that all over-the-counter (OTC) derivatives transactions involving a local counterparty be reported to a recognized trade repository. The Regulation Amendment is expected to come into force by October 31, 2014, when the first derivatives trade reporting obligations for clearing houses, derivatives dealers and Canadian financial institutions become effective in Quebec.
The amendment proposals were first published by the AMF on July 3 and were followed by the issuance on July 31 of the AMF’s Decision No. 2014-PDG-0084 – Blanket decision regarding exemption from reporting obligation under Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (available in French only) (the AMF Blanket Decision). The stated purpose of the decision was to permit the use of the reporting counterparty determination methodology developed by the International Swaps and Derivatives Association, Inc. (ISDA) by exempting the counterparty that is not the reporting counterparty under that methodology from the reporting obligation under Regulation 91-507 under certain conditions. According to the AMF, the decision was intended to ensure that the implementation of Regulation 91-507 would be harmonized with similar amendments to the TR Rules in Ontario and Manitoba.
Although not expressly stated in the publication, the Regulation Amendment, once in force, would effectively supersede the AMF Blanket Decision.
Noteworthy changes include the following:
- The Regulation Amendment amends the definition of “reporting clearing house” to include, in addition to a recognized or exempt clearing house, a clearing house that has submitted an acceptable undertaking to the AMF to fulfill the reporting obligation under Regulation 91-507.(This change is intended to allow reporting by a clearing house which has not previously sought recognition or exemption in Quebec, because, for example, it has no Quebec-based clearing members.)
- The Regulation Amendment amends the reporting counterparty hierarchy to more clearly allocate the reporting obligation to “the counterparty to the transaction that is best suited to fulfill the reporting obligation” and to address some of the industry comments submitted in response to the July 3 proposal and the Blanket Decision. In particular, the amendments further clarify that:
- reporting obligations applicable to counterparties that are “subject to the registration requirement as a dealer under the Act” apply to a counterparty that engages or purports to engage in the business of derivatives trading, irrespective of whether the counterparty is registered or exempt from registration under the Derivatives Act (Quebec);
- where a counterparty is both a dealer and a “Canadian financial institution”, its status as a dealer prevails for purposes of that hierarchy;
- in the absence of any clear single reporting counterparty obligation, counterparties may agree as to which of them must act as the reporting counterparty. (The Policy Statement notes, by way of example, that counterparties may use the ISDA methodology developed for Canada in order to facilitate one-sided transaction reporting, but that methodology is not specifically mandated. The Regulation Amendment does not expressly provide that the non-reporting counterparty under any agreed methodology has no residual trade reporting obligation, although that would be a reasonable inference.)
- The Regulation Amendment eliminates the local counterparty fallback obligation which (unlike what was done to the Ontario and Manitoba TR Rules) had not been expressly repealed under the Blanket Decision and was the subject of buy-side industry concern.
The Regulation Amendment will be the subject of further commentary in this column. While the Regulation Amendment was intended to lead to the harmonization of Regulation 91-507 with the Ontario and Manitoba TR Rules, certain technical differences remain which will should be carefully considered by market participants on both sides of Quebec derivatives trades.
Finally, earlier today, the AMF issued a notice clarifying that the Amended Regulation was published on October 16 in the AMF Bulletin for information only. The official publication will be made on October 29 in the Gazette officielle of the Government of Quebec and in the October 30 edition of the AMF Bulletin. Staff also intends to publish a decision dealing with the equivalency of Regulation 91-507 in relation to the other TR Rules currently in effect.