On October 15, 2014, at the request of the Autorité des marchés financiers ("AMF"), the Québec Minister of Finance approved changes to Regulation 91-507 respecting trade repositories and derivatives data reporting ("Regulation 91-507"). These amendments came into effect on October 31, 2014 and are set out in the Bulletin de l'Autorité des marchés financiers Regulation to amend Regulation 91-507 dated October 30, 2014 (the "Bulletin").
The changes come after the AMF:
- initially published for comments in July 2014 a version of proposed amendments to Regulation 91-507 which notably introduced in the reporting obligation hierarchy of Regulation 91-507 the concept of "Canadian financial institutions" (the "July Proposed Amendments"); and
- adopted on July 31, 2014 blanket decision 2014-PDG-0084 which was set to come into effect on October 31, 2014 (the "Blanket Decision").
Both the July Proposed Amendments and the Blanket Decision were required to harmonize the Québec derivatives trade reporting regime with legislative changes adopted earlier in the year by Ontario and Manitoba.
A "Canadian financial institution" is defined in Regulation 14-101 respecting Definitions as a bank, loan corporation, trust company, insurance company, treasury branch, credit union or caisse populaire that, in each case, is authorized to carry on business in Canada or a jurisdiction, or the Fédération des caisses Desjardins du Québec.
The purpose of the Blanket Decision was to: (i) eliminate the "fall back provision" contained in subsection 25(2) of Regulation 91-507 and (ii) allow the use of the reporting counterparty determination methodology developed by the International Swaps and Derivatives Association ("ISDA") by exempting the counterparty that is not the reporting counterparty under the ISDA methodology from the reporting obligation set out in Regulation 91-507.
Following comments received on the July Proposed Amendments, the AMF further amended its proposal, as set out in the Bulletin, as follows:
- It reversed the order in which Canadian financial institutions and persons subject to the dealer registration requirement are listed in the hierarchy of reporting obligation under section 25 of Regulation 91-507. Accordingly, where a Canadian financial institution transacts with a person subject to the dealer registration requirement, the latter is determined to be the reporting counterparty.
- It introduced the possibility for two counterparties at the same level in the hierarchy of reporting obligation to enter into an agreement whereby one of them undertakes to act as the reporting counterparty for the purposes of fulfilling the reporting obligation under Regulation 91-507.
- It introduced the concept of "reporting clearing house" in the hierarchy of reporting obligation under Regulation 91-507. Consequently, not only clearing houses recognized or exempted by the AMF as such, but also those not recognized or exempted, that submitted an undertaking accepted by the AMF to act as the reporting counterparty, are required to fulfill the reporting obligation under Regulation 91-507.
- Finally, the AMF removed from Regulation 91-507 the requirement for a local counterparty, where it transacts with a foreign entity that is the reporting counterparty, to submit the report under Regulation 91-507 when the reporting counterparty does not fulfill its reporting obligation (the "fall back provision").
In adopting the revisions to Regulation 91-507, the AMF explained that it is maintaining the provisions in the July Proposed Amendments to add "Canadian financial institutions," in order to ensure that the counterparty which is the most technologically sophisticated has the reporting obligation. In addition, as set out in the Bulletin, AMF added that permitting two counterparties at the same level in the hierarchy of reporting obligation to enter into an agreement whereby one of them undertakes to act as the reporting counterparty will allow market participants to determine the reporting counterparty in accordance with the method that best suits their situation, notably under the ISDA Canadian Representation Letter. The revised Companion Policy to Regulation 91-507 will now make a specific reference to the methodology developed by ISDA "as an example of an agreement whereby one of the counterparties undertakes to act as the reporting counterparty for the purposes of fulfilling the reporting obligation under Regulation 91-507."
The AMF also modified Regulation 91-507 to repeal Appendix B and modify subsection 26(5) so that the laws and regulations of jurisdictions considered to be equivalent are those appearing on a list prepared by the AMF, rather than those listed in Appendix B. Concurrently with the implementation of Regulation 91-507, the AMF adopted Decision 2014-PDG-0109 which determined that the trade reporting rules of the United States Commodity Futures Trading Commission and those of the European Securities and Markets Authority were equivalent to the requirements imposed under Regulation 91-507. The list prepared by the AMF can be found at www.lautorite.qc.ca/en/91-507-derivatives-qc-pro.html.
As a result of the implementation of the revisions to Regulation 91-507, the AMF revoked the Blanket Decision, which is now redundant as Regulation 91-507 exempts the reporting obligation for the local counterparty when transacting with a reporting counterparty that is a foreign entity that does not fulfill its reporting obligation.
With these latest changes, the Québec derivatives trade reporting regime is now more harmonized with the regime in place in both Ontario and Manitoba, with the distinction that the Québec regime introduced the concept of "Canadian financial institutions," which is a concept not adhered to in Ontario and Manitoba.
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