An Act respecting the transfer of securities and the establishment of security entitlements (the Quebec STA) received Royal Assent on June 20, 2008 and will come into force on January 1, 2009. The adopted legislation differs from Bill 47 as initially introduced in the National Assembly and upon which we commented in December 2007.
The Quebec STA seeks to implement the principles of the Uniform Securities Transfer Act, while harmonizing Québec's rules with the securities transfer legislation of other provinces. The concepts found in the Quebec STA follow the model of the USTA and Article 8 of the U.S. Uniform Commercial Code (including the companion provisions of UCC Article 9). The Quebec STA introduces or formalizes into Quebec law concepts such as adverse claims, securities intermediaries, security entitlements, entitlement holders, securities accounts, financial assets, control and protected purchasers.
The adoption of the Quebec STA is a highly important development for Quebec participants and their counterparties in the derivatives, structured finance and securities financing markets. As an example, the Quebec STA amends the Civil Code of Quebec provisions regarding the creation and publication (perfection and priority) of security interests in securities and security entitlements. Among its most important features are the following:
- The legislation will adopt a comprehensive definition of
"security" that includes not only publicly-traded
corporate debt and equity securities, but also government
securities, units or other equity securities issued by mutual
funds or trusts, equity securities of non-publicly traded
corporations and certain securities issued by
- The distinction between certificated and uncertificated
securities is established with different rules applicable to
transfer for each of these categories.
- It will adopt the concept of a security entitlement to
identify the interest of a holder in the indirect holding
system and the concept of a financial asset to help to define
the types of interests or property held in a securities
account and to which a security entitlement may relate.
- It includes in the concept of a financial asset certain
property held in a securities account, including the cash
balances in the account and instruments such as bills and
- A collateral taker may publish its security interest in a
security and a security entitlement by taking control of the
security or security entitlement, as the case may be. The
difficulties associated with having to publish by
registration with respect to book-based securities will no
- Control will include being the entitlement holder with
respect to the securities account as well as lesser forms of
control established by means of control agreements.
- Purchasers, including collateral takers, who obtain
control will generally have priority over secured creditors
who publish by any other means.
- Protections against adverse claims will also benefit
persons who acquire a security or a security entitlement for
value without notice of any adverse claim.
- The Civil Code amendments expressly allow a secured party
to rehypothecate collateral that are securities or security
The conflict of laws rules for indirectly held securities have been implemented in a liberal manner inasmuch as they allow the parties to designate the applicable jurisdiction. The Quebec STA does not adopt the Ontario STA concept of the securities intermediary's jurisdiction, however, the results of the new rules are very similar. The Quebec STA modifications to the Civil Code private international law rules provide for a series of alternative jurisdictions applied in the following order:
- The jurisdiction that is the governing law of the
securities account agreement, unless agreed to otherwise such
as in a control agreement,
- The jurisdiction of the office where the securities
account is maintained, if that office is designated in the
securities account agreement,
- The jurisdiction in which the office identified in an
account statement as the office where the account is located,
- The jurisdiction in which the decision-making centre of
the securities intermediary is located.
The Quebec STA amendments to the Civil Code indicate that an individual consumer will not be able to grant security over uncertificated securities or a security entitlement unless authorized by law. Regulations permitting such security are anticipated to be adopted and come into force at the same time as the Quebec STA.
Modifications to the Civil Code and the transitional provisions of the Quebec STA apply to security granted on other movable incorporeal (roughly intangible) property in addition to securities and security entitlements.
Market participants should contact a Stikeman Elliott legal adviser in order to discuss the transitional provisions of the Quebec STA and the necessity to review current and up-coming transactions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.