Canada: Quebec Derivatives Act Proclaimed In Force

No transitional relief issued to date

The Quebec Government has proclaimed the Derivatives Act (QDA) in force as of February 1, 2009. The Act had received royal assent on June 20, 2008.

The QDA is the first comprehensive standalone derivatives legislation to be adopted in Canada. The Act regulates both over-the-counter (OTC) and exchange-traded derivatives, subject to certain carve outs for OTC derivatives activities involving "accredited counterparties" and in other cases to be specified by regulation. An earlier article regarding the adoption of the QDA appears in the July 2008 issue of Stikeman Elliott's Structured Finance Update.

Highlights of the QDA

Some of the highlights of the new legislation are noted below:

The QDA will regulate trading and advisory activities with respect to all forms of "derivatives" (broadly defined), including both "standardized derivatives" and OTC derivatives.

Section 7 of the QDA sets out an important blanket exemption for OTC derivatives "involving accredited counterparties only or in any other cases specified by regulation" from the application of certain specified provisions, including the dealer and adviser registration requirements, the derivatives qualification procedure and certain limited procedural and enforcement-related provisions, except with respect to market manipulation and fraud (the OTC Derivatives Exemption).

Significantly, the QDA does not contain any exemption for exchange-traded derivatives activities equivalent to the OTC Derivatives Exemption or the "international dealer" and "international adviser" exemptions under Proposed NI 31-103 Registration Requirements. This is a significant departure from the existing "accredited investor" exemptions under Quebec securities legislation on the basis of which many Canadian, U.S. and other foreign dealers have historically engaged in exchange-traded derivatives activities outside of Quebec for Quebec-resident institutional investors.

Since the QDA is formulated as principles-based legislation and its key provisions cross-reference regulations which (for the most part) have yet to be published, the enactment of the legislation will raise a number of significant compliance issues, particularly given the absence of any transitional relief.

The situation will be particularly problematic for U.S. and other foreign FCMs and CTMs which have longstanding business with institutional clients in Quebec and have historically relied on the "accredited investor" exemption from the dealer and adviser registration requirement. The QDA sets out a fast-track registration mechanism for dealers and advisers registered under the Securities Act (Quebec). There are, however, no rules which would permit registration of foreign market participants or even Ontario limited market dealers.

Selected Key Issues

Key issues to consider include the following:

General Issues

  • The need for Canadian, U.S. and other market participants with derivatives activities in Quebec to review their product and service offerings into Quebec for compliance issues under the QDA;
  • The possible need to make consequential amendments to existing client agreements;

Exchange-traded Derivatives Activities

  • The need for Quebec registered dealers and advisers to transition their registrations under the QDA to cover exchange-traded derivatives activities;
  • In the case of previously exempt trading and advisory activity with qualified Quebec clients involving exchange traded futures and options, the urgent need to apply for discretionary relief under the QDA, failing which such activities may have to be discontinued;'
  • The possible need for exemptive relief to cover proprietary trading activities in exchange-traded derivatives, including proprietary activities of Quebec institutional investors on foreign derivatives exchanges and automated-trading systems;
  • The possible need for exemptive relief for fully registered Quebec dealers with discount brokerage activities;

OTC Derivatives Activities

  • The need for parties to OTC derivatives transactions between or including Quebec counterparties, to amend their representations under applicable ISDA Master Agreements to include reciprocal representations as to their status as "accredited counterparties" under the QDA in order to rely on the OTC Derivatives Exemption;
  • The need to obtain more detailed representations from certain types of counterparties recognized as "accredited counterparties" based on certain factual requirements of that definition (e.g., hedgers);
  • The need for enhanced KYC (Know Your Client) and suitability verifications for certain categories of "accredited counterparties" (e.g., parties who can establish in a "conclusive and verifiable manner" that they meet the specified knowledge and experience test, the minimum asset test and a net asset test with respect to repayment and delivery obligations (the minimum threshold for this third test has not been specified under the Derivatives Regulation (discussed below));

The Autorité des marchés financiers (the "AMF", Quebec's financial services regulator) had published a draft Derivatives Regulation (the Derivatives Regulation) for comment on October 3, 2008. The final form of the Derivatives Regulation was adopted on January 15, 2009.

The Derivatives Regulation covers a limited range of matters, including the minimum asset requirement for self-certified "accredited counterparties" (discussed above), the rules for self-certification of operating rules of "recognized regulated entities", and the prescribed information document to be delivered by derivatives dealers to their clients. The AMF is expected to publish companion policies on certain specific interpretation issues.

The QDA does not include any material transitional provisions, although the AMF is expected to issue guidance on the transitional application of the legislation. Canadian and foreign market participants should immediately consider the impact of the QDA to identify potential jurisdictional, legal and operational issues that may be raised by this legislation with respect to their activities in Quebec.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions