Canada: The Québec Derivatives Act Comes Into Force


On February 1, 2009, most of the provisions of the Québec Derivatives Act1 came into force by government decree. The Derivatives Regulation and three policy statements came into force on the same date.

This legislation results from a need identified by a group of specialists from the Autorité des marchés financiers (the "Authority") for modern legislation to provide oversight of the derivatives sector given the remarkable growth of derivatives transactions worldwide, an example of which is provided by the Montréal Exchange (a member of TMX Group), which is the Canadian national exchange for all derivatives trading and related products and the sole operator for trading of carbon and other emission credits in Canada.


The purpose of the Act is to govern derivatives offering and trading and related activities. The definition of a derivative is broad and includes any contract or instrument designated by regulation and further provides for future derivatives products consisting of any contract or instrument that is equivalent to a derivative on the basis of criteria determined by regulation. A derivative, as defined in the Act, includes an option, a swap, a futures contract or any other contract or instrument whose market price, value, or delivery or payment obligations are derived from, referenced to or based on an underlying interest. A derivative is either over-the-counter or standardized. A standardized derivative means a derivative that is traded on a published market, whose intrinsic characteristics are determined by that market and whose trade is cleared and settled by a clearing house, such as the CDCC.2 An over-the-counter derivative means any derivative other than a standardized derivative. For example, an institutional financial contract, such as an interest rate swap, is an over-the-counter derivative that involves, for example, a financial institution, a dealer, an adviser or an accredited counterparty. The Act defines accredited counterparty to include several categories of persons whose resources, situation or knowledge are such that the legislator has seen fit to exempt their transactions from certain provisions of the Act.3 The Regulation prescribes the minimum asset thresholds of an accredited counterparty while the Policy Statement respecting Accredited Counterparties is intended to specify certain components of the definition of an accredited counterparty and to clarify how to determine whether certain counterparties qualify. In addition, the Act provides that a dealer or an adviser who trades derivatives for a discretionary account is considered to be acting on behalf of an accredited counterparty.

Finally, the Act also governs hybrid products, meaning an instrument, contract or security that combines elements of derivatives and securities. Examples of such products include principal protected and non-principal protected notes whose return at maturity is linked to a portfolio of securities, an index or a basket of indexes. The Act provides a test to determine whether the Securities Act or the Derivatives Act applies to a given hybrid product and the Policy Statement respecting Hybrid Products explains how to apply the test. A hybrid product will be subject to the Derivatives Act unless it can be shown that the product is predominantly a security.4 The Policy Statement respecting Hybrid Products sets out some examples taken from SEDAR of hybrid products that will continue to be governed by the Securities Act, given that they are predominantly securities, such as principal protected equity index-linked "booster" notes and interest coupons and notes without coupons based on debt securities of an issuer.

The Act specifies that it does not apply to warrants, subscription rights, investment contracts or insurance or annuity contracts issued by an insurer or to options or other non-traded derivatives whose value is derived from, referenced to or based on the value or market price of a security and which are granted as compensation or as payment for a good or service. Thus, it is clear that securities issued pursuant to an issuer's compensation plan, such as options, stock appreciation rights, phantom stocks and deferred share units are not subject to the Act.


The Act provides that in order to carry on derivatives activities in Québec a regulated entity must be recognized by the Authority as an exchange, a published market, a clearing house, an information processor or a self-regulatory organization.

As is already the case for exchanges, clearing houses and self-regulatory organizations, the recognized regulated entity must make operating rules to govern its activities and the activities of its members or of market participants. It must also, in its internal by-laws, include appropriate procedures for making and amending those rules. In establishing its rules, the entity must consider the costs to its members and to market participants that may result from application of the rules. A recognized regulated entity must comply with certain other principles, in particular concerning cooperation with the Authority, governance and control.

What is novel is the self-certification process for rules and products. The Act provides that the regulated entity must file a notice together with the supporting documents with the Authority confirming the adoption or amendment in accordance with the Regulation of the operating rules established by the regulated entity. Under the self-certification process, the proposed rule or rule amendment must be submitted for public consultation for not less than 30 days. However, new derivatives that have not been listed or cleared by the entity are not subject to public consultation, primarily to avoid placing the entity at a competitive disadvantage.


Since activities or transactions involving over-the-counter derivatives between accredited counterparties benefit from an exemption and derivatives offered by regulated entities will be self-certified by those entities, this leaves only derivatives distributed by persons other than regulated entities and that are traded by persons who do not benefit from an exemption. For these persons, the Act provides a derivatives qualification and authorization procedure.

The trading of derivatives does not require the filing or delivery of a prospectus. However, a person who creates or markets a derivative must be qualified by the Authority. The conditions respecting qualification will eventually be included in the Regulation. The coming into force of the provisions relating to the authorization of derivatives and the obligations of qualified persons has been deferred since, under the leadership of the Authority, the Canadian Securities Administrators have launched initiatives to harmonize implementation of the derivatives framework in Canada. To address this situation, the Authority has issued a blanket decision5 granting a qualification exemption for persons creating or marketing derivatives to the extent that they carry on business only in derivatives currently governed by the Securities Act6 and with accredited investors within the meaning of and in accordance with the conditions set out in Regulation 45-106 respecting Registration and Prospectus exemptions.


The Act provides registration conditions for derivatives dealers and advisers, but specifies that securities dealers and advisers who are duly registered under the Securities Act are deemed to be registered under the Act provided they carry on derivatives activities and comply with the principles set out in the Act. The coming into force of the registration requirements has been deferred to take into account the reform of Regulation 31-103 respecting Registration Requirements which is still under way. In the meantime, since only dealers who are currently registered will be able to carry on derivatives activities, the Authority has preserved the status quo by issuing its blanket decision granting a registration exemption to dealers and advisers, as well as to any physical person acting on their behalf7 on the same conditions as the exemption for persons creating or marketing derivatives, i.e, such dealers and advisers must limit their derivatives activities to derivatives currently governed by the Securities Act and dealings with accredited investors within the meaning of Regulation 45-106 respecting Registration and Prospectus exemptions.


The Government of Québec has implemented a regulatory framework for derivatives that is unique in Canada and distinct from the regulatory framework for securities. The approach is broadly based on core principles that will permit adjustments to keep pace with market changes in this sector. Great efforts were made in drafting these regulatory materials to ensure compatibility inter alia with all relevant standards of the International Organization of Securities Commissions and the Bank for International Settlements.


1. S.Q. 2008, c.24).

2. The Canadian Derivatives Clearing Corporation (the "CDCC") is the issuer, clearing house, and guarantor of exchange-traded equity, index, and interest rate derivative contracts traded on the Montréal Exchange.

3. These categories include governments, public bodies, municipalities, financial institutions, securities dealers and advisers as well as their registered representatives, regulated pension funds, certain investment funds, registered charities that use the services of a securities adviser, entities held by accredited investors within the meaning of the Securities Act (or within the meaning of the definition provided in section 1.1 of Regulation 45-106 respecting Registration and Prospectus Exemptions), hedgers (a person who, because of the person's activities, is exposed to one or more risks attendant upon those activities and seeks to hedge that risk by engaging in a derivatives transaction or a series of derivatives transactions, where the underlying interest is the underlying interest directly associated with that risk or a related underlying interest), persons designated as such by the Autorité des marchés financiers and persons who have the requisite knowledge and experience to evaluate the proposed derivatives and who have net financial assets worth more than $10,000,000 in the case of entities and more than $5,000,000 in the case of individuals and who have sufficient assets to fulfill their obligations under the terms of their derivatives.

4. The conditions to consider include i) payment of the purchase price on delivery of the product, but the price may be paid in several payments, ii) the absence of an obligation to make any additional payment whatsoever during the life of the hybrid product or at maturity (the purchase of a security does not entail any payment other than the purchase price, whereas derivatives are subject to margin calls) and iii) the terms of the hybrid product do not include margin requirements based on the market value of its underlying interest.

5. Decision No. 2009-PDG-0007.

6. An option or a negotiable futures contract pertaining to securities, or a Treasury bond futures contract; an option on a commodity futures contract or financial instrument futures contract; and a commodity futures contract, a financial futures contract, a currency futures contract and a stock index futures contract.

7. These persons have currently received a registration exemption pursuant to section 2.3(1) of Regulation 45-106 respecting Registration and Prospectus Exemptions, provided their activities are limited to accredited investors. The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at

Ogilvy Renault is the International Legal Alliance's Canadian Gold Award winner for 2008 in M&A and Corporate Finance.

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 Video
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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