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Canadian Securities Regulatory Monitor

News and Insight

Targeted Reforms Update – Most regulators abandon the “Best Interest Standard” but propose to proceed with refined “Targeted Reforms”

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, OSC, Registrants
Cristian BlidariuMichael NicholasSean SadlerRene Sorell

The Canadian Securities Administrators (CSA) issued CSA Staff Notice 33-319 (the Notice) to provide an update on the “Best Interest Standard” and “Targeted Reforms” proposed last year in an important CSA Consultation Paper that we discussed in a previous post.

Most regulators have decided to abandon the Best Interest Standard which would have introduced a “client best interest” standard against which all registrant-client obligations would be interpreted.

The CSA will still proceed with a refined set of Targeted Reforms. Even in the absence of a Best Interest Standard in most jurisdictions, the Targeted Reforms would nonetheless significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants), including in the following areas:

  • Conflicts of interest
  • Know you client procedures (KYC)
  • Know your product procedures (KYP)
  • Suitability
  • Relationship disclosure
  • Proficiency
  • Business titles
  • Use of professional designations
  • Role of the ultimate designated person and chief compliance officer
  • Statutory fiduciary duty when client grants Registrant discretionary authority.

The Notice provides the following key updates:

1. Best Interest Standard. Only Ontario and New Brunswick will continue to consider the Best Interest Standard. The other provinces will either no longer consider it at all (in the case of B.C., Alberta, Manitoba and Québec) or have concerns with its current form and will wait for Ontario and New Brunswick to complete their work before they decide whether to reconsider a Best Interest Standard (in the case of Nova Scotia and Saskatchewan).

2. Targeted Reforms. All CSA members have agreed to proceed with the Targeted Reforms, but will reconsider and revise some of the individual Targeted Reforms which were viewed by some stakeholders as impractical or overly prescriptive, including the following Targeted Reforms:

  • the requirement to collect certain tax information as part of the KYC process
  • the requirement to conduct a market investigation of ‎a reasonable universe of products as part of the KYP process
  • differentiation of KYP requirements based on whether a firm offers (i) only proprietary products or (ii) proprietary and non-proprietary products, or non-proprietary only
  • scaling back the scope of the proposed requirement ‎for Registrants to have understood and considered various aspects of every single product on their firm’s product list
  • the default requirement to conduct a suitability assessment at least every 12 months absent a triggering event
  • the requirement to perform a suitability assessment if there is a significant market event affecting the capital markets the client is exposed to
  • wording changes will be considered to the proposal that a registrant must ensure a recommendation to a client is “most likely to achieve a client’s investment needs and objectives, given the client’s financial circumstances and risk profile, based on a review of the structure, features, product strategy, costs and risks of the products on the firm’s product shelf”
  • proposed proficiency reforms may require a long-term project that will be advanced through a separate CSA project.

The Notice acknowledges concerns about a “one-size-fits-all” approach and the CSA will incorporate the concept of scalability going forward, where appropriate. For example, some of the proposals related to suitability or KYC might be made scalable based on the nature of the relationship between the client and the registrant.

3. Timing of Next Steps. Detailed notices will be published with draft proposed rule amendments and draft guidance. The work on Targeted Reforms will be prioritized over the 2017-2018 fiscal year. Ontario and New Brunswick will continue to undertake further work on the Best Interest Standard on a parallel path.

It is unclear how Ontario and New Brunswick’s support for the Best Interest Standard will be reflected once the Cooperative Capital Markets Regulatory System (CCMRS) becomes operational, possibly next year. British Columbia and Saskatchewan are also CCMRS members. The CCMRS draft uniform Capital Markets Act published for comment in 2015 revised the standard for Registrants to deal fairly, honestly and in good faith with clients to include “other such standards as may be prescribed”, apparently as a regulation-making placeholder in respect of the possible future introduction of a Best Interest Standard.

4. Coordination with Embedded Commissions Project. Given their interrelatedness, the CSA will continue to coordinate policy considerations on the Best Interest Standard and the Targeted Reforms initiative with the separate CSA project considering the discontinuation of certain investment fund embedded commissions.

We invite you to contact a member of our Securities Regulation and Investment Products Group should you have any questions regarding how the Targeted Reforms or Best Interest Standard may affect your business.

Quebec AMF Fintech Initiatives: Fintech Lab and Partnership with R3

Posted in AMF, Fintech
Laure FouinCharles-Antoine SouliereCharles-Alexandre Jobin

On April 27, 2017, the Autorité des marchés financiers (AMF) announced the creation of the Fintech Lab: a think tank equipped with exploration tools aimed at exploring the current and potential applications of new technologies by entities regulated by the AMF (e.g. financial cooperatives and other deposit-taking institutions, insurers, and market infrastructures such as stock exchanges) or in connection with activities regulated by the AMF (e.g. the business of trading in securities or advising in relation to trading in securities) and studying new technologies. Continue Reading

TSX Releases Guidance with respect to Majority Voting Policies and Advance Notice Policies

Posted in Continuous and Timely Disclosure, Industry News, Uncategorized
Nicole RumbleDavid E. Woollcombe

On March 9, 2017, Toronto Stock Exchange issued Staff Notice 2017‑001 (the “Notice”), which provides guidance with respect to the TSX’s majority voting requirements for the election of directors (“Majority Voting Requirements”) and the use of advance notice policies and by-laws.

This guidance will be noteworthy for TSX‑listed companies whose majority voting policy and/or advance notice policy or by‑law has not yet been subject to review by the TSX. Such companies should assess their majority voting policy and any advance notice policy or by-law against the guidance in the Notice as soon as possible so that any necessary amendments can be effected in a timely fashion.

  1. Majority Voting Requirements

The TSX requires that each director of a TSX‑listed issuer be elected by a majority of the votes cast with respect to his or her election, other than at contested meetings. To comply with the Majority Voting Requirements, issuers must adopt a majority voting policy, unless they otherwise satisfy the Majority Voting Requirements in a manner acceptable to the TSX.

The Notice indicates that the TSX recently conducted a review of 200 randomly selected majority voting policies (the “Reviewed Policies”) of TSX‑listed issuers for the purpose of evaluating compliance with the Majority Voting Requirements. As a result of such review and based on the TSX’s experience from the 2015 and 2016 proxy seasons, the TSX identified: (i) several deficiencies in the Reviewed Policies; and (ii) discrepancies between the Reviewed Policies and the policy objectives of the Majority Voting Requirements.

Mandatory Resignation

The review identified that certain Reviewed Policies did not require a director to tender his or her resignation if he or she is not elected by at least a majority of votes cast with respect to his or her election. The Notice confirms that issuers are expected to ensure that their majority voting policies have the effect of requiring any director not elected by at least a majority of the votes cast (each, a “Subject Director”) to tender his or her resignation immediately, absent exceptional circumstances.

Importantly, the Notice also highlights the fact that a refusal by a Subject Director to tender his or her resignation may cause the TSX to review the director’s fitness to be a director, officer or other insider of TSX‑listed issuers.

Timing of Resignation

The review identified that certain Reviewed Policies: (i) did not provide a time frame for the board to render a decision as to whether or not to accept a resignation; or (ii) provided for a time frame for such a decision that was outside the 90 day period permitted by the TSX. The Notice confirms that the TSX expects each issuer’s majority voting policy to contain a provision setting out a time period for its board to make a determination with respect to a resignation within the allotted 90 day period.

Board Determination

The Notice also addresses majority voting policies that delegate consideration of the resignation of a Subject Director to a committee of the board and specifically state that such committee is expected to recommend that the board accept the resignation of the Subject Director, absent exceptional circumstances. The Notice confirms that majority voting policies that provide for such practice are permitted, but must explicitly state that the board will accept the resignation absent exceptional circumstances.

Exceptional Circumstances

The Notice indicates that when a board determines not to accept a Subject Director’s resignation, the TSX will contact the issuer to discuss the applicable exceptional circumstances, including the steps the board is taking to prepare for the next director election. Moreover, the Notice states that exceptional circumstances are expected to meet a high threshold and provides the following examples of exceptional circumstances:

  • the issuer would not be compliant with corporate or securities law requirements, applicable regulations or commercial agreements regarding the composition of the board as a result of accepting the Subject Director’s resignation;
  • the Subject Director is a key member of an established, active Special Committee which has a defined term or mandate (such as a strategic review) and accepting the resignation of such Subject Director would jeopardize the achievement of the Special Committee’s mandate; or
  • majority voting was used for a purpose inconsistent with the policy objectives of the Majority Voting Requirements.

The Notice also confirms that the TSX generally does not consider the following factors to constitute exceptional circumstances:

  • the director’s length of service;
  • the director’s qualifications;
  • the director’s attendance at meetings;
  • the director’s experience; or
  • the director’s contributions to the issuer.

Notably, the Notice also remarks that the TSX expects that an exceptional circumstance is not a recurring event and that an issuer that determines not to accept the resignation of a Subject Director based on an exceptional circumstance one year is expected to take active steps to remedy the exceptional circumstance for the next year.

Participation by Subject Director

The Majority Voting Requirements provide that a Subject Director who tenders a resignation may not participate in any meeting of the board or any sub-committee of the board at which the resignation is considered. The Notice states that the TSX considers the phrase “participate in any meeting” to include attendance at the meeting. Consequently, a Subject Director must not attend any part of a meeting of the board or any sub‑committee of the board at which his or her resignation is discussed or a related resolution is voted upon. If the Subject Director must attend the meeting in order to satisfy quorum requirements, then the Subject Director must not speak or otherwise participate in any part of the meeting where his or her resignation is discussed or a related resolution is voted upon.

Public Disclosure

The Notice indicates that very few of the Reviewed Policies contained the requirement to provide a copy of the news release with the board’s decision to the TSX. The Notice confirms that the requirement to provide a copy of the news release with the board’s decision to the TSX may be included in the majority voting policy or another policy or procedure in order to ensure that the press release is provided to the TSX. The Notice reminds issuers that any such news release must fully state the reasons for not accepting the Subject Director’s resignation to enable security holders to understand the considerations of the board.

Circumventing the Majority Voting Requirements

The Notice reveals that the TSX found that certain Reviewed Policies contained additional requirements that may have the effect of evading the policy objectives of the Majority Voting Requirements. The Notice flags the following provisions as ones that the TSX considers to be incompatible with the Majority Voting Requirements or the policy objectives thereof:

  • a higher quorum requirement for the election of directors compared to the quorum requirement for other resolutions; and
  • majority voting policies that exclude certain nominees, such as insider nominees or incumbent directors from certain requirements or that otherwise treat certain nominees more favourably than other nominees.

TSX‑listed issuers should evaluate their majority voting policies in light of the Notice and make any necessary amendments, as soon as practicable and sufficiently in advance of the next meeting of security holders at which directors are elected, to allow nominees to comply. The timing is of particular importance because the TSX is currently conducting another review of majority voting policies adopted by TSX‑listed issuers to assess compliance with the Majority Voting Requirements.

  1. Advance Notice Policies

Many TSX-listed issuers have chosen to adopt policies and by-laws prescribing timeframes and procedures to nominate directors for election to the board (“Advance Notice Policies”), generally on the basis that nominating directors for election to a board during or shortly before a meeting of security holders may be viewed as unreasonable since it may not provide security holders with sufficient time to evaluate the new information and it may be unexpected by security holders, particularly those who have granted discretionary authority to a proxy. The TSX has previously acknowledged that issuers require adequate notice of nominees for election to the board and, accordingly, that Advance Notice Policies may be legitimately used to preserve security holder interests, provided such policies do not unreasonably limit the ability of security holders to nominate directors for election to the board.

The Notice identifies that the TSX randomly selected 25 Advance Notice Policies adopted by TSX-listed issuers for review. In its review and based on its experience from past proxy seasons, the TSX identified a number of concerns in connection with the use of Advance Notice Policies. The guidance in the Notice is helpful in clarifying the TSX’s expectations with respect to the use of Advance Notice Policies.

The Notice confirms that the TSX believes that the current guidelines published by Glass, Lewis & Co., LLC and Institutional Shareholder Services Inc. for Canada regarding notification periods prior to a meeting of security holders (whether annual or special) to nominate directors (each, a “Notice Period”) in Advance Notice Policies are generally acceptable.

The Notice presents the following examples as provisions that the TSX considers to be consistent with the policy objectives of its director election requirements:

  • in the case of an annual and general meeting of security holders at which directors are to be elected (“AGM”), a Notice Period ending at least 30 days before the meeting date;
  • if the AGM is to be held on a date that is less than 50 days after the first public announcement of the date of the AGM, a Notice Period of at least 10 days following the notice date for the meeting;
  • in the case of a special meeting called for the purpose of electing directors (whether or not also called for other purposes), a Notice Period of at least 15 days following the notice date for the meeting; and
  • requirements and procedures imposed on a nominating security holder or a nominee director that are not more onerous than requirements for management and board nominees.

The Notice highlights the following as examples of clauses in Advance Notice Policies that are viewed by TSX as being incompatible with its policy objectives:

  • requiring the nominating security holder to be present at the meeting at which his or her nominee is standing for election for the nomination to be accepted, notwithstanding the number of votes obtained by such nominee;
  • requiring the nominating security holder to provide unduly burdensome or unnecessary disclosure, such as the dates when such security holder acquired securities of the issuer or other information that is irrelevant for security holders to make an informed decision with respect to director elections;
  • requiring the nominee or nominating security holder to complete a TSX Reporting Form 4 — Personal Information Form (or its equivalent) for the nomination to be accepted, unless a PIF is also required by the issuer from management and board nominees; and
  • requiring the nominating security holder to complete a questionnaire, make representations, submit an agreement or provide a written consent in the form specified by the issuer, unless such questionnaire, representations, agreement or written consent is also required by the issuer from management and board nominees.

The Notice encourages issuers to discuss novel provisions with the TSX prior to adoption.

The Notice confirms that the TSX expects that an Advance Notice Policy will give the board the discretion to waive any provision of the Advance Notice Policy. Additionally, the TSX expects issuers to adopt Advance Notice Policies sufficiently in advance of meetings of security holders at which directors are to be elected in order to allow security holders to comply with the Notice Periods.

TSX‑listed issuers should evaluate their Advance Notice Policies in light of the Notice. Advance Notice Policies that are not compliant should be amended as soon as practicable and sufficiently in advance of the next meeting of security holders at which directors are elected.

If you have questions regarding the Majority Voting Requirements, the Advance Notice Policies or the guidance in the Notice, please contact us.

Canadian Securities Administrators Publish Report and Guidelines on Social Media Use by Reporting Issuers

Posted in Continuous and Timely Disclosure, CSA, Industry News
Claire GowdyDavid E. Woollcombe

On March 9, 2016, the Canadian Securities Administrators published CSA Staff Notice 51-348 (the “Notice”) which reports on a study of social media use by reporting issuers and provides guidance for public companies who engage with investors and other stakeholders using those channels.

Scope of Review

The review was conducted by securities regulatory authorities in Alberta, Ontario and Quebec and surveyed the social media activity of 111 reporting issuers of varying sizes and industries listed on the TSX, TSXV and CSE. The review included information on websites such as Facebook, Twitter, Instagram, LinkedIn, YouTube and others, as well as the disclosure on the issuers’ websites and blogs.


The reviewers observed that only 23% of the issuers had developed specific policies and procedures to promote compliance with securities law in relation to their use of social media. Correspondingly, the study found that the social media activity of 30% of issuers raised securities law concerns. Subsequent to the review, 25% of reporting issuers either filed clarifying disclosure, edited or removed disclosure or made prospective commitments to improve disclosure as a result of the review. Further action may be taken by the regulators in relation to a handful of more serious deficiencies. Continue Reading

Blockchain applications may be caught by Ontario’s securities law

Posted in Fintech, Industry News, OSC
Shane C. D'SouzaRene Sorell

The Ontario Securities Commission (OSC) has issued a press release advising stakeholders that Ontario securities law may apply to any use of distributed ledger technologies (DLT), such as blockchain, as part of financial products or service offerings.

The OSC emphasized that it is keen to support the innovative potential of DLT because, among other things, DLT has the potential to increase transparency and efficiencies in the capital markets. However, because of DLT’s novelty, the OSC encourages business to speak to the OSC about securities law and investor protection requirements that may apply.

The OSC has cautioned that “[p]roducts or other assets that are tracked and traded as part of a distributed ledger may be securities, even if they do not represent shares of a company or ownership of an entity.” In other words, Ontario’s securities law may apply to initial coin or token offerings and DLT-based virtual currencies.

If you are considering capital market applications of DLT/blockchain, please contact the authors of this post to discuss whether Ontario’s securities law may apply.

For more information about our firm’s Fintech expertise, please see our Fintech group’s page.

CSA’s 2016 Enforcement Report: insights into securities regulatory activity

Posted in AMF, CSA, Enforcement, Litigation, OSC
Shane C. D'SouzaRene SorellCristian Blidariu

The Canadian Securities Administrators (CSA) recently released its annual report on the enforcement activities of its members. The CSA is an umbrella group of Canada’s securities regulators.

Summary of 2016 Results[1]

Generally, enforcement and pre-enforcement activity, and monetary sanctions imposed by regulators decreased compared to 2015 but were higher than they were in 2014.

2016 2015 2014
Monetary Sanctions $62,148,866 $138,298,796 $58,239,156
Restitution, Compensation and Disgorgement $349,654,379 $111,651,429 $65,717,760
Commenced Cases (by notice of hearing, statement of allegations, or sworn Information) 56 108 105
Individual Respondents 72 165 189
Company Respondents 72 101 92
Most prevalent violations Illegal Distributions
Illegal Distributions
Illegal Distributions
Concluded Cases (by final decision or a settlement) 109 145 105
Individual Respondents 168 253 149
Company Respondents 94 117 106
Most prevalent violations Illegal Distributions
Illegal Distributions
Illegal Distributions
Preventative Measures (Asset Freeze Orders) 45 52 35
Reciprocal Orders 63 96 58


Increase in cases concluded by SROs

Despite the decrease is cases concluded by CSA members, the three key self-regulatory organizations (Investment Industry Regulatory Organization of Canada, the Chambre de la sécurité financière and the Mutual Fund Dealers Association of Canada) concluded more cases in 2016 than in previous years (2016: 159; 2015: 139; 2014: 112).

Collaborative measures

The CSA report highlighted measures that had been implemented in the last year to increase collaboration between its members and boost their inter-jurisdictional reach, including:

  • CSA members were making increased efforts to collaborate closely with Canadian law enforcement agencies.
  • The Alberta Securities Commission (ASC) and RCMP announced a Joint Serious offences Team, following similar initiatives in Ontario and Quebec.
  • Amendments to the securities legislation in Quebec, Nova Scotia and New Brunswick now provide for automatic effect in those provinces of new orders and settlement agreements made by other CSA members. In 2015, Alberta made a similar change to its securities legislation. As a result, any order imposing sanctions, conditions, restrictions or requirements issued by another CSA regulator or securities administrative tribunal based on a finding or admission of a contravention of securities legislation is now automatically reciprocated in Alberta, New Brunswick, Nova Scotia and Québec.

Impact of OSC’s No-Contest Settlement Program

The OSC’s recently implemented no-contest settlements program resulted in approximately $320 million being returned to investors in 2016 from 4 settlements — almost three times the amounts that were returned to investors for various offences in 2015 in all CSA member jurisdictions.

Comments on success of whistleblower programs

The CSA reported that the whistleblower programs implemented by the OSC and the AMF “have already shown signs of early success” and had “attracted several credible tips.” The ASC recently announced that it is considering implementing a whistleblower program to encourage tipsters to expose wrongdoing in the province’s capital markets. Unlike the OSC’s program, but like the AMF’s, the ASC is not considering rewarding whistleblowers financially.


[1] The numbers in this table and in this article have been taken from the CSA’s 2016 Enforcement Report, which can be found at http://www.csasanctions.ca/CSA_AnnualReport2016_English_Final.pdf

Initiatives des Autorités canadiennes en valeurs mobilières sur les Fintech : bac à sable réglementaire et coopération

Posted in CSA, OSC
Charles MorganLaure Fouin

Le 23 février 2017, les Autorités canadiennes en valeurs mobilières (ACVM) ont annoncé le lancement d’un bac à sable réglementaire. L’objectif du bac à sable réglementaire est d’appuyer les Fintech en leur permettant de faire une demande à l’organisme de réglementation compétent afin de bénéficier d’une approche plus adaptée en matière de réglementation. Cette approche doit faciliter l’utilisation d’applications, de produits et de services novateurs chez les entreprises au Canada, tout en protégeant adéquatement les investisseurs.

Par conséquent, les ACVM évalueront au cas par cas le bien-fondé de chaque modèle et autoriseront les entreprises innovantes à s’inscrire, ou leur accorderont des dispenses de certaines obligations, pour qu’elles puissent tester leurs produits et services sur l’ensemble du marché canadien.

Parmi les modèles d’entreprise admissibles au bac à sable réglementaire des ACVM, on compte : Continue Reading

Canadian Securities Administrators Fintech Initiatives: Regulatory Sandbox and Co-Operation

Posted in CSA, OSC
Ana BadourLaure Fouin

On February 23, 2017, the Canadian Securities Administrators (CSA) announced the launch of a regulatory sandbox. A regulatory sandbox aims at supporting Fintech businesses by allowing them to apply to the regulator to benefit from a more tailored approach to regulation that balances the need to facilitate the use of innovative products, services and applications all across Canada with appropriate investor protection.

As a result, the CSA will assess the merits of each business model, on a case-by-case basis, and allow innovative businesses to register or grant them relief from certain requirements to permit them to test their products and services throughout the Canadian market.

Examples of potential business models eligible to the CSA regulatory sandbox are: Continue Reading

Modifications proposées au Règlement sur les instruments dérivés du Québec

Posted in AMF
Laure FouinSonia StruthersKonstantin Sobolevski

Le 1er février 2017, l’Autorité des marchés financiers (AMF) a publié pour consultation des modifications proposées (Modifications proposées) au Règlement sur les instruments dérivés du Québec.

Les Modifications proposées portent sur trois questions : l’exigence de transmettre des informations relativement aux opérateurs en couverture, l’interdiction d’offrir des options binaires aux personnes physiques et l’obligation pour les personnes agrées de présenter leurs états financiers.

Exigence de transmettre des informations relativement aux opérateurs en couverture

La Loi sur les instruments dérivés du Québec prévoit une exemption de presque toutes ses exigences lorsque des contreparties qualifiées participent à des activités ou à des opérations sur dérivés de gré à gré. Selon la Loi, les contreparties qualifiées comprennent, en général, non seulement les investisseurs institutionnels, comme les caisses de retraite et les institutions financières, mais aussi les sociétés détenant un actif net minimal de plus de 10 M$ et les personnes physiques détenant un actif net minimal de plus de 5 M$ qui répondent à d’autres conditions prescrites. La Loi précise qu’un opérateur en couverture[1] est aussi une contrepartie qualifiée, mais la définition est fondée sur la nature de ses activités.

Les Modifications proposées imposent l’obligation de transmettre des informations lorsqu’une contrepartie qualifiée réalise une opération sur dérivés de gré à gré avec un opérateur en couverture qui ne se qualifie pas comme contrepartie qualifiée selon un autre volet de la définition de contrepartie qualifiée fournie dans la Loi. Au lieu de l’attestation initialement proposée par l’AMF en janvier 2016, les Modifications proposées obligent la contrepartie qualifiée à transmettre à l’AMF, tous les trimestres (dans les 30 jours suivant la fin du trimestre au cours duquel l’opération a été réalisée), les informations suivantes :

  • les identifiants pour les entités juridiques attribués à la contrepartie qualifiée et à l’opérateur en couverture;
  • si l’opérateur en couverture n’est pas admissible à l’attribution d’un identifiant pour les entités juridiques, le nom et l’adresse de l’opérateur en couverture ainsi que l’identifiant utilisé par la contrepartie qualifiée afin d’identifier l’opérateur en couverture;
  • l’identifiant unique d’opération attribué à l’opération par le référentiel central.

Prohibition des options binaires

Les Modifications proposées interdisent l’offre d’options binaires aux personnes physiques, sauf si elle est expressément autorisée par l’AMF. L’AMF énonce dans l’avis accompagnant les Modifications proposées que cette interdiction est justifiée en raison du nombre croissant de plaintes reçues relatives à la négociation des options binaires, qui sont offertes illégalement à une clientèle québécoise de détail par l’entremise de plateformes de négociation en ligne non autorisées. Ces options, aussi appelées options « tout ou rien », ont une échéance très courte (inférieure à 30 jours) et donnent droit au titulaire à un rendement fixe ou à un rendement nul, selon que le sous-jacent satisfait ou non à une condition prédéterminée, sans que le titulaire ait la possibilité d’acquérir ou de vendre le sous-jacent.

Obligation de présentation des états financiers pour les personnes agréées

Les personnes agréées, c’est-à-dire les personnes qui créent ou mettent en marché des dérivés, mais qui ne sont pas des entités réglementées[2] reconnues par l’AMF, doivent transmettre annuellement leurs états financiers à l’AMF. Les Modifications proposées assoupliraient l’exigence de conformité aux PCGR canadiens applicables aux sociétés ouvertes et autoriseraient la préparation de ces états financiers conformément à différents principes comptables généralement reconnus au Canada ou dans un territoire étranger, notamment les IFRS et les PCGR américains.

Les commentaires sur les Modifications proposées seront acceptés jusqu’au 4 mars 2017.

[1] En vertu de la Loi, un « opérateur en couverture » est « une personne qui, compte tenu de son activité : a) est exposée à un ou plusieurs risques se rapportant à cette activité, dont des risques d’approvisionnement, de crédit, de change, environnementaux ou de fluctuation de prix d’un sous-jacent; b)recherche la couverture d’un tel risque en réalisant une opération ou une série d’opérations sur dérivés dont le sous-jacent est celui qui est directement associé à ce risque, ou un autre sous-jacent qui lui est apparenté ».

[2] En vertu de la Loi, une « entité réglementée » est définie comme « une bourse, un système de négociation parallèle qui n’est pas inscrit à titre de courtier, ou un autre marché organisé, une chambre de compensation, un système de règlement, un fournisseur de services d’appariement, une agence de traitement de l’information, un référentiel central, un organisme d’autoréglementation et toute personne que l’[AMF] désigne […] comme entité réglementée, lorsqu’elle considère que cela est nécessaire au bon fonctionnement du marché ».

Proposed Amendments to Quebec Derivatives Regulation

Posted in AMF
Laure FouinSonia StruthersKonstantin Sobolevski

The Autorité des marchés financiers (AMF) published for comments on February 1, 2017 proposed amendments (Proposed Amendments) to the Derivatives Regulation (Québec) (“QDR”).

The Proposed Amendments address three matters: filing requirements when dealing with hedgers, prohibiting the offering of binary options to individuals, and reporting obligations of qualified persons.

Filing Requirements When Dealing With Hedgers

The Quebec Derivatives Act (“QDA”) provides an exemption from almost all of its requirements when accredited counterparties engage in activities or transactions in over-the-counter (“OTC”) derivatives. Accredited counterparties as defined in the QDA are in general institutional investors such as pension funds and financial institutions but also include companies holding minimum net assets of more than $10 million and individuals holding minimum net assets of more than $5 million and meet other prescribed conditions. A hedger as defined in the QDA is also an accredited counterparty but the definition is based on the nature of the person’s activities.

The Proposed Amendment imposes filing requirements when an accredited counterparty engaging in an OTC derivatives transaction with a hedger[1] who does not qualify as an accredited counterparty under another branch of the definition of an accredited counterparty in the QDA. In lieu of the certification requirement initially proposed by the AMF in January 2016, the Proposed Amendments require that accredited counterparties engaging in OTC transactions with such hedgers would have to send to the AMF, on a quarterly basis (within 30 days after the end of the quarter in which the transaction occurred), the following information:

  • legal entity identifiers of the accredited counterparty and the hedger;
  • if the hedger is not eligible to receive a legal entity identifier, the hedger’s name, address, and the identifier used by the accredited counterparty to identify such hedger; and
  • the unique transaction identifier assigned by the trade repository to the transaction.

Prohibition of Binary Options

The Proposed Amendments unless the offering is expressly authorized by the AMF prohibit offering binary options to individuals. The AMF states in the notice accompanying the Proposed Amendments that it is proposing such a prohibition because of the growing number of complaints received regarding the trading of binary options which are offered illegally to retain customers in Quebec via unauthorized on-line trading platforms. Such options, also called “all or nothing” options have a very short term (less than 30 days) and entitle the holder to receive either a fixed yield or a zero yield, depending on the underlying interest’s meeting a predetermined condition, without entitling the holder to buy or sell the underlying interest.

Reporting Obligations of Qualified Persons

Qualified persons, that is, persons who create or market derivatives but which are not regulated entities[2] recognized by the AMF, have to deliver their financial statements to the AMF on an annual basis. The Proposed Amendments would relax the requirement that such financial statements be prepared in accordance with Canadian GAAP applicable to public companies and would allow preparing such statements in accordance with different accounting principles generally accepted in Canada or in a foreign jurisdiction, including IFRS and US GAAP.

Comments on the Proposed Amendments are welcome until March 4, 2017.

[1] Under the QDA, a “hedger” is “a person who, because of the person’s activities, (a) is exposed to one or more risks attendant upon those activities, including supply, credit, exchange and environmental risks and the risk related to fluctuations in the price of an underlying interest; and (b)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”.

[2] Under the QDA, a “regulated entity” is defined as “an exchange, an alternative trading system not registered as a dealer, or another published market, a clearing house, a settlement system, a matching service utility, an information processor, a trade repository, a self-regulatory organization or any person the [AMF], where it considers it necessary for the proper operation of the market, designates as a regulated entity”.