Regulation 93-101 concerning the business conduct of derivatives under the Derivatives Act (chapter I-14.01) was formally approved on December 5, 2023. The regulatory provisions under the Derivatives Act empower the Autorité des marchés financiers (AMF) to create regulations related to various aspects of derivatives. Key sections of the Act, particularly sections 175 and 177, delineate the powers granted to the government and the AMF to regulate different categories of persons, derivatives, and transactions, thereby allowing the establishment of specific rules.

Part 1 of Regulation 93-101 lays out the definitions that form the backbone of the regulatory framework. Key terms defined include “Derivatives Firm,” which encompasses both derivatives dealers and advisers; “Derivatives Party,” referring to individuals or entities interacting with derivatives firms, either as clients or counterparties; and “Eligible Derivatives Party,” which includes specific categories of parties, such as Canadian financial institutions and certain registered entities that are qualified to engage in derivatives transactions.

Part 2 clarifies the regulation’s broad applicability to derivatives firms and their representatives, regardless of their registration status. It distinguishes various types of derivatives, identifying those governed by specific provincial regulations and indicating which are excluded. Several exemptions are also outlined, providing flexibility in regulatory compliance. For instance, transactions involving affiliated entities, qualifying clearing agencies, and specific government entities are exempt from the regulation. Additionally, transactions with eligible derivatives parties can qualify for certain exemptions if specific conditions are met, particularly when a party waives protections under the regulation.

The regulation includes key provisions focused on conduct standards, requiring derivatives firms to engage in fair practices and prioritize their clients’ interests. It mandates transparency by requiring firms to disclose essential information regarding the nature and risks of derivatives to clients. Furthermore, firms are obligated to maintain comprehensive records of transactions and communications with clients, ensuring accountability and regulatory adherence. Effective risk management practices, especially concerning collateral management and derivative valuation, are emphasized within the regulation.

To ensure compliance, the regulation establishes monitoring mechanisms and enforcement protocols. Non-compliance may lead to penalties or other regulatory actions, highlighting the importance of adhering to the guidelines set forth.

By establishing clear definitions, scopes of applicability, and conduct standards, the regulation aims to enhance the integrity and transparency of derivatives transactions while safeguarding investors and promoting fair market practices.

Quebec (MO 2023-21) December 20, 2023