1- General

When does the qualification requirement apply?

A person must be qualified before it creates or markets derivatives offered to the public in Québec. However, the qualification requirement does not apply to a regulated entity recognized by the Authority pursuant to the Derivatives Act. A person subject to the qualification requirement is exempt when a transaction involves only accredited counterparties.

The qualified person is generally the counterparty to the derivatives it creates or markets.

The list of qualified persons is available on our website

Which derivatives are authorized to be marketed by a qualified person?

A qualified person may only market derivatives that have been duly authorized by the Autority as listed in its qualification decision or in a specific decision following an application by the qualified person.

The Authority may refuse to authorize a derivative or may impose conditions or restrictions if necessary for the protection of the public. The derivatives authorized are specific to each qualified person.

What happens when a person who is not a qualified person creates or markets derivatives offered to the public?

A person who creates or markets derivatives offered to the public in Québec without being a qualified person or relying on an exemption is in breach of the Derivatives Act and can be sanctioned accordingly by the Authority.

It is also an infringement to the law if the derivatives have not been authorized by the Authority or if they are not offered through a derivatives dealer registered with the Authority. You may visit our register to verify the authorization to practice as a derivatives dealer.

An investor encountering a person who creates or markets derivatives without being qualified or who offers derivatives to the public without being or using a derivatives dealer should file a complaint with the Authority.

An employee of such a person should use the whistleblower program.

What is the difference between a client and a counterparty?

The client is the person with an open account with a registered derivatives dealer to trade over-the-counter derivatives created or marketed by a qualified person.

A counterparty is the person entering into an over-the-counter derivative created or marketed by a qualified person.

A person can be both a client and a counterparty.

2- Periodic disclosure

Does the first periodic disclosure required under section 11.36 of the Derivatives Regulation cover the entire fiscal year despite the date of qualification?

Yes.

The periodic disclosure must be sent to the Authority for the first time within 90 days of the end of the fiscal year during which the person became a qualified person. The information to be disclosed is for the entire fiscal year, regardless of the date of qualification.

How should the number of contracts entered into in Québec for the purpose of paragraph 2 of section 11.36 of the Derivatives Regulation be determined?

Each transaction in an over-the-counter derivative, authorized to be marketed by the qualified person, entered into with a Québec counterparty is considered to be a separate contract. Entering into, assigning, selling or otherwise acquiring or disposing of a derivative or the novation of a derivative would each constitute a transaction and therefore a contract for the purpose of the calculation.

How should the percentage of accounts profitable for counterparties be calculated?

For the purpose of paragraph 3 of section 11.36 of the Derivatives Regulation, in calculating whether an account was profitable during the quarter, realized and unrealized profits and losses on all over-the-counter derivatives transactions carried in the account at any time during the quarter must be computed net of fees, commissions, interest income, and any other charges or income. Deposits and withdrawals of funds made by the counterparty during a quarter must be excluded from the calculation. Computations that result in a zero or negative number shall be considered not profitable for counterparties. Computations that result in a positive number shall be considered profitable for counterparties.

We expect that the percentage of profitable accounts includes all open accounts of Québec counterparties entering into over-the-counter derivatives, authorized to be marketed by the qualified person, for any period of time during the quarter. The calculation should include only accounts for which at least one transaction was executed during the quarter or that had an open position at any time during the quarter. Any account that did not execute any transaction nor have an open position during the quarter should not be included in the calculation regardless of whether the account maintained a cash balance and whether interest was paid or fees were charged during the quarter.

The information is required for each quarter of the qualified person’s latest fiscal year.

What is the other information refered to in paragraph 4 of section 11.36 of the Derivatives Regulation?

  • Number of Québec clients and client account closures

A qualified person should maintain adequate records and be able to demonstrate the accuracy of such numbers.

  • Applicable interest rate per currency at fiscal year-end differentiating lending and deposit rates

Fiscal year-end report should show the interest rate used per currency for both the deposit rate and the lending rate in each currency for which the qualified person had deposits or loans.

  • Number of closed positions from margin calls to clients

Number of counterparties’ positions that were closed due to insufficient funds following the margin calls. A position is the economic interest of a counterparty in an outstanding over-the-counter derivative at a point in time.

  • Number of price corrections (slippage) with client impact assessment performed

A qualified person must report the number of price corrections that were made to counterparties’ orders and the assessment of those individual orders, meaning whether or not the counterparty lost money or earned money from the difference in the price when they first submitted the order and the price at which the order was executed.

How should information be made accessible to counterparties for the purpose of section 13.2 of the Derivatives Regulation?

The information should be in a reasonable sized font and provided directly to the counterparties or be accessible to the counterparties on the qualified person’s website at no cost.

We note that the information related to question 35 (d) of the form set out in Schedule B, which must be accessible to counterparties, should be updated within the 90 days following the end of the qualified person’s fiscal year.

Should all documentation provided or accessible to clients be in French and English?

Each document provided or information accessible to clients required in the Derivatives Act or in the Derivatives Regulation from the qualified person should be in French or in French and English.

3- Changes to the information submitted for qualification 

Does a change to the contact person or the directors of the qualified person need to be disclosed to the Authority?

Yes.

A qualified person must notify the Authority, either in writing or electronically, of any change in the information provided in its application for qualification or its application for authorization to market a derivative. Such notification must be done within 30 days after the end of the quarter in which the change occurred by submitting an amended Schedule B or C to the Derivatives Act or a full amended version of a document filed with such schedule and a description of the amendment.

4- Derivatives data reporting

Does a qualified person need to report its transactions to a trade repository?

Yes.

Every reporting counterparty must report, or cause to be reported, the data relating to its transactions in over-the-counter derivatives with a local counterparty in Québec to a trade repository recognized by the Authority as required under Regulation 91-507 respecting trade repositories and derivatives data reporting This link will open in a new window.

Where can I get further information?

You can refer to the page on our website about qualification.

For further information, please contact an agent at the Information Centre.