Quebec looks at regulation of derivatives

The Autorit des marchs financiers (AMF) has published a working document on the regulation of derivatives markets in Qubec. The document outlines the orientation the AMF is taking for the development of a proposed regulatory framework. The approach is for the regulator to identify several key “core principles” with which the regulated entities will comply. The core principles are contained in the discussion paper and include such things as “dispute resolution” and “protection of market participants,” among others.A new regulatory approach to derivatives is required, the AMF notes, because for the past few years, trading in derivatives has grown dramatically in Qubec and around the world. “Securities, including units of mutual funds, are traditionally considered to be a form of investment, whereas derivatives are seen as a risk management tool,” the AMF notes in its discussion paper, posted on the AMF Web site. “However, regulatory systems do not always make this distinction. “The classification of derivativesin the same group as other forms of investment or separatelyis reflected in statutes and regulations. Regulatory uncertainty (for example, which regulator has jurisdiction over hybrid instruments) and the treatment of different instruments by securities dealers create legal and operating disadvantages for market participants. “Some of these disadvantages were avoided in Qubec because the regulation of the entire financial services sector was integrated into the AMF.”To date, the AMF says, the Qubec regulatory framework has regarded operations in the derivatives market within the overall context of securities trading. However, financial market developments have prompted the AMF to reconsider its regulation of derivatives. “We want Qubec to be equipped with modern and flexible regulatory instruments that are in step with developments in the sector and take into account market realities in Canada and throughout North America,” AMF president and CEO Jean St-Gelais noted. Comments on the discussion paper should be made in writing to the AMF before July 25, 2006.