New Regulation of Derivatives Markets in Canada – An Australian Perspective

Abstract

There are important differences in the strong national one-stop regulation of derivatives markets in Australia compared to the new provincial regulation in Canada in the Derivatives Act 2008 (Quebec). Each jurisdiction has lessons for the other. This article builds on the common histories of Canadian and Australian financial services with an Australian analysis of the Quebec Act, Canadian provincial financial services regulation and Canada’s new ‘passport’ system for financial market regulation. The Quebec Act, designed to underpin the focusing of Canadian derivatives trading on the Montreal Exchange, is an important global precedent for modern derivatives regulation. It is in line with the IOSCO aims for financial market regulation, including licensing and clearing. It regulates OTC derivatives, with a carve-out for defined ‘accredited counterparties’, and it sets a different standard for the conduct of business by meeting the accepted standards of the derivatives industry. However, as financial markets continue to merge across national borders in the move towards globalisation, different jurisdictions like Australia and Canada continue to use different wording for the same concepts which does not facilitate the persuasive authority of local case law and regulatory releases.The future of the Quebec Act is uncertain, as it may be superseded if the Canadian federal government proceeds with its plan to establish a federal securities commission which would include regulation of exchange-traded derivatives. One model for the future is that participation by the Canadian provinces in a federal scheme may be on a voluntary basis, at least initially. Another model is a single federal regulator for all provinces other than Quebec, with a passport system between the new federal regulator and Quebec. Most provinces and territories are strong supporters of a federal regulatory body, while Quebec announced in July 2009 that it would challenge the constitutionality of the proposed federal legislation. Although this may impact on Quebec's derivatives market and regulation, the Quebec Act remains an important study in derivatives regulation.