QFCRA issues Derivatives Markets and Exchanges Rules
Financial Services Focus
The Qatar Financial Centre Regulatory Authority (QFCRA) on 01 April 2023 issued the Derivatives Markets and Exchanges Rules 2023 (DMEX Rules) which set out a regulatory framework
Law Update: Issue 365 - Financial Services Focus
Matthew HeatonPartner, Head of OfficeHead of Banking & Finance, Qatar
Ranwal GhanghroAssociate,Banking & Finance
The Qatar Financial Centre Regulatory Authority (QFCRA) on 01 April 2023 issued the Derivatives Markets and Exchanges Rules 2023 (DMEX Rules) which set out a regulatory framework for the establishment and operation of: (a) derivatives exchanges; and (b) central counterparties (CCP) to clear and settle transactions in derivatives in accordance with international standards and best practices. These activities were not previously authorised anywhere in Qatar (including the QFC).
As per the DMEX Rules, operating a derivatives exchange or a CCP for clearing and settling transactions in approved derivatives are regulated activities which would require an appropriate authorisation from the QFCRA.
The introduction of the DMEX Rules is an exciting development in the financial landscape of Qatar. The Qatar Stock Exchange has announced that it will cooperate with the QFCRA with regards to the establishment and operation of a derivatives exchange and a CCP in the Qatar Financial Centre (QFC). QSE has also stated that it intends to partner with the London Stock Exchange in order to provide new trading, clearing and market surveillance technology. Any companies intending to participate in the derivates market in Qatar should be aware of the requirements and restrictions set out in the DMEX Rules. We have delineated some of the key qualifications and compliances required to adhere with the DMEX Rules below.
In order to apply for an authorisation to conduct such regulated activities, the relevant entity must comply with the following:
an applicant for an authorisation must be a company incorporated under the QFC Companies Regulations 2005 unless the QFCRA, by written notice, requires the applicant to take another legal form before being granted an authorisation to conduct the regulated activity.
submit an application in the form required by the QFCRA which must include:
a copy of the applicant’s constitution;
particulars of the applicant’s organisation, structures, practices and its governing body;
if the applicant intends to conduct the regulated activity of operating a derivatives exchange, the application must specify the type or types of approved derivatives that the applicant proposes to admit to trading;
if the applicant intends to conduct the regulated activity of operating a CCP, the application must specify the type or types of approved derivative transactions which the applicant proposes to clear and settle;
If the applicant intends to conduct its business in accordance with Shari’a, the application must include a statement to this effect and a statement of the names of the proposed members of the applicant’s Shari’a supervisory board.
any other information required by the DMEX Rules or by the QFCRA.
The QFCRA has broad powers with regards to accepting or rejecting an application and may while considering an application make further enquiries (including with regards to how the applicant intends to ensure that it will comply with particular requirements) or request the applicant to provide further information.
In order to be granted an authorisation to conduct the regulated activity of operating a derivatives exchange or a CCP, the applicant must demonstrate to the QFCRA that it satisfies the following criteria:
the applicant is fit and proper to be an authorised market entity;
if the authorisation is granted, the applicant:
will have sufficient financial resources (the formulas for calculating the minimum capital requirements for conducting each regulated activity have been provided in the DMEX Rules);
will have an appropriate governance and management structure;
will have appropriate systems and controls;
will have the required number of approved individuals to exercise the required controlled functions; and
will have appropriate risk management arrangements;
once the authorisation has been granted, the applicant shall continue to satisfy the aforementioned criteria and will be able to fulfil all its obligations under the DMEX Rules;
the applicant’s other business activities are not incompatible with conducting the relevant regulated activity;
the applicant’s legal form is suitable for the activity;
the applicant will conduct its business soundly and prudently;
the applicant has made arrangements, satisfactory to the QFCRA, for clearing and settling transactions; and
if the applicant proposes to have transactions cleared by a CCP outside Qatar then the CCP is a recognised CCP in accordance with the DMEX Rules.
The DMEX Rules provide that an entity licensed in the State of Qatar (outside the QFC) may conduct activities in the QFC that are ordinarily carried on within markets that operate under the DMEX Rules provided that a supervisory memorandum of understanding is in place between: (a) QFCRA and the QCB; and (b) QFCRA and the QFMA.
The potential establishment of a derivatives exchange and a CCP pursuant to the DMEX Rules would be an important step, moving Qatar closer to its goals under the Qatar National Vision 2030, of nurturing a competitive and diversified economy.
In addition, a derivatives exchange licensed in the QFC would allow investors to diversify their portfolios as they will be able to invest in derivative products, including Islamic derivatives products.
For further information,please contact Matthew Heaton and Ranwal Ghanghro.
Published in February 2024
