What Are Approved Participants?
Approved participants are institutions that are allowed direct access to an exchange's trading environment, specifically, the Montreal Exchange. Approved participant status usually affords trade execution cost savings and the right to install trading terminals with direct access to the exchange. This allows the institution to bypass third parties, which may mark up the cost of the trades or cause delays in order execution since it is going through multiple parties before reaching the exchange.
- An approved participant is allowed to access an exchange directly for trading—specifically, the Montreal Exchange.
- To be an approved participant, certain qualifications and regulatory thresholds must be met.
- The exchange has its own rules on who can be an approved participant, along with the rights and responsibilities granted to them.
- The key benefit for approved participants for the Montreal Exchange is significant cost savings in execution.
Understanding Approved Participants
Approved participants must meet certain eligibility requirements. Authorized persons are the individuals that work for approved participants. These are people who can work directly with the exchange on behalf of the approved participant. Approved participant status may vary by exchange.
Approved participants must report to the exchange any changes in name, control, or a merger or acquisition that affects the institution.
Approved participants enjoy cost savings on trades due to cutting out third parties and having direct access to the exchange.
Benefits to Approved Participants
The Montreal Exchange approved participants’ key benefit is reduced costs in trade executions. They have direct access to the exchange and trading. They are given the right to route client orders and put terminals in client offices.
Other advantages may include ultra-low latency execution of orders, including the ability to co-locate trading servers next to exchange servers. Access to advanced order types and dark pools. Rebates on trades for adding liquidity (as opposed to executing against orders that are already there), and a further reduction in costs for meeting volume thresholds. Approved participants also have access to opening and closing auctions.
Requirements for Approved Participants
The Montreal Exchange requires firms to be formed in Canada, be a member of a Canadian self-regulatory organization (SRO), and become a member of the Canadian Derivatives Clearing Corporation or conclude a clearing agreement with one of its members.
For foreign firms (not formed in Canada), they must be located in the U.S., U.K, Ireland, Israel, Jersey, the Netherlands, or France. They must be registered with a securities or derivatives regulator (or SRO) unless exempt from such registration, have a clearing agreement with the Canadian Derivatives Clearing Corporation, and have an agent residing in the province of Quebec, Canada.