A letter was sent to approximately 2,000 business registrants in Canada by the Canadian Securities Administrators (CSA) in July 2001 urging registrants to prepare for T+1. Set forth below is the form of letter that was sent by the Ontario Securities Commission to every business registrant with its head office in Ontario, as well as a number of frequently asked questions about the letter and the move to T+1 in North America. Reference is made in the letter to a T+1 implementation date of June 2004. Since sending this letter, the securities industry has decided to postpone the target date to June 2005.
1. Letter from David Brown, Chair of the Ontario Securities Commission, to Business Registrants in Ontario Regarding T+1
Date: July 27, 2001
Office of the Chair
Ontario Securities Commission
Toronto, Ontario
Dear Sir/Madam:
Re: Canada's Efforts to Move to T+1
As you may already know, Canada's capital markets are faced with the challenge of reducing the time it takes to clear and settle securities trades from the current period of three days after the date of a trade (T+3) to one day after the date of a trade (T+1). The securities industry in Canada is working to change the settlement period to T+1 to coincide with the expected change to a T+1 settlement period in the securities markets of the United States by June 2004.
The Canadian Capital Markets Association (CCMA) is leading the move to T+1. It was launched last year as the successor to the Canadian G-30 Working Committee, which successfully engineered the change to T+3 from T+5 in 1995 in Canada. The reasons for moving to T+1 are the same as they were back then: significantly increasing trading volumes, market volatility and competitive pressures from other markets.
The CCMA has been very active since its formation. It has produced a number of key discussion documents and has developed a communications program, including newsletters, conferences, discussion papers and a website (www.ccma-acmc.ca), to heighten the awareness of the T+1 project.
The continued success of Canada's markets depends on the ability of our markets to compete with global markets, and in particular the U.S. markets. The U.S. securities industry has recognized the mammoth undertaking in preparing for T+1 by mid 2004 and appears to be well underway in achieving this goal.
Economic studies have indicated that, if Canada were to remain at T+3 while the U.S. moves to T+1, our markets would be uncompetitive vis-à-vis the U.S. markets and would suffer harm. We must vigorously prepare to move at the same time as the U.S.
The Canadian Securities Administrators (CSA) are cooperating with the industry to develop a plan to implement T+1 and "straight-through processing" (STP) in Canada. We are reviewing our regulatory frameworks to identify potential impediments to T+1 and STP. We are also considering new rules, such as reporting requirements to monitor the progress of registrants' efforts to prepare for T+1. In addition, the CSA believe that legislative reform to the laws in Canada that govern the holding, transfer and pledging of securities would facilitate the T+1 efforts. Such laws are an important component to the legal framework for the securities clearing and settlement process.
T+1 cuts across a broad spectrum of jurisdictions, regulatory agencies, and financial services sectors, including securities, banking, insurance, credit-union, pension and other investment fund sectors. Harmonizing legislation and regulation in Canada will require significant efforts from all industry sectors and levels of government. As a result, the CSA will work closely to coordinate their efforts with a number of provincial and federal governments and agencies.
T+1 presents the industry with a formidable challenge: a challenge which will require your organization's active participation and commitment in order to be a successful participant in the domestic and global markets. I am confident that, collectively, we will meet the T+1 challenge and ensure that our markets remain globally competitive. In this regard, I encourage you to prepare your firm to meet the T+1 challenge and to consider participating and contributing to the important efforts of the CCMA.
In the meantime, should you have any comments or questions regarding the T+1 initiative, please do not hesitate to contact 416-593-8314 or toll free at 1-877-785-1555.
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Sincerely,
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David A. Brown
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2. Common Questions About The Letter Received By The CSA
Why was this letter sent to me?
The CSA believe that every dealer, registered adviser and other market participant should be aware of the T+1 initiative and the timing for implementing a T+1 settlement period in the North American capital markets. Dealers, registered advisers and other market participants will need to examine how their systems and processes for settling trades should be changed to comply with a T+1 settlement time-frame. Because of the scope of potential changes needed, organizations should consider establishing plans, budgets and allocating resources, if they have not already done so.
What is the Canadian Capital Markets Association (CCMA)?
The Canadian Capital Markets Association (CCMA) is an organization launched last year by Canadian financial services industries to identify and recommend ways to meet the challenges and opportunities faced by our capital markets. The immediate priority facing the CCMA is to coordinate shortening the time it takes to clear and settle a securities trade (i.e., to exchange securities for money) to coincide with similar efforts under way in the United States. The securities industries of Canada and the U.S. are planning to shorten the settlement period to one day after the date of the trade (T+1). The current practice is to settle a trade three days after trade date (T+3).
In what way will T+1 impact my firm?
If your firm is active in trading or advising in securities, your firm's operations and business practices may be affected by the move to T+1. The CCMA published a T+1 White Paper last March (available on the CCMA's web site) outlining changes in trade settlement processes that will be required to move to T+1, in particular the trade communications flow between investment managers, dealers, custodians and the Canadian Depository for Securities Limited (CDS). The paper describes various options for a type of straight-though processing ("STP") model for Canada, and proposes a "new design" for institutional trade communications in a T+1 environment. (STP is the completion of pre-settlement and settlement processes based on trade data that is manually entered only once into an automated system.) The paper outlines the process flows for the preferred STP design and highlights the changes that will be required by investment managers and their suppliers, dealers, custodians and CDS.
When will next-day settlement processing (T+1) be implemented in North America?
The U.S. Securities Industry Association (SIA) announced on October 12, 2001 that the target date for completion of the U.S. industry's conversion to next-day settlement processing (T+1) has been moved from June 2004 to June 2005. In making this decision, the SIA considered member-firms' needs to develop plans for 2002 that better address their individual priorities, including business continuity. See the SIA press release (click here). The CCMA has confirmed that Canada's target T+1 conversion date will be similarly delayed to June 2005 as Canada's securities industry must work in tandem with its American counterparts to speed up securities settlement.
Where can I find more information about the T+1 initiative in Canada and the CCMA?
You can obtain more information from the Canadian Capital Markets Association (CCMA) and the CCMA web site. The CCMA publishes a newsletter which is also available on its web site. Or you can call the CCMA at 416-815-2046, send an e-mail at info@ccma-acmc.ca, or write them at 85 Richmond St. W, Toronto, Ontario, M5H 2C9.
Where can I find more information about the T+1 initiative in the United States?
You can obtain more information from the U.S. Securities Industry Association (SIA)'s web site.
What are the CSA doing about T+1?
The CSA have formed a T+1 Committee and are considering what regulatory role, if any, the securities regulators should play in the move to T+1. The CSA are currently reviewing their securities legislation, regulation, rules and policies to identify regulatory requirements and other provisions that may reasonably be inconsistent with the move to T+1.
Are the CSA contemplating mandating T+1?
No decision has been made on whether to mandate registrants to settle trades by T+1. The CSA T+1 Committee is considering this option.
