Material Amendments to CDS Procedures: DTC Direct Link and New York Link Services -- Additional Material Amendments To Participant Procedures For The Dtc Direct Link (DDL) And New York Link (NYL) -- Request for Comments

CDS CLEARING AND DEPOSITORY SERVICES INC. (CDS^®)

MATERIAL AMENDMENTS TO CDS PROCEDURES

DTC DIRECT LINK AND NEW YORK LINK SERVICES

ADDITIONAL MATERIAL AMENDMENTS TO

PARTICIPANT PROCEDURES FOR THE DTC DIRECT LINK (DDL)

AND NEW YORK LINK (NYL)

REQUEST FOR COMMENTS

A. DESCRIPTION OF THE PROPOSED CDS PROCEDURE AMENDMENTS

Material amendments to CDS procedures relating to "Changes to Participant Collateral and Funding Requirements" for the CDS New York Link ("NYL") and DTC Direct Link ("DDL") services were proposed by CDS and published for comment on August 14, 2009. Since publication of the amendments, additional changes have been identified by CDS as described in this Notice.

Summary of Material Amendments published on August 14, 2009:

The procedure amendments posted on August 14, 2009 addressed requirements as a result of changes imposed on CDS by the National Securities Clearing Corporation ("NSCC") and the Depository Trust Corporation ("DTC") in the U.S.

Effective November 2, 2009, CDS sponsored participants of the NYL service will be required to meet expanded collateral requirements resulting from changes introduced by NSCC. Such changes will require NYL participants to pledge all risk based margin ("RBM") related collateral, required to operate in NSCC's services, directly with NSCC. In the current process, all RBM related collateral posted by NYL participants is held by CDS.

As NSCC will be holding all the RBM related collateral from NYL participants starting November 2, 2009, CDS will no longer have access to the collateral needed to protect the remaining NYL participants if one of the NYL participants was to default. Therefore, CDS will require NYL participants to pledge additional collateral to CDS based on CDS's risk control criteria.

CDS will also establish a NYL participant fund ("CDS Participant Fund for New York Link") and a DTC Direct Link ("DDL") participant fund ("CDS Participant Fund for DTC Direct Link"), requiring both DDL participants and NYL participants to post collateral to support those fund requirements. The intent of the CDS Participant Fund for New York Link and CDS Participant Fund for DTC Direct Link is to provide collateral to meet end-of-day liquidity requirements resulting from the default of a single participant with the largest payment obligation. The CDS Participant Fund for DTC Direct Link will be established with a total value equal to the largest DTC net debit cap allocated to any participant using DDL, currently USD 40 million. The CDS Participant Fund for New York Link will be established with a total value equal to the sum of (a) the largest DTC net debit cap allocated to any participant using NYL, currently USD 60 million, and (b) the largest payment owing to NSCC within the pre-determined confidence level. Both funds will be calculated in the similar manner as the "Receiver's Collateral Pool" in CDSX®.

Additional Changes to the Material Amendments published on August 14, 2009:

1. Removal of U.S. dollar cash as an acceptable form of collateral for the CDS Participant Fund for New York Link and the CDS Participant Fund for DTC Direct Link

Initially, CDS intended to include securities issued by the Government of Canada, Government of Canada stripped coupons and residuals, U.S. Treasury securities and cash (U.S. dollars) as acceptable forms of collateral managed by CDS for the CDS Participant Fund for New York Link and the CDS Participant Fund for DTC Direct Link.

While retaining all of the other forms of collateral, CDS has decided to remove cash (U.S. dollars) as an acceptable form of collateral for these two participant funds for the following reasons:

• The primary purpose of CDS Participant Fund for New York Link and CDS Participant Fund for DTC Direct Link is to provide end-of-day liquidity in case of a default of a New York Link or DTC Direct Link participant. CDS has been holding much of the U.S. dollars cash pledged by New York Link participants with the U.S. banker in a bank account that is covered under the Federal Deposit Insurance Corporation (FDIC) unlimited funds guarantee. Therefore, CDS is not currently exposed to the default of its U.S. banker. However, this FDIC unlimited funds guarantee is scheduled to expire by the end of 2009, potentially exposing CDS to the default of the commercial bank holding U.S. dollars cash for CDS. As a result, CDS has decided not to accept U.S. dollars cash as collateral for CDS Participant Fund for New York Link and CDS Participant Fund for DTC Direct Link.

• While avoidance of default of a U.S. banker may be accomplished by investing U.S. dollar cash holdings in U.S. treasury securities via an investment manager, CDS would likely not be able to liquidate the U.S. treasury securities in the timeframe required under a default of a participant scenario. In consideration of the available options, CDS decided that the best approach would be to manage the collateral process for CDS Participant Fund for New York Link and DTC Direct Link via the CDSX pledging facility. As such, it was decided that acceptable collateral for CDS Participant Fund for New York Link and DTC Direct Link be restricted to securities issued by the government of Canada and U.S. government treasury securities and these securities must be CDSX eligible and pledged via CDSX which would provide CDS with full control of the collateral. These securities are acceptable collateral to CDS's commercial liquidity provider for provision of end-of-day liquidity against a line of credit that could be drawn against in the event of default of a participant.

2. Adjustment of the collateral requirement deadlines for the NSCC Participant Fund (RBM collateral held directly by NSCC) for New York Link participants.

NSCC's final deadline for its participants to pledge daily RBM collateral is 10:00 a.m. ET. For a six-month minimum period beginning November 2, 2009, NSCC will temporarily permit CDS to pledge the daily RBM collateral to NSCC by 12:00 p.m. ET as opposed to the 10:00 a.m. ET deadline.

In order to comply with NSCC's transitional collateral requirement deadline of 12:00 p.m. ET, CDS will move the initial collateral requirement deadline for the NSCC Participant Fund for New York Link from the current 12:00 p.m. ET deadline to 11:00 a.m. ET and the final collateral requirement deadline for the NSCC Participant Fund for New York Link will move from the current 1:00 p.m. ET deadline to 11:30 a.m. ET for all New York Link participants. Since NSCC will require CDS to comply with its 10:00 a.m. ET final deadline after the transition period, the participant deadlines will eventually change to two hours earlier in the business day. The transition period is meant to allow participants enough time to plan their processes in preparation for the earlier deadline that would be imposed after the transition period has expired.

3. Adjustment of the deadline for participants to request the withdrawal of excess cash collateral from the NSCC Participant Fund held by NSCC for New York Link

Currently, most of the RBM related collateral posted by participants for the NSCC Participant Fund for New York Link is held by CDS. The participant deadline for requesting the withdrawal of excess collateral is 4:00 p.m. ET (NSCC's deadline is currently 2:00 p.m. ET). However, because NSCC will be holding all of the RBM related collateral posted by participants for the NSCC Participant Fund for New York Link as of November 2, 2009 CDS must follow NSCC's excess collateral withdrawal process and deadline for requesting the withdrawal of excess cash collateral from NSCC.

A deadline of 11:00 a.m. ET will be established for participant requests for the withdrawal of excess collateral from the NSCC Participant Fund for New York Link. CDS decided that it would be more effective operationally for CDS and participants to align the withdrawal deadline with the deadline associated with satisfying daily collateral requirements. CDS and participants would in effect only need to review the collateral report once daily. Requests from participants for return of collateral after the 11:00 a.m. ET deadline will be processed on a best efforts basis.

4. Changes to holiday processing for the NSCC Participant Fund for New York Link

NSCC does not recognize Canadian holidays and CDS will be required to provide collateral to NSCC on Canadian holidays that do not have a corresponding U.S. holiday. To be consistent with the daily requirement for submitting collateral to NSCC, the procedures need to be amended to require participants to be responsible for monitoring and satisfying their collateral requirements for the NSCC Participant Fund for New York Link on Canadian holidays that are not observed in the U.S. or when there is no corresponding U.S. holiday.

5. Information on how participants can pledge collateral to the DDL Fund and the NYL Fund managed by CDS

Text will be added to the procedures to describe the process participants are to follow in order to pledge securities as collateral for the CDS participant fund for New York Link and the CDS participant fund for DTC Direct Link.

6. Service Suspension

Text will be modified within the procedures pertaining to the NSCC Participant Fund for New York Link, the CDS participant fund for New York Link and the CDS participant fund for DTC Direct Link to clarify that participants that fail to satisfy their collateral requirements for these participant funds by the specified deadlines will be suspended from all of CDS services, not just the NYL and DDL services, and to align the procedures with the corresponding CDS Rules (i.e. Rule 9 Suspension of Participant -- 9.2 General Description of Process on Suspension).

B. NATURE AND PURPOSE OF THE PROPOSED CDS PROCEDURE AMENDMENTS

The additional amendments to the participant procedures are intended to address further CDS and NSCC considerations occurring since the original procedure amendments regarding these services were approved by CDS's Strategic Development Review Committee ("SDRC") on July 30, 2009 and published for comments on August 14, 2009.

C. IMPACT OF THE PROPOSED CDS PROCEDURE AMENDMENTS

The removal of cash (U.S. dollars) as an acceptable type of collateral for the CDS Participant Fund for New York Link and the CDS Participant Fund for DTC Direct Link is expected to have a minimal impact on participants as participants usually pledge eligible securities to CDS as collateral rather than cash to satisfy their collateral obligations.

The adjustment of the collateral requirement deadlines for NYL participants to pledge RBM collateral and to request excess collateral held by NSCC for the NSCC Participant Fund for New York Link will require participants to modify their internal deadlines and collateral management procedures in order to meet the earlier deadlines. It is expected that having the same deadlines for pledging collateral and for requesting excess collateral for the NSCC Participant Fund will minimize the internal procedure impact to the NYL participants.

The change to holiday processing for the NSCC Participant Fund for New York Link will require participants to modify their processes and resource coverage regarding monitoring and providing collateral requirements for the NSCC Participant Fund for New York Link on Canadian holidays when the U.S. securities clearing and/or settlement systems are open. However, participants already have to monitor their activity at DTC/NSCC on Canadian holidays when the U.S. is open so the impact of this change should be minimal.

Adding clarifying text describing the process for pledging securities as collateral for the CDS participant fund for New York Link and the CDS participant fund for DTC Direct Link will not affect participants as the new text describes a process that is currently in place and that is not being changed.

Modifying the procedures related to the suspension of participants in order to align with CDS Participant Rule 9.2 General Description of Process on Suspension is not expected to have an impact on participants.

C.1 Competition

It is expected that the proposed amendments will have no impact on the competitive environment. All CDS sponsored participants using the NYL and DDL services will be required to comply with the new requirements.

It is possible that some participants may choose to become direct members of NSCC and DTC. In such event, the direct members would be required to comply with the NSCC and DTC requirements. Direct members may be able to post USD cash collateral to NSCC and DTC when securities are an acceptable alternative, but since USD cash is rarely posted to CDS, it is expected that this would not be a competitive advantage. In terms of the timelines for posting collateral, the temporary deadline of 11 a.m. ET is more favorable than NSCC's 10 a.m. ET deadline, but this advantage would be reversed after the transition period when CDS would be required to comply with NSCC's 10:00 a.m. deadline. In terms of requesting excess collateral, CDS's 11 a.m. ET deadline is earlier than NSCC's 2:00 p.m. ET deadline but based on historical data, most requests for excess capital occur in the morning, so the advantage for direct members of NSCC would be minimal. The amendments concerning holiday processing, the pledging process, and alignment of suspension implications with the CDS Participant Rules do not have any competitive impacts.

C.2 Risks and Compliance Costs

The removal of cash (U.S. dollars) as an acceptable type of collateral for the CDS Participant Fund for New York Link and the CDS Participant Fund for DTC Direct Link eliminates the risk associated with the conversion of cash that has been invested in short-term securities back into cash in a timely fashion (to provide liquidity in the event of a participant default), as well as the risk of the failure of CDS's U.S. banker (the FDIC is expected to reduce their unlimited funds guarantee by the end of 2009).

While there is a possibility that participants who do not follow the change to holiday processing or meet the new collateral requirements and deadlines for the NSCC Participant Fund for New York Link may be suspended from CDS's services, the new amendments to the participant procedures outlined in this notice are not expected to introduce any new risks to the participants. However, participants in western Canada may need to make special arrangements to meet the new collateral deadlines due to different time zones which may result in additional resource costs to comply with the requirements.

C.3 Comparison to International Standards -- (a) Committee on Payment and Settlement Systems of the Bank for International Settlements, (b) Technical Committee of the International Organization of Securities Commissions, and (c) the Group of Thirty

CDS's proposed amendments are intended to be consistent with IOSCO's recommendation 11 for central counterparties, whereby "CCPs that establish links either cross border or domestically to clear trades should evaluate the potential sources of risk that can arise, and ensure that the risk are managed prudently on an ongoing basis. There should be a framework for cooperation and coordination between the relevant regulators and overseers".

D. DESCRIPTION OF THE PROCEDURE DRAFTING PROCESS

D.1 Development Context

The proposed additional amendments to CDS's participant procedures were prepared by CDS to address the developments that have occurred since the original procedural amendments were published. CDS's internal procedures will also be amended to reflect the additional changes as documented in this notice.

D.2 Procedure Drafting Process

CDS procedure amendments are reviewed and approved by CDS's Strategic Development Review Committee ("SDRC"). The SDRC determines or reviews, prioritizes and oversees CDS-related systems development and other changes proposed by participants and CDS. The SDRC's membership includes representatives from CDS participant community and it meets on a monthly basis.

These amendments will be reviewed by the SDRC on September 24, 2009 and approval is expected. If approval is not received prior to implementation, CDS will enact emergency procedures as outlined in CDS participant Rule 1.4.2 in order to meet the deadline imposed on CDS by NSCC.

D.3 Issues Considered

CDS investigated whether or not a substantial increase in its liquidity facility would significantly mitigate the risk of a failure to complete the USD payment exchange. Prices to arrange a $200 million syndicated line of credit were sought from CDS's banker. Given that there are no upper limits to the settlement obligations resulting from NSCC's CNS process, a $200 million line of credit does not eliminate the risk but simply provides an additional margin before USD payment exchange completion is threatened. CDS investigated the number of incidences where the largest debit balance for a participant was level of coverage provided by CDS's existing line of credit and $200 million (the proposed level of coverage) and concluded that the high set-up costs (in excess of $1 million) and on-going annual costs (between $600,000 and $900,000) for the additional coverage are not cost justified.

D.4 Consultation

In the past few months CDS provided a number of reports to the CDS Risk Advisory Committee ("RAC") on the risks associated with the NYL and DDL services and made recommendations on addressing the issues identified. CDS also kept its Board of Directors informed of the events surrounding the NYL and DDL services. On August 26, 2009, CDS provided a report with full details relating to the changes to the NYL/DDL services to all NYL and DDL participants and hosted a meeting via conference call on August 28, 2009 to discuss the details of the report, and to provide participants with an opportunity to ask questions. In addition, CDS has kept participants informed by participating in meetings of the Investment Industry Regulatory Organization of Canada's (IIROC) Financial Administrators Section ("FAS") working group that is reviewing the implications of the changes to the NYL and DDL services and has provided them with information relative to the proposed changes to the collateral deadlines and holiday processing. CDS also has kept its regulators informed of the events surrounding these changes.

D.5 Alternatives Considered

CDS considered implementing these additional amendments to the participant procedures after the November 2, 2009 deadline imposed by DTC/NSCC but decided to proceed with the changes in order to avoid the potential risks to CDS and its participants associated with not having clear procedures implemented on November 2, 2009. These risks include participants failing to satisfy their collateral requirements for the NSCC participant fund for New York Link by the earlier deadline, participants failing to satisfy their collateral requirements on Canadian holidays not observed in the U.S. and CDS failing to satisfy NSCC's collateral requirements by the required deadline (which would result in CDS being considered to be in default by NSCC).

D.6 Implementation Plan

CDS is recognized as a clearing agency by the Ontario Securities Commission pursuant to section 21.2 of the Ontario Securities Act. The Autorité des marchés financiers has authorized CDS to carry on clearing activities in Québec pursuant to sections 169 and 170 of the Québec Securities Act. In addition CDS is deemed to be the clearing house for CDSX®, a clearing and settlement system designated by the Bank of Canada pursuant to section 4 of the Payment Clearing and Settlement Act. The Ontario Securities Commission, the Autorité des marchés financiers and the Bank of Canada will hereafter be collectively referred to as the "Recognizing Regulators".

The amendments to participant procedures may become effective upon approval of the amendments by the Recognizing Regulators following public notice and comment. Implementation of these changes is planned for November 2, 2009.

E. TECHNOLOGICAL SYSTEMS CHANGES

E.1 CDS

CDS will set up the new CDS Participant Fund for New York Link and the CDS Participant Fund for DTC Direct Link within its collateral management system so that only securities issued by the Government of Canada, Government of Canada stripped coupons/residuals and U.S. Treasury securities are eligible forms of collateral. Cash (U.S. dollars) will not be established as an acceptable form of collateral for these participant funds.

None of the other additional amendments to the participant procedures require technological systems changes by CDS.

E.2 CDS Participants

It is not expected that participants will be required to make any technological systems changes as a result of these additional amendments to the participant procedures.

E.3 Other Market Participants

There is no anticipated impact to other market participants.

F. COMPARISON TO OTHER CLEARING AGENCIES

Central securities depositories ("CSDs") similar to CDS generally determine the type of collateral that are acceptable, based on their liquidity arrangements. The rationale for deciding not to accept U.S. cash as an acceptable form of collateral for the CDS participant fund for New York Link and the CDS participant fund for DTC Direct Link is comparable to how decisions of a similar nature are made by other CSDs.

Direct members of NSCC/DTC are required to provide RBM collateral to NSCC by 10:00 a.m. ET on a daily basis. However, during the transition period, CDS requires NYL participants to provide RBM collateral required by NSCC by 11:00 a.m. ET on a daily basis.

The deadline for requesting excess collateral from NSCC for direct member of NSCC/DTC is 2:00 p.m. ET daily. However, the deadline for NYL participants is 11:00 a.m. ET daily, as CDS decided to align this deadline with the delivery of RBM collateral deadline for NYL participants.

The suspension procedures for participants who are unable to meet their collateral requirements are similar to that of other CSDs. Also, the suspension procedures for participants who are unable to meet their collateral requirements on holidays observed in Canada that are not observed in the U.S. are similar to that of other CSDs.

G. PUBLIC INTEREST ASSESSMENT

CDS has determined that the proposed amendments are not contrary to the public interest.

H. COMMENTS

Comments on the proposed amendments should be in writing and submitted within 30 calendar days following the date of publication of this notice in the Ontario Securities Commission Bulletin to:

Rob Argue

Senior Product Manager, Product Development

CDS Clearing and Depository Services Inc.

85 Richmond Street West

Toronto, Ontario M5H 2C9

Phone: 416-365-3887

Fax: 416-365-0842

Email: [email protected]

Copies should also be provided to the Autorité des marchés financiers and the Ontario Securities Commission by forwarding a copy to each of the following individuals:

Me Anne-Marie Beaudoin	Manager, Market Regulation
Secrétaire del'Autorité	Capital Markets Branch
Autorité des marchés financiers	Ontario Securities Commission
800, square Victoria, 22e étage	Suite 1903, Box 55,
C.P. 246, tour de la Bourse	20 Queen Street West
Montréal, Québec, H4Z 1G3	Toronto, Ontario, M5H 3S8
Télécopieur: (514) 864-6381
Courrier électronique: consultation-en-	Fax: 416-595-8940
[email protected]	e-mail: [email protected]

CDS will make available to the public, upon request, all comments received during the comment period.

I. PROPOSED CDS PROCEDURE AMENDMENTS

Due to formatting restrictions the text of current CDS Participant Procedures marked to reflect proposed amendments as well as text of these procedures reflecting the adoption of the proposed amendments can be accessed by clicking the link below.

Refer to http://www.cds.ca/cdsclearinghome.nsf/Pages/-EN-blacklined?Open to review the affected procedure amendments and the acceptable collateral table marked to reflect the proposed amendments. Once the link is accessed, click "Additional Changes to the New York Link and DTC Direct Link services."