Speeding toward the finish line
CIBC Mellon

Canada’s move to a T+2 settlement cycle is nearing. Lou Lesnika, assistant vice president of trade settlements at CIBC Mellon, explains what there is left to do

How prepared is the Canadian market for T+2?

The Canadian Capital Markets Association (CCMA)—a federal organisation launched to identify, analyse and recommend ways to meet the challenges and opportunities facing Canadian and international capital markets—is overseeing the T+2 initiative from a participant perspective. The CCMA’s related committees include the T+2 Steering Committee, T+2 Operations Working Group, T+2 Legal and Regulatory Working Group, T+2 Communications and Education Working Group and the T+2 Mutual Funds Working Group.

CIBC Mellon is playing an active role in the readiness and consultations taking place across the industry leading up to the implementation of T+2 in Canada. CIBC Mellon is represented on all of the CCMA’s T+2 industry groups and has been meeting with Canadian market participants on a monthly basis for 15 months now.

The CCMA and Canadian market have been working through issues and resolving them from an industry viewpoint, to help plan for a smooth transition to a two-day settlement cycle in Canada, along with the US markets on 5 September 2017. Planning a shorter settlement cycle well in advance gives stakeholders the time they need to assess and test their preparations.

What will it mean for Canada to be in line with other markets such as Europe?

Shortening the settlement cycle offers a number of benefits for Canada, such as increased stability of Canadian capital markets, mitigating operational and systemic risk by reducing exposure between the parties to a trade, between the counterparties and central clearinghouses, and for harmonisation among various markets. Joining other global markets in a shorter trade cycle can support a more efficient marketplace and reduce operational risk. Opportunities to simplify and unify cross-border trading help to support efficient markets with increased global settlement harmonisation. A shortened settlement cycle helps better position investors in Canada to navigate the global environment, as investors’ horizons and investment activity become increasingly global.

Looking to North America, around 40 percent of trades on Canadian exchanges are in interlisted securities and roughly a quarter of the trades settling in Canada are from cross-border transactions, according to the CCMA. Given the substantial volume of cross-border trading activity between Canada and the US, Canadian regulators and the CCMA have aligned the Canadian market timelines to those of the US markets and will be moving on 5 September.

How heavy is the technology lift for individual entities to make the switch? Are there any real issues of cost or timeframe?

Overall, we are not aware of any cost or timing issues with a shorter settlement cycle for Canadian market participants. Having said that, given complex regulations and market structure in Canada and the US, this extra time for planning is useful so that stakeholders have sufficient time to assess and test their preparations.

CIBC Mellon’s systems are currently settlement cycle neutral, which means our custody platform will only undergo minor system changes, and the technology changes for CIBC Mellon are minimal. CIBC Mellon’s custody system is currently settling trading activities across a wide range of settlement cycles in support of clients’ cross-border activities, with cycles ranging from same-day settlement on T+0 through T+2 and T+3, to T+5 and beyond. CIBC Mellon is ready and able to handle T+2 settlement in Canada.

We are in the process of completing our internal technology checks and integrated testing with the Canadian Depository for Securities (CDS) and Fundserv. We will continue to test all relevant scenarios to prepare for service continuity by 5 September, and to make certain that our technology and operational procedures are adequately updated.

What is CIBC Mellon/BNY Mellon doing to assist Canadian clients in this area?

CIBC Mellon is playing an active role in the industry in preparation of Canada’s move to a shortened T+2 settlement cycle. CIBC Mellon also participates in the CIBC T+2 working group and is plugged into the US BNY Mellon DTCC working group. We bring considerable settlement experience—in addition to our daily settlement activities, a number of CIBC Mellon employees have the experience of having been active participants during Canada’s previous, successful shortening of the settlement cycle to T+3 from T+5 in 1995, and we will continue to remain active and provide clients with T+2 related updates on Canada and CIBC Mellon’s supportive efforts

Are Canadian regulators and trade bodies taking an active role in the day-to-day management of
the transition?

Canadian regulators, the CCMA and securities firms are taking an active role in properly preparing Canadian stakeholders for the transition to the new settlement cycle. Through its T+2 committees, the CCMA has been working with the Canadian market to help plan for a smooth transition to a two-day settlement cycle in Canada. Additionally, the CCMA regularly publishes its newsletter, T+2: What’s New, in an effort to communicate details of the Canadian securities marketplace’s move to shorten the securities settlement cycle and to help Canadian market participants understand and address the changes ahead.

From a regulatory perspective, on 27 April 2017, the Canadian Securities Administrators published two notices outlining its amendments—including final amendments to National Instrument (NI) 24-101—to support the transition to T+2 on 5 September to be consistent with the US market. SLT

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