Allan Cooper, head of the Canadian depository CDS, has endorsed the suggestion that a ceiling of C425 million be placed on payments for securities processed through the Automated Clearing Settlement Service (ACSS). In a letter to Pierre Roach, director of payment services at the Canadian Payments Association (CPA), Cooper says that the drive to T +1 necessitates a ceiling to limit the negative consequences of unwinding or otherwise revisiting transactions.
“In that context, the CCMA is quite concerned that the payments side of securitie settlements also be final, and is aware that finality can only be achieved through use of the Large Value Transfer System (LVTS) – at least for payments made outside the Debt Clearing Service (DCS) of The Canadian Depository for Securities Limited,” he writes. ” A ceiling of $25 million on the amount for which a cheque can be drawn and be eligible for clearing through the ACSS is a step in the right direction from this perspective. It will limit the risk to sellers of securities (and, indirectly, to their intermediary agents) of non-payment. There will also be a benefit in relation to entitlements payments, and especially when equities are added to the list of securities cleared through the DCS.
This is because any cheque submitted to the DCS must first be converted to LVTS funds, and this conversion (if possible) creates systemic risk.
We recognize that there may be other pressures that make a reduction in the ceiling seem unappealing at this time, but we fully expect that experience with the benefits of finality of payment will persuade the market that even more use of LVTS is both appropriate and efficient. We therefore believe that this rule should be implemented as soon as possible, so that any problems or issues arising out of implementation can be reviewed and resolved quickly. Our goal is a ceiling of $5 million (or even less), and we recommend that this be achieved – by one or a series of further reductions – well before the targeted June 2005 implementation date for T+1.”