The Canadian Capital Markets Association (CCMA) today released an addendum to its March 2001 white paper on institutional trade processing for comment. Prepared by the CCMA’s Institutional Trade Processing Working Group (ITPWG), the paper addresses 10 outstanding issues and two additional ones that have arisen since the paper was first published.
“Developing an institutional trade matching system or virtual matching utility, implementing CDS’ new equities clearing system and completing a set of industry institutional best practices and standards are key projects in achieving straight-through processing (STP) in Canada,” said Thomas C. MacMillan, chair of the CCMA. “The addendum to the institutional trade processing white paper will help the CCMA focus on improving the efficiency and competitiveness of Canadian capital markets by removing manual steps in the end-to-end securities processing chain.”
The addendum confirms the industry’s support for the institutional trade processing model and the ITPWG’s direction taken to date. It closes off a number of outstanding issues and verifies that the institutional model will also support the processing of trades for retail/high-net-worth clients who use custodians to settle their trades. In addition, it identifies one investment product – mortgage-backed securities (MBS) – that needs to be addressed to better meet STP goals and initiates discussions to examine the feasibility of making changes to the reporting of MBS pool data.
The white paper addendum includes the findings of an industry committee, which concluded that building a new virtual matching utility (VMU) from scratch for the Canadian marketplace was not cost-justified. Two service providers in Canada are currently considering, or have announced their intention to offer, an alternative solution for the Canadian marketplace. While the CCMA will not build, approve or mandate a VMU, as this will be driven by the marketplace, the CCMA encourages VMU providers to make themselves known to the Canadian securities industry.
The ITPWG is establishing a Standards Subcommittee to examine several outstanding issues presented in the addendum, including defining tolerances for matching, split thresholds, internal broker/dealer accounting and enforcement.
“Standards Subcommittee members, drawn from the custodian, investment manager and broker communities, will be undertaking ground-breaking activity as they work to develop cross-industry standards and best practices for institutional trade processing,” said Savie Fiorini, chair of the CCMA’s Institutional Trade Processing Working Group.
This summer, the CCMA, in step with the U.S.’ Securities Industry Association, refocused its efforts on achieving cross-industry STP instead of moving to a shortened settlement cycle of one day following trade date (T+1) from the current T+3 cycle. In light of this change, the ITPWG re-examined the white paper addendum and reconfirmed that the conclusions remained relevant to achieving STP, even in a T+3 settlement environment.