The Canadian Securities Administrators has decided to extend the transition period for the institutional trade matching and settlement rule by an extra 24 months to July 2010.

National Instrument 24-101 Institutional Trade Matching and Settlement, which came into force on April 1, 2007, was developed to encourage more efficient and timely settlement processing. It would have required firms to have policies in place to match institutional trades by midnight on the day of the trade by July 1, along with other requirements.

So far, the CSA reports, the rule, “has been largely successful in encouraging market participants to address institutional trade back-office problems and improve their trade settlement processes and systems”. Yet there is still some concern that the markets may not be completely ready to meet the new matching requirements. “The securities industry still has much work to do to achieve the exception reporting targets for the midnight on T matching requirement,” it notes. Also, it says industry participants need more time to allow their batch processes to evolve to real-time.

“We believe that the market efficiency gains and cost benefits of moving to matching on T that were originally intended… will be negatively impacted if the transitional phase-in period is not extended, as many market participants are not ready for such a move,” it concludes. Also, it notes that there is no indication that international markets have markedly improved institutional trade affirmation rates, and it doesn’t appear that such markets are planning to shorten the current T+3 settlement cycles.

“We believe the decision to move to matching by midnight on T should, for the time being, largely remain a business-driven decision. Consequently, we are deferring the current July 1, 2008 effective date in the Instrument for the midnight on T matching requirement to July 1, 2010,” the CSA says. It is also extending the transition period for the registrant exception reporting requirement by an additional period of 24 months, allowing them to better assess the industry’s overall matching performance, and allowing the regulators to review the rule.