The Canadian Capital Markets Association has endorsed a blueprint for moving to T+1 settlement for Canadian securities trades. Agreement on the blueprint is a key step towards speeding up the time it takes to settle equity and certain types of debt transactions from the current three days (T+3) to one day (T+1) after trade date.

These securities settle on a system originally designed for a T+5 environment, which is showing signs of strain at T+3, especially given the high levels of trading volume. “We need to take an industry-wide quantum leap forward to improve our systems and our processes to meet the T+1 deadline,” says CCMA chairman Allan Cooper. “The blueprint we are adopting gives us the direction needed for Canada to keep pace with the United States and to remain among the forefront of world capital markets,” he added.

“The clock is ticking for all participants in the securities industry, as each participant will be affected in some way by the move to T+1,” says Howard Weston, vice-chair of the Ontario Securities Commission. “All participants must take steps now to ensure that they will be ready to begin testing in 2003 and to implement T+1 in Canada in June 2004, at the same time as it is implemented in the U.S.”

The CCMA Institutional Trade Processing White Paper was released for review and comment on March 8, 2001, after extensive cross-securities-industry interviews, fact-finding, analysis and discussion. The White Paper defined the current Canadian institutional trade process and its problems and identified a high-level blueprint for a T+1 environment. The CCMA sought opinions on five trade-matching options described in the paper.

Overall, the responses confirmed that the White Paper’s T+1 model, which will also incorporate the best features from other options considered. Respondents strongly preferred the adoption of a single solution. But no single solution met all desired criteria for both domestic-focussed firms and for international firms. The Canadian Depository for Securities will evaluate opportunities with a variety of suppliers to ensure that communication among money managers, broker/dealers and custodians is standardised, seamless, cost-effective and flexible enough to meet Canadian firms’ and investors’ needs in Canada and abroad.

The CCMA has recommended that an update on developments be provided to the industry by the end of summer. “Adopting a blueprint for a central matching and settlement utility is an important step, but only one of many we need to take to overcome Canada’s T+1 challenge, ” says Cooper. “The industry must also agree on a code of best practices for the submission of information and standards for data syntax and format, as well as agree on identifiers and messaging that will support the blueprint’s implementation.”

The CCMA continues to encourage all firms in the securities industry to analyse their current systems and plan to introduce more straight-through processing capabilities. The automated processing is needed to limit manual intervention and the associated costs and errors, while enabling participants to serve their clients better in the T+1 environment.