The Canadian Capital Markets Association has issued a white paper for public comment. It calls for getting most – if not all securities certificates converted into electronic format to accelerate securities clearing and settlement, and reduce risk for investors.

The conversions would support the compression of the time needed to clear and settle trades in Canada from T+3 to T+1. The paper points out the problems of paper certificates, including, high handling costs, the costs of fraud and forgery, opportunity cost from missed trading when certificates cannot be delivered to a broker on time for sale, high replacement costs and inconvenience.

Other recommendations in the paper include:
– increasing the number of participants in and securities eligible for CanadaÕs central securities depository;
– encouraging issuers to issue and registered shareholders to hold securities in electronic form;
– work towards full dematerialization or elimination of paper.

“The continued use of certificates is an anachronism in our electronic age and an important impediment to shortening the settlement cycle in Canada,” says CCMA chair Allan Cooper.

“While we know that the majority of people holding certificates do not trade frequently, there just wonÕt be enough time in the T+1 environment to validate a certificate and to securely transfer it from a seller through several intermediaries to a purchaser. The bulk of the market, already recognizing the value of electronic holdings and trading, holds its securities in electronic form,” explained Cooper.

“An increasing number of securities issues are eligible for fully electronic processing and settlement in CanadaÕs central securities depository. But the remaining paper and manual processes are blocking the settlement chain and must be reduced if we are to successfully achieve T+1.”

These recommendations are part of consultations initiated when Canada joined the U.S. capital markets in setting a target – now mid-2005 – to reduce the settlement cycle to T+1.