CANADA: IIROC Approves Amendments to Dealer Member Rules&nbsp

Friday July 29 2016

On June 29, 2016, the Board of Directors of the Investment Industry Regulatory Organization of Canada (IIROC) approved the publication for comment of the proposed amendments to IIROC’s Universal Market Integrity Rules (UMIR), Dealer Member Rules (DMR) and Form 1 regarding the investment industry’s move from a trade date plus three business days (T+3) settlement cycle to a trade date plus two business days (T+2) settlement cycle.

The primary objective of the Amendments is to ensure that IIROC’s requirements support the investment industry’s move to T+2 settlement at the same time as the U.S., which is scheduled for September 5, 2017.

UMIR, DMR, and Form 1

IIROC has identified one rule within UMIR, nine rules with DMR and two notes within Form 1 that require amendments for the move to T+2 and has grouped then into the following nine areas:

(1)    Special Terms Order;

(2)    Treatment of monetary assets and liabilities as spot positions regarding foreign exchange margin requirements ;

(3)    Margin requirements for when issued trading of new and additional issues

(4)    The stopping of accrued interest for regular delivery of Government of Canada Bonds and Government of Canada Guaranteed Bonds having an unexpired term to maturity of longer than 3 years, and all provincial, municipal, corporation and other bonds or debentures, stock, or other certificates of indebtedness including mortgage-backed securities;

(5)    Determining whether dealings in bonds and/or debentures that are available only in registered form are on an “and interest” or a “less interest” basis;

(6)    Determining when unlisted registered shares are to be traded ex dividend, ex rights, or ex payments;

(7)    Determining when unlisted registered shares are to be traded ex dividend, ex rights, or ex payments;

(8)    The definition of a commitment period for a mortgage-backed security (MBS) trade; and

(9)    Determining when a preliminary trade confirmation must be sent for a MBS trade.

Two alternatives were considered, namely:

(1)    to continue to use the current requirements for a T+3 settlement cycle; and

(2)    to make the amendments to facilitate the industry’s move to a T+2 settlement cycle.

IIROC selected the second alternative, in order to continue Canada’s settlement cycle harmonisation with the U.S. settlement cycle as the two country’s capital markets are closely connected. In addition to being harmonised with the U.S. settlement cycle, the move to T+2 is expected to provide significant benefits to the industry, including the following:

(1)    Counterparty risk reduction

(2)    Operational process efficiencies

(3)    Potentially lower collateral requirements

(4)    Enhanced global settlement synchronization

The move to a T+2 settlement cycle will align Canada with the U.S. capital markets and other major international capital markets that have already moved to a T+2 settlement cycle.

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