Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	Model 2 for government debt and Model 3 for other securities, moving to Model 2 in 2002.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	Yes. T+0 for all federal government market debt (including T-bills) and for bankers acceptances and commercial paper; T+3 for Canadian and U.S. equities and corporate, provincial and municipal debt.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	As noted above, most debt instruments settle on T+0 and the remainder are scheduled to move to shorter settlement by the end of 2001. Equities and other instruments currently settle on T+3 and Canada is moving to a straight-through processing environment that should allow T+1 settlement by mid-2004.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	Yes, trade matching is accomplished on trade date for most debt and all exchange-traded transactions. With implementation of T+1 in June 2004, virtually 100 per cent of trade matching will be undertaken on trade date.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	The significant majority of securities are immobilized and a growing number are issued in uncertificated form. With implementation of T+1, targeted for June 2004, securities do not have to be scrip- or certificate-less, however, at present it appears that Canada, like the U.S., will require securities to be in electronic format before trading, which will significantly reduce the number of certificates outside the depository over time.
6.	Does the market allow partial settlements?	Yes, in the continuous net settlement and soon-to-be-implemented DetNet system, however, not for trade-to-trade transactions.
7.	Can the depository accommodate same day turnarounds?	Same-day turnarounds are routinely accommodated in DCS with real time settlement. It is possible, although there are some constraints, for same-day turnarounds in SSS given the two daily settlement cycles.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.