DTCC Begins Settlement of Canadian Dollar Transactions
January 12, 2006
Depository Trust & Clearing Corp. (DTCC) said it has launched its settlement link with the Canadian Depository for Securities (CDS). The New York-based DTCC is testing the connection--its first that supports the processing and settlement of transactions in a foreign currency--with five participants in preparation for a full rollout March 1.
The link, announced last August, will reduce broker-dealers' cross-border processing costs and inefficiencies by eliminating problems associated with maintaining split inventories, said DTCC vice president John Abel. Split inventory involves maintaining a portion of a position at CDS for Canadian dollar settlement and the remainder with DTCC's Depository Trust Co. (DTC) for U.S. dollar settlement.
DTC customers will be able to concentrate all U.S. and Canadian securities positions in their DTC accounts. Until now, transactions in DTC- and CDS-eligible Canadian and U.S. securities could be settled only in U.S. dollars or free of payment. Those wishing to settle in Canadian dollars needed to hire an agent bank in Canada to pay for and accept delivery of securities from CDS.
Customers' securities positions received in Canadian dollars at the DTC will be immediately available for redelivery, the same as U.S. dollar transactions. The new link with CDS will be implemented using a DTC omnibus account at CDS. It will support Canadian dollar transactions sent by a DTC participant to a CDS broker or custodian as well as those sent by CDS brokers and custodians to DTC participants. It will also support Canadian dollar transactions between DTC participants. Most of the business occurs between CDS and DTC participants.
"The new link eliminates the need to employ more than one set of software," said Linda Neri, assistant vice president of securities processing operations for pilot participant Raymond James & Associates, in a statement issued Wednesday by DTCC. "There's a great advantage to having securities with dual eligibility housed in one place instead of split inventories. Money also settles more quickly through the DTC link than through our current Canadian arrangements."
According to Neri, the DTCC transaction fee for those using the link is "considerably lower" than the fees currently paid for clearing and settling Canadian local-dollar transactions. DTCC declined to disclose the names of the other four pilot customers.
In addition to CDS, DTC has connections to another 12 national and international depositories to settle DTC-eligible issues in U.S. dollars, but its existing link with Canada is the oldest and largest by volume of traffic, reflecting the fact that Canada is the U.S.'s largest trading partner for securities transactions. CDS's link to DTC is its only one with a foreign depository for settlement of cross-border transactions. CDS connects with Japan and France's local depositories for custody purposes only.
International securities industry groups have been advocating efficient delivery-versus-payment linkages between national and international depositories to make settlement of cross-border transactions just as inexpensive and easy as settlement of local deals. Europe has taken the lead in this effort, in large part because of preexisting linkages between international depository Euroclear Bank in Brussels and numerous national depositories and other depositories within the Euroclear family. Euroclear Bank maintains 38 links with depositories outside its home market in Belgium, some of them direct, others through local agent banks; it also connects to rival Clearstream Banking Luxembourg, and it settles 34 currencies, including the euro.
