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CDS CLEARING AND DEPOSITORY SERVICES INC. (CDS®)

MATERIAL AMENDMENTS TO CDS PROCEDURES

NEW ELECTRONIC ALERT SERVICE (EAS)

REQUEST FOR COMMENTS

A. DESCRIPTION OF THE PROPOSED CDS PROCEDURE AMENDMENTS

The SDRC Entitlements subcommittee requested that CDS develop and implement a new service for the submission of alerts to Limited Transfer Agents whenever a participant tendered to one of the Agent's voluntary Warrant Subscription corporate actions through the CDSX Entitlement function.

The proposed amendments to the Participating in CDS Services procedures, Depositary and Paying Agent Procedures, and the CDS Reporting Procedures will:

a) describe the new Electronic Alert Service (EAS), an automated notification function that will deliver an email or web-based alert to participants advising them of an activity that has occurred. The first alert offered will be specifically for Limited Transfer Agent participants to assist them in increasing their role as Depositary and Paying Agents in CDSX;

b) identify the type of alerts available, and the manner in which they can be received; and

c) describe the enhancements made to the Settled Transaction Report.

In addition, the following form will be added:

Web Services Request for CDS Participants form (CDSX843)

B. NATURE AND PURPOSE OF THE PROPOSED CDS PROCEDURE AMENDMENTS

The proposed amendments to the Participating in CDS Services procedures are intended to describe the new EAS service by which alerts will be distributed to participants, notifying them of activities occurring across different CDS applications.

The Depositary and Paying Agent Procedures proposed amendments are intended to describe how the alerts may be used by Transfer Agents to monitor participant tendering activities to their ongoing corporate action events.

The proposed amendments to the CDS Reporting Procedures are to describe the changes made to the Settled Transactions Report to identify funds movements relating to voluntary corporate actions, such as ongoing warrant subscriptions.

C. IMPACT OF THE PROPOSED CDS PROCEDURE AMENDMENTS

The Warrant Subscription event type in CDSX allows participants to enter online requests to tender their warrant position/subscription funds and elect to receive a pre-defined new security in exchange. In many cases, the subscription is ongoing allowing participants to exercise their subscription privilege on a daily basis throughout the life of the security. However, the CDSX functionality is only used by Limited Transfer Agent participants acting as Depositary Agents for processing the final expiry of subscribed rights/warrant events. The Depositary Agents are unwilling to use the CDSX functionality for events that allow participants to subscribe on a daily basis as they would have to review all of their subscription events each day, prior to the daily expiry time, in order to determine if any participant has entered a tender transaction. This manual process is very time consuming and may result in missed transactions.

As a consequence, participants who wish to exercise warrants on behalf of their clients on a daily basis have to physically withdraw the warrant certificates from CDS, and submit the certificates and a cheque to the Transfer Agent. The Transfer Agent then issues the new physical underlying securities to the participant, who deposits the certificates in CDS. This manual warrant subscription process is both costly and risky.

To address the concerns of the Limited Transfer Agent participants and increase their roles as Depositary and Paying Agents in CDSX, the new Electronic Alert Service (EAS) will deliver an automated email or web alert message to the respective Agent whenever a participant enters a tender subscription for one of the Agent's ongoing warrant issues. Upon receipt of the alert, the Transfer Agent will be made aware that action is required of them to complete the subscription transaction initiated by the tendering participant.

In future, additional alert types will be added to the EAS service, providing participants with information from other CDS functions and services.

The proposed amendments to the Participating in CDS Services procedures, Depositary and Paying Agent Procedures, and the CDS Reporting Procedures describe the EAS service, the type of alerts available, the delivery options available, and the reporting changes made to identify funds movements on voluntary corporate actions, such as ongoing warrant subscriptions.

C.1 Competition

There is expected to be no impact on competition.

C.2 Risks and Compliance Costs

There is expected to be no impact on compliance costs specific to EAS, apart from the costs for using the service. There is expected to be a reduction in risk to those participants who tender to an ongoing warrant subscription event via CDSX, due to the elimination of physical security movements.

C.3 Comparison to International Standards -- (a) Committee on Payment and Settlement Systems of the Bank for International Settlements, (b) Technical Committee of the International Organization of Securities Commissions, and (c) the Group of Thirty

No such comparison is available in respect of the proposed amendments.

D. DESCRIPTION OF THE PROCEDURE DRAFTING PROCESS

D.1 Development Context

The proposed amendments were developed by CDS Staff to define the new EAS service, and to document the manner in which a Transfer Agent may be alerted of participant tendering activity.

D.2 Procedure Drafting Process

CDS Procedure Amendments are reviewed and approved by CDS's Strategic Development Review Committee ("SDRC"). The SDRC determines or reviews, prioritizes and oversees CDS-related systems development and other changes proposed by participants and CDS. The SDRC's membership includes representatives from the CDS Participant community and it meets on a monthly basis.

These amendments were reviewed and approved by the SDRC on June 25, 2009

D.3 Issues Considered

CDS investigated possible solutions that would achieve the overall objective of providing alerts to Limited Transfer Agent participants so that they would expand their use of the CDSX entitlement function. It was considered beneficial to provide Agents with the choice of receiving alerts via their corporate email address, or through a web-based alert in-box within the CDS website.

D.4 Consultation

The SDRC reviewed and approved the proposed amendments on June 25, 2009, prior to their submission for public comment.

D.5 Alternatives Considered

CDS considered building just a notice that would be sent to Transfer Agents via email. However, the ease of use of an internet based facility was considered the best way to develop the EAS service in order to allow for development of future alert types from other CDS functions. It was also considered appropriate to offer a facility within the web service for users to identify their preferred alert delivery method -- email or web inbox -- in order to facilitate use of the service by all participants.

D.6 Implementation Plan

CDS is recognized as a clearing agency by the Ontario Securities Commission pursuant to section 21.2 of the Ontario Securities Act. The Autorité des marchés financiers has authorized CDS to carry on clearing activities in Québec pursuant to sections 169 and 170 of the Québec Securities Act. In addition CDS is deemed to be the clearing house for CDSX®, a clearing and settlement system designated by the Bank of Canada pursuant to section 4 of the Payment Clearing and Settlement Act. The Ontario Securities Commission, the Autorité des marchés financiers and the Bank of Canada will hereafter be collectively referred to as the "Recognizing Regulators".

The amendments to Participant Procedures may become effective upon approval of the amendments by the Recognizing Regulators following public notice and comment. Implementation is planned for September 14, 2009.

E. TECHNOLOGICAL SYSTEMS CHANGES

E.1 CDS

CDS will create a new web based application service on www.cds.ca to provide participants with the ability to subscribe to and view alert messages that will advise them of an activity that has occurred. The first alert offered will be specifically for Limited Transfer Agent participants to assist them in increasing their role as Depositary and Paying Agents in CDSX.

E.2 CDS Participants

Participants will be required to have access to the internet to register for and use the EAS service from www.cds.ca. There are no other external development impacts to CDS Participants as a result of the proposed amendments.

E.3 Other Market Participants

The service is not available to non-participants.

F. COMPARISON TO OTHER CLEARING AGENCIES

No comparable or similar procedures were available for other clearing agencies.

G. PUBLIC INTEREST ASSESSMENT

CDS has determined that the proposed amendments are not contrary to the public interest.

H. COMMENTS

Comments on the proposed amendments should be in writing and submitted within 30 calendar days following the date of publication of this notice in the Ontario Securities Commission Bulletin to:

Laura Ellick

Manager, Business Systems

CDS Clearing and Depository Services Inc.

85 Richmond Street West

Toronto, Ontario M5H 2C9

Phone: 416-365-3872

Fax: 416-365-9625

Email: lellick@cds.ca

Copies should also be provided to the Autorité des marchés financiers and the Ontario Securities Commission by forwarding a copy to each of the following individuals:

Me Anne-Marie Beaudoin

Manager, Market Regulation

Secrétaire del'Autorité

Capital Markets Branch

Autorité des marchés financiers

Ontario Securities Commission

800, square Victoria, 22e étage

Suite 1903, Box 55,

C.P. 246, tour de la Bourse

20 Queen Street West

Montréal (Québec) H4Z 1G3

Toronto, Ontario, M5H 3S8

Télécopieur: (514) 864-6381

Fax: 416-595-8940

Courrier électronique: consultation-en-cours@lautorite.qc.ca

e-mail: marketregulation@osc.gov.on.ca

CDS will make available to the public, upon request, all comments received during the comment period.

I. PROPOSED CDS PROCEDURE AMENDMENTS

Appendix "A" contains text of current CDS Participant Procedures marked to reflect proposed amendments as well as text of these procedures reflecting the adoption of the proposed amendments.

 

APPENDIX "A":

PROPOSED CDS PROCEDURE AMENDMENTS

Text of CDS Participant Procedures marked to reflect

 

Text CDS Participant Procedures reflecting the adoption

proposed amendments

 

of proposed amendments

 

25.5 Settled Transactions report

 

25.5 Settled Transactions report

 

Report ID

000038B

 

Report ID

000038B

 

Available

Daily

 

Available

Daily

 

Data currency

Intraday

 

Data currency

Intraday

 

Retention period

Two days

 

Retention period

Two days

 

Sort order

TRANSACTION ID

 

Sort order

TRANSACTION ID

 

 

 

FOR ENTITLEMENTS - EVENT ID,

 

 

 

 

FOR ENTITLEMENTS -- EVENT ID,

 

 

 

OPTION NUMBER, TRANSACTION ID

 

 

 

 

OPTION NUMBER, TRANSACTION ID

 

Aggregation

ACCOUNT TOTAL, NET TOTAL

 

Aggregation

ACCOUNT TOTAL, NET TOTAL

 

 

This report lists transactions that have settled or have otherwise been updated for a given ledger during the current business day. The memo information on funds and security position ledger adjustments is included on the report.

 

 

This report lists transactions that have settled or have otherwise been updated for a given ledger during the current business day. The memo information on funds and security position ledger adjustments is included on the report.

 

 

The report is generated for both Canadian and U.S. dollar transactions and details the transactions listed in the table below.

 

 

The report is generated for both Canadian and U.S. dollar transactions and details the transactions listed in the table below.

 

Transaction Transaction

 

Transaction Transaction

code

 

code

 

A

Deposit or withdrawal adjustment

 

A

Deposit or withdrawal adjustment

 

B

Billing

 

B

Billing

 

D

Deposit

 

D

Deposit

 

E

Entitlement

 

E

Entitlement

 

F

Funds transfer

 

F

Funds transfer

 

G

Inter-account movement

 

G

Inter-account movement

 

J

Ledger adjustment

 

J

Ledger adjustment

 

N

CNS settlement, CNS mark-to-market, buy-in mark-to-market transaction and fails-to-receive interest mark

 

N

CNS settlement, CNS mark-to-market, buy-in mark-to-market transaction and fails-to-receive interest mark

 

O

Outgoing payment

 

O

Outgoing payment

 

P

Pledge

 

P

Pledge

 

R

Receipt of payment

 

R

Receipt of payment

 

T

Non-exchange trade

 

T

Non-exchange trade

 

W

Withdrawal

 

W

Withdrawal

 

Y

Exchange trade

 

Y

Exchange trade

 

 

If the TRANSACTION TYPE field on the Settled Transactions Report Selection screen is left blank or populated with an E (entitlement), the information can also be filtered by event type and/or event transaction subtype. If the transaction subtype is OPTN, a fund total per option and a grand total per event will also be displayed. Refer to CDSX Procedures and User Guide for a valid list of event types and the table below for a list of the transaction subtypes.

 

 

If the TRANSACTION TYPE field on the Settled Transactions Report Selection screen is left blank or populated with an E (entitlement), the information can also be filtered by event type and/or event transaction subtype. If the transaction subtype is OPTN, a fund total per option and a grand total per event will also be displayed. Refer to CDSX Procedures and User Guide for a valid list of event types and the table below for a list of the transaction subtypes.

 

Transaction

 

 

 

 

Transaction

 

 

 

 

subtype

Description

 

subtype

Description

 

LGRS

Security payment/receipt by/to paying agent or depositary agent for distributions and mandatory events

 

LGRS

Security payment/receipt by/to paying agent or depositary agent for distributions and mandatory events

 

LGRF

Fund payment/receipt by/to paying agent or depositary agent for distributions and mandatory events

 

LGRF

Fund payment/receipt by/to paying agent or depositary agent for distributions and mandatory events

 

OPTN

Increases/decreases to participant accounts (GA, SA, RA and TN) and the depositary agent account (OA)

 

OPTN

Increases/decreases to participant accounts (GA, SA, RA and TN) and the depositary agent account (OA)

 

PLGS

Increases/decreases to the CA, CX and PA

 

PLGS

Increases/decreases to the CA, CX and PA

 

PYMT

Cash and security payments to participants

 

PYMT

Cash and security payments to participants

 

CLMP

Increases/decreases to participant funds or SA account because of claims processing of security loan items where the event involves a HOLD item

 

CLMP

Increases/decreases to participant funds or SA account because of claims processing of security loan items where the event involves a HOLD item

 

CLMX

Increases/decreases to participant funds account because of claims processing of security loan items where the event involves a SUBMIT item

 

CLMX

Increases/decreases to participant funds account because of claims processing of security loan items where the event involves a SUBMIT item

 

3.2 Processing option selections for non-default options

 

3.2 Processing option selections for non-default options

 

 

Option selections for non-default options are processed as follows:

 

 

Option selections for non-default options are processed as follows:

 

 

1.

Events are set up with options available to the shareholder. For more information, see CDSX Procedures and User Guide.

 

 

1.

Events are set up with options available to the shareholder. For more information, see CDSX Procedures and User Guide.

 

 

2.

Participants access the Option Selection Entry screen for a specific option and submit a tender, creating an instruction.

 

 

2.

Participants access the Option Selection Entry screen for a specific option and submit a tender, creating an instruction.

 

 

3.

CDSX performs the necessary validations (cash, securities and ACV). If the validations are successful, the tendered quantity is moved to the depositary agent's offer account and a memo entry is created in the participant's tender account. The status of the instruction changes from C (confirmed) to S (settled). For more information, see CDSX Procedures and User Guide.

 

 

3.

CDSX performs the necessary validations (cash, securities and ACV). If the validations are successful, the tendered quantity is moved to the depositary agent's offer account and a memo entry is created in the participant's tender account. The status of the instruction changes from C (confirmed) to S (settled). For more information, see CDSX Procedures and User Guide.

 

 

 

The movement of the security or funds to the depositary agent's offer account constitutes a legal tender.

 

 

 

The movement of the security or funds to the depositary agent's offer account constitutes a legal tender.

 

 

 

Depositary agents who have subscribed to receive warrant subscription alerts using the Electronic Alert service (EAS), receive email or web alerts whenever participants submit tenders to ongoing warrant issues. This eliminates the need for depositary agents to manually monitor if tender instructions have been submitted by participants.

 

 

 

Depositary agents who have subscribed to receive warrant subscription alerts using the Electronic Alert service (EAS), receive email or web alerts whenever participants submit tenders to ongoing warrant issues. This eliminates the need for depositary agents to manually monitor if tender instructions have been submitted by participants. Additional details regarding tender instructions are available in CDSX.

 

 

Additional details regarding tender instructions are available in CDSX.

 

 

 

 

 

 

 

 

 

For more information on EAS, refer to Electronic Alert service in Participating in CDS Services.

 

 

 

For more information on EAS, refer to Electronic Alert service in Participating in CDS Services.

 

 

 

Relevant dates and times for depositary agents are indicated in the table below.

 

 

 

Relevant dates and times for depositary agents are indicated in the table below.

 

Activity

Timing

 

Activity

Timing

 

Activation date

First date that participants can start submitting option instructions

 

Activation date

First date that participants can start submitting option instructions

 

CDS expiry date and time

Cutoff date and time for submitting option instructions. Instructions can be submitted from 7:00 a.m. ET (5:00 a.m. MT, 4:00 a.m. PT) to 8:00 p.m. ET (6:00 p.m. MT, 5:00 p.m. PT)

 

CDS expiry date and time

Cutoff date and time for submitting option instructions. Instructions can be submitted from 7:00 a.m. ET (5:00 a.m. MT, 4:00 a.m. PT) to 8:00 p.m. ET (6:00 p.m. MT, 5:00 p.m. PT)

 

Right of withdrawal date and time

Cutoff date and time for withdrawing option instructions

 

Right of withdrawal date and time

Cutoff date and time for withdrawing option instructions

 

Agent expiry date and time

Legal expiry

 

Agent expiry date and time

Legal expiry

 

LOG expiry date and time

Letter of guaranteed delivery cutoff date and time

 

LOG expiry date and time

Letter of guaranteed delivery cutoff date and time

 

3.4

Monitoring tender instructions and positions

 

3.4

Monitoring tender instructions and positions

 

 

Depositary agents use the following resources to monitor tender instructions and positions:

 

 

Depositary agents use the following resources to monitor tender instructions and positions:

 

 

Electronic Alert service (EAS) -- Depositary agents can subscribe to receive warrant subscription alerts, notifying them whenever participants submit tenders to ongoing warrant issues. For more information on EAS, refer to Electronic Alert service in Participating in CDS Services.

 

 

Electronic Alert service (EAS) -- Depositary agents can subscribe to receive warrant subscription alerts, notifying them whenever participants submit tenders to ongoing warrant issues. For more information on EAS, refer to Electronic Alert service in Participating in CDS Services.

 

 

Inquire Option Selection function -- To view the aggregate tenders per option and individual instructions and memos. The instruction is flagged in order to notify depositary agents when a memo is attached.

 

 

Inquire Option Selection function -- To view the aggregate tenders per option and individual instructions and memos. The instruction is flagged in order to notify depositary agents when a memo is attached.

 

 

Security Account Position Inquiry function -- To inquire on positions in their offer account. For more information, refer to CDSX Procedures and User Guide.

 

 

Security Account Position Inquiry function -- To inquire on positions in their offer account. For more information, refer to CDSX Procedures and User Guide.

 

 

Reports (For more information on these reports, refer to CDS Reporting Procedures.)

 

 

Reports (For more information on these reports, refer to CDS Reporting Procedures.)

 

 

 

--

Tender Breakdown Report -- Depositary Agent -- Indicates the cumulative tendered position for voluntary events, where participants have to submit instructions to a depositary agent

 

 

 

--

Tender Breakdown Report -- Depositary Agent -- Indicates the cumulative tendered position for voluntary events, where participants have to submit instructions to a depositary agent

 

 

 

--

Rejected Option Selection Instruction Report -- Depositary Agent -- Indicates all option selection instructions not taken up under an offer

 

 

 

--

Rejected Option Selection Instruction Report -- Depositary Agent -- Indicates all option selection instructions not taken up under an offer

 

 

 

--

Rights Distribution Eligibility Report -- Depositary Agent -- Indicates the eligibility of a participant to receive rights using CDS

 

 

 

--

Rights Distribution Eligibility Report -- Depositary Agent -- Indicates the eligibility of a participant to receive rights using CDS

 

 

 

--

Subscription Breakdown Report -- Depositary Agent -- Indicates the total number of warrants and rights exercised, including the number of rights stepped-up, the quantity of additional shares requested and the subscription cost per participant.

 

 

 

--

Subscription Breakdown Report -- Depositary Agent -- Indicates the total number of warrants and rights exercised, including the number of rights stepped-up, the quantity of additional shares requested and the subscription cost per participant.

 

3.6

Electronic Alert service

 

3.6

Electronic Alert service

 

 

The Electronic Alert service (EAS) distributes alerts to participants, notifying them of activities occurring across different CDS applications. This minimizes the amount of manual effort involved in monitoring activities. Alerts are available in email or web format.

 

 

The Electronic Alert service (EAS) distributes alerts to participants, notifying them of activities occurring across different CDS applications. This minimizes the amount of manual effort involved in monitoring activities. Alerts are available in email or web format.

 

 

Note: Email alerts are not encrypted so the confidentiality or security of the information is not guaranteed.

 

 

Note: Email alerts are not encrypted so the confidentiality or security of the information is not guaranteed.

 

 

Note: Web alerts are automatically deleted as specified on the alert inbox.

 

 

Note: Web alerts are automatically deleted as specified on the alert inbox.

 

 

To request access to this service, use the IBM Tivoli Identity Manager self-care interface (www.cdsservices.ca/itim/self).

 

 

To request access to this service, use the IBM Tivoli Identity Manager self-care interface (www.cdsservices.ca/itim/self).

 

 

Users can request the following roles per CUID within EAS:

 

 

Users can request the following roles per CUID within EAS:

 

 

• User -- Maintain personal subscription profiles, and display and delete web alerts

 

 

User -- Maintain personal subscription profiles, and display and delete web alerts

 

 

• Supervisor -- Maintain user and group subscription profiles, lock users and display and delete web alerts.

 

 

Supervisor -- Maintain user and group subscription profiles, lock users and display and delete web alerts.

 

 

Warrant subscriptions

 

 

Warrant subscriptions

 

 

Depositary agents can currently subscribe to receive warrant subscription alerts.

 

 

 

 

 

 

Depositary agents can currently subscribe to receive warrant subscription alerts.

 

 

These alerts advise the agents of ongoing warrant subscription requests having reached a settled status, indicating that action is required on their part.

 

 

These alerts advise the agents of ongoing warrant subscription requests having reached a settled status, indicating that action is required on their part.

 

 

The following alert types are available:

 

 

The following alert types are available:

 

 

Initial CA instruction received -- Depositary agents receive an alert the first time a tender instruction is submitted for a particular event/option on a particular day.

 

 

Initial CA instruction received -- Depositary agents receive an alert the first time a tender instruction is submitted for a particular event/option on a particular day.

 

 

They will not receive alerts when additional participants tender to that event/option throughout the day.

 

 

 

They will not receive alerts when additional participants tender to that event/option throughout the day.

 

 

CA instruction received -- Depositary agents receive an alert every time a tender instruction is submitted for a particular event/option.

 

 

 

CA instruction received -- Depositary agents receive an alert every time a tender instruction is submitted for a particular event/option.