CDS Rule Amendment Notice- Technical Amendments to CDS Procedures CCP Cap

Market Regulation Document Type
Canadian Depository for Securities Limited (CDS) rule review

THE CANADIAN DEPOSITORY FOR SECURITIES LIMITED

TECHNICAL AMENDMENTS TO CDS PROCEDURES

CCP CAP

NOTICE OF EFFECTIVE DATE

A. DESCRIPTION OF THE RULE AMENDMENT

Background

On November 23, 2005 the Board of Directors of The Canadian Depository for Securities Limited ("CDS") approved amendments to CDS Participant Rules which concern the cap on a portion of the obligations incurred by Participants in central counterparty services ("CCP Cap"). The proposed amendments to the CDS Participant Rules were published for public review and comment on December 2, 2005 by the Ontario Securities Commission and the Autorité des marchés financiers.

The proposed amendments to CDS Participant Rules dealing with the CCP Cap will require CDS to amend its Participant Procedures to facilitate the implementation of the proposed rule changes.

The Procedures ("Participating In CDS Services") marked for the amendments may be accessed at the CDS website at:

http://www.cds.ca/cdshome.nsf/Main-E?OpenFrameSet&Frame=content&Src=Pages%2F-EN-blacklined%3FOpen.

Description of Proposed Amendments

The proposed amendments to CDS Participant Rules will change the current "hard" CCP Cap to a "soft" CCP Cap. The new "soft" CCP Cap will impose specific obligations upon a Participant when that Participant's CCP Contributions Total (as this term is defined in the CDS Participant Rules) exceeds specific, defined thresholds. The proposed amendments provide that where a Participant's CCP Contribution Total exceeds the prescribed thresholds:

• CDS will provide identified parties, including the Participant's primary regulator, and, where threshold two and three have been exceeded, other Participants utilizing the same services that the Participant in question uses, with specific notice that the Participant has exceeded the threshold amounts; and

• the Participant must take appropriate action to reduce its outstanding positions, subject to facing additional collateralization on the added risk on an escalating basis. Additional collateral requirements are imposed where a Participant has breached threshold two, with further additional collateral requirements imposed where a Participant has exceeded threshold three.

Amendments to the "Participating in CDS Services" Participant Procedures include a description of each of three thresholds accompanied by a discussion of the consequences of each threshold breach (Sections 7.2). These thresholds are described as follows:

Threshold one -- is exceeded where a Participant's CCP Contribution Total exceeds $60 million (or 75% of the $80 million cap);

Threshold two -- is exceeded where a Participant's CCP Contribution Total exceeds $80 million (or 100% of the cap);

Threshold three -- the amendments provide for a new threshold where a Participant's CCP Contribution Total exceeds $120 million (150% of the cap).

An additional paragraph has been added which provides that CDS will advise a Participant, its primary regulator and all other Participants who are members of the services utilized by the Participant, that the Participant has reduced their outstanding positions below the threshold, as appropriate.

B. REASONS FOR TECHNICAL CLASSIFICATION

The amendments proposed pursuant to this Notice are considered technical amendments as they are consequential amendments intended to implement proposed changes to CDS Participant Rules governing CCP Capping that were published for public comment on December 2, 2005.

C. EFFECTIVE DATE OF THE RULE

The effective date for these amendments is February 27, 2006.

D. QUESTIONS

Questions regarding this notice may be directed to:

Jamie Anderson
Senior Legal Counsel
The Canadian Depository for Securities Limited
85 Richmond Street West
Toronto, Ontario M5H 2C9
Telephone: 416-365-3876
Fax: 416-365-1984
e-mail: [email protected]

TOOMAS MARLEY
Chief Legal Officer