PFMIs – The Canadian Experience
Global Conference of Central Securities Depositories, WFC 2015
David Stanton, Chief Risk Officer, CDS
May 21, 2015
PFMIs in Canada by the Numbers
• 3 TMX Group FMIs subject to PFMIs, 2 are designated as
systemically important (CDS and the Canadian Derivatives
Clearing Corporation) in Canada.
• 23 of 24 PFMIs applicable to CDS as an CSD, SSS and CCP.
• 4 regulators involved regulating CDS under PFMIs (central
bank and 3 provincial securities commissions).
• 20 issues identified that require attention either as a
priority or in normal course of business to observe PFMIs.
• Identified as a key corporate initiative for 2 years.
• Innumerable presentations and discussions on PFMIs and
related topics with Board of Directors,
participants/members and regulators.
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PFMI Timeline and Milestones
2011 and earlier
2012 to 2013
• Self-assessments against RSSS and RCCP
• Draft PFMIs issued
• Comment letter and contribution to
industry responses i.e. ACSDA + CCP12
• Preliminary self-assessment against
PFMIs
• PFMIs issued (Apr 2012)
• Detailed self-assessment against CPSS
assessment methodology
• Identification and prioritization of gaps
• Remediation project planning
• CDS acquired by TMX Group
2014
2015 and later
• Phase 1 of remediation project
addressing highest priority issues:
• Eliminate leveraged use of
collateral in SSS
• Increase liquidity facility and
diversify liquidity providers
• Establish CCP default fund
• Enhance stress testing
• Address procyclicality
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• Phase 2 of remediation project:
• 1st generation recovery plan
• Quantitative and qualitative
disclosure
• 2 hour disaster recovery from
disruption (not declaration)
• 2nd generation recovery plan
• Tiered participation
• FMI resolution planning
Recovery and Resolution Issues
• Orderly wind-down is not likely to be a viable strategy for
our CSD and SSS services (but possibly for CCP).
• Moving from an industry-owned, cost-recovery utility to a
for-profit subsidiary of the exchange affects our approach
to certain recovery tools (e.g. skin-in-the-game or “SITG”).
• SITG:
– Should only be enough to provide additional motivation
required for FMI operators to appropriately manage risk.
– Needs to be though of as a package of changes along with
fee changes, collateral adjustments and access standards.
• Resolution authority for Canadian FMIs does not currently
exist/has not yet been appointed.
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Observations and Lessons Learned (So Far!)
1. Rigorous and transparent self-assessment is essential.
2. Involvement of stakeholders (clearing
members/participants, regulators, owners) yields better
results and smoother progress.
3. Remediation plans need to adapt to reflect additional
regulatory guidance, changing priorities and a better
understanding of the PFMIs that comes from experience.
4. Find the linkages between the requirements of the PFMIs
and business value – we are not doing this because our
regulators require it, we are doing it because resilient
FMIs make Canadian capital markets more attractive.
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David Stanton
Chief Risk Officer
The Canadian Depository for Securities
dstanton@cds.ca
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