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(Securities industry to cut trade times
By TERRY WEBER
Globe and Mail Update
The Canadian securities industry will cut the number of days it takes to close a trade from three to one in a project aimed at reducing investor risk and harmonizing markets with those in the United States.
The change — known as T+1 — was announced Wednesday by the Canadian Capital Markets Association, an industry group, which said the switch could take place by mid-2004.
Currently, securities regulations require that trades be settled within three days. The new proposal would mean a trade would close the following day. The change mirrors a similar U.S. effort.
The association said increasing trade volumes mean existing systems and procedures are hard pressed to meet demands, creating the risk that a transaction may not be completed or that one of the parties to the transaction may fail.
In Canadian markets, an average of 135,000 equity, debt and money market trades are made each day. Under the current system, the value of trades awaiting settlement at the end of each day ranges from $100-to-$150-billion.
"Given the three days it takes to settle trades, the total dollar amount outstanding on any business day is three times this amount, creating a daily credit risk of $300-billion to nearly half a trillion dollars," the group, which represents a broad range of financial services companies and organizations, said.
Five years ago, the Canadian securities industry moved from a five-day closing system to three days. The shift to next-day closing, the group said, will be more complex, with a cost approaching that of preparing for 2000.
"This time it is not simply about doing the same things faster, but about fundamentally changing the settlement process," Charles Baillie, chairman and chief executive officer of the TD Bank Financial Group, said in a statement outlining the change. "The effort will require the same industry-wide co-operation as did the year 2000 project."
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