National Instrument 24-101, which commits all participants in the Canadian securities industry to same day trade matching, will become effective on 1 April 2007. However, the Canadian Capital Markets Association (CCMA) announced yesterday that exception reporting has been delayed until February 2008, instead of being introduced as planned in the fourth quarter of this year.
“This is the first regulatory rule in Canada covering all parties to a trade – brokers, investment managers and custodians,” says Jane Davis, CCMA Executive Director. “Indeed, Canada is a leader globally as the U.S. has delayed work on a trade matching rule.”
The origins of National Instruments 24-101 date back to April 2004, when the Canadian Securities Administrators (CSA) first issued and invited public comment on all aspects on the proposed rule. Following receipt of comments, the rule was substantially revised and subsequently reissued with an accompanying policy. The request for comment on that revised version expired in early May 2006, and a final form is now agreed.
National Instrument 24-101 – Institutional Trade Matching and Settlement requires that all market participants adopt industry-accepted processes and procedures to facilitate trade matching within prescribed times. The goal is to achieve same day trade matching over a transitional two year period.
The CSA has worked with the self-regulatory organizations (SROs), the Office of the Superintendent of Financial Institutions (OSFI) and the Canadian securities industry to ensure the rule is practicable. Software vendors and industry utilities have also offered products and services to facilitate same day trade matching.
Canadian banks, brokers and fund managers have been supportive of a rule that mandates trade-matching procedures, processes and deadlines because they think it will increase liquidity and efficiency and reduce risk. However, they were also anxious to ensure the costs did not exceed the benefits, and that the performance targets are actually achievable. Exception reporting was contentious, since it is how compliance with the targets will be measured, yet it is hard to agree on what the reports should contain, and what particular parties could control when multiple counterparties are involved.