What Is the Canadian Depository for Securities Limited (CDS)?

The Canadian Depository for Securities, Ltd. (CDS) is Canada's national securities depository, clearing, and settlement hub. It provides reliable and cost-effective depository, clearing, and settlement services for participants of Canada's equity, fixed income, and money markets.

The CDS is now part of the TMX Group, a large Toronto-based financial services company that operates the Toronto Stock Exchange (TSX), TSX Venture Exchange, Montreal Exchange, and TSX Alpha Exchange. 

Key Takeaways

  • The Canadian Depository for Securities Limited (CDS) is a centralized depository service and electronic clearing and settlement system used in Canada.
  • The CDS was formed to streamline Backoffice processing of Canadian securities using new technologies and automation to create faster, more efficient systems.
  • In 2012, CDS became part of the Toronto Stock Exchange's TMX Group.

Understanding the Canadian Depository for Securities Limited (CDS)

The Canadian Depository for Securities Limited (CDS) responsibilities include the safe custody and movement of securities, post-trade transactions processing, accurate record-keeping, and the collection and distribution of securities entitlements such as dividends and interest payments. The CDS is regulated by the securities commissions of Ontario and Quebec, and the Bank of Canada.

The CDS incorporated in June 1970, in response to rising costs for back-office functions and increased trading volumes in Canadian capital markets. It handled approximately 6,000 daily exchange trades in its first year. Today, as a subsidiary of TMX Group, the CDS handles more than 1.6 million daily domestic and cross-border securities trades and custodies over $4 trillion of securities. TMX Group operates exchanges across asset classes, including the Toronto and Montreal Exchanges. As the parent company has added capabilities through acquisition, the CDS has remained the primary provider of equities and fixed income clearing and trade settlement services.

The CDS has steadily increased its reach, initially in Canadian markets and later in the U.S. The firm began clearing equity trades on the Montreal Exchange in 1976 and expanded to the Toronto Exchange in 1977. The CDS began working with U.S. clearing and custody firm The Depository Trust Company in 1979 to develop access to U.S. capital markets. Cross-border clearing and settlement of U.S. securities commenced in 1998. The CDS implemented a clearing system for Canadian bonds and money market instruments in the early 1990s.

The CDS and Capital Market Improvements

The CDS provided the trading infrastructure and technology that enabled the Canadian Capital Markets Association (CCMA) to implement its T+2 initiative in 2017 that shortened trade settlements of investment funds, equities, and bonds from three to two business days. The move was made in conjunction with a similar T+2 settlement mandate overseen in the U.S. by the Securities and Exchange Commission.

In its report, the CCMA noted the close ties that exist between Canadian and U.S. capital markets. Shortening the settlement cycle more closely aligned the two primary North American markets with European markets already settling on a T+2 basis. The move also aimed to reduce credit and market risk, including the risk of a trading counterparty defaulting, and improve capital efficiency.