What is the 'Canadian Depository For Securities Limited - CDS'

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

BREAKING DOWN 'Canadian Depository For Securities Limited - CDS'

The Canadian Depository for Securities Limited (CDS)’s 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. CDS is regulated by the securities commissions of Ontario and Quebec, and the Bank of Canada.

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, 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, CDS has remained the primary provider of equities and fixed income clearing and trade settlement services.

CDS has steadily increased its reach, initially in Canadian markets and later the U.S. The firm began clearing equity trades on the Montreal Exchange in 1976 and expanded to the Toronto Exchange in 1977. 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. CDS implemented a clearing system for Canadian bonds and money market instruments in the early 1990s.

CDS and Capital Market Improvements

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 that the close ties 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.

 

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