Thomas Murray Issues a Rating for CDS, Canada

Thomas Murray Issues a Central Securities Depository Rating of ‘AA' to CDS Clearing and Depository Services Inc.
LONDON - Thomas Murray, the specialist custody rating, risk management and research firm is pleased to announce the issue of a Public Depository Rating to CDS Clearing and Depository Services Inc (CDS). CDS has been awarded a Public CSD rating of ‘AA', which represents very low risk overall.

The AA rating as assigned by Thomas Murray recognises the very strong procedures and controls applied within CDS in order to minimise risk for market participants. The outlook has been assigned as Stable which suggests that there are no imminent developments that may change the rating at this stage.

CDS is the sole depository for all eligible securities in Canada. It operates on a non-profit basis and is owned by the Canadian Depository for Securities Limited (CDS Limited), the holding company for the CDS Group. CDS Limited is owned by the major banks (66.7%), members of the Investment Dealers Association of Canada (15.2%) and the Toronto Stock Exchange (18.1%). CDS provides clearing and settlement services for Canadian securities held at CDS. In addition to its domestic operations, CDS maintains two links (New York Link and DTC Direct Link) with the Depository Trust Company (DTC), the US Central Securities Depository, to enable participants to move cross-border securities electronically or physically. The CDS-DTC link is a full custody and settlement link while custody links are also maintained with Euroclear France and JASDEC.

CDS operates a complex settlement model, that is endorsed by the market regulators and is highly supported by market participants. Settlement can take place via an overnight cycle, known as CNS/BNS batch, or via one of the four CNS intra-day net cycles for CCPguaranteed transactions. Trade-for-trade settlements, which are not guaranteed by CDS as central counterparty, take place in real-time in two sessions between 12.30am and 4.00am and 7.00 am and 4.00pm. Settlement is carried out against a line of credit provided by payment banks known as ‘extenders of credit'. Cash settlement takes place between 4.00pm and 5.00pm during Payment Exchange via the Large Value Transfer System (LVTS), operated by the Bank of Canada. The model provides for almost negligible asset commitment risk for direct participants and reduces liquidity demands by netting cash obligations at the end of the day.

In order to protect participants against the risk of default of their counterparties, CDS operates a sophisticated credit risk model, which includes calculation of collateral in order to cover daily settlement obligations, strict requirements for participants, daily settlement caps, a maximum exposure point and sector limits. CDS also manages collateral pools for each type of participant (e.g extenders of credit, receivers of credit, etc) and two participants' funds for CNS and Detnet services, where CDS acts as CCP. The risk model is based on loss-sharing arrangements although it is designed in a way in which the defaulter's collateral is sufficient to cover its obligations in the vast majority of cases.

CDS is particularly strong in the area of operational risk where a strong internal control department complements the work of the independent external auditors. The internal auditors verify on an ongoing basis that controls are in place and are applied throughout the organisation. The external audits are undertaken on an annual basis in terms of the 5970  eports under the CICA Accounting Standards. In addition, CDS has detailed procedures in place for its operations as well as well-defined and extensive disaster recovery plans that includes real-time back up of key data. Business continuity arrangements have been highly developed and include split operations between Toronto and Montreal.

Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said when announcing the CSD rating of CDS Clearing and Depository Services Inc, "Thomas Murray is pleased to have assessed CDS's existing clearing and settlement model and its risk minimisation procedures for participants. CDS, in operating a complex and sophisticated risk model, has put in place very strong controls and procedures in order to minimise risk. The rating reflects the work done over the years to maintain a sound and efficient infrastructure that meets international standards and places CDS among the top tier depositories currently assessed."

Allan Cooper, President and CEO of CDS Clearing and Depository Services Inc, said "CDS is pleased to have worked with Thomas Murray in order to obtain an independent view of our existing capabilities and processes. The rating process involved a thorough review of CDS's clearing and settlement process and the AA rating demonstrates that CDS is in an excellent position to support Canada's capital markets".

The Central Securities Depository rating assesses the risk exposures for investors associated with the processes the CSD has in place to facilitate the safekeeping and the clearing and settlement of securities, where applicable. It assesses six key risks. The methodology considers the capabilities of the depository and the quality and effectiveness of its operational infrastructure. It also assesses the depository's willingness and ability to protect its participants or clients from losses. As part of the rating, the scope and quality of the depository's services is assessed. The ratings are on a consistent global scale, using the familiar AAA to C ratings scale. Once the rating is assigned there is an ongoing surveillance process to monitor the depository.

Separately, Thomas Murray maintains proprietary assessments of over 140 CSDs globally as part of the Thomas Murray Depository Risk Assessment services. These reports are available via Thomas Murray at www.thomasmurray.com.

For further information contact:
Simon Thomas/John Woodhouse
Thomas Murray
+44 (0) 207-830-8300
sthomas@thomasmurray.com
jwoodhouse@thomasmurray.com

About Thomas Murray
Thomas Murray is a specialist custody rating, risk management and research firm specialising in the global securities services industry. Thomas Murray was established in 1994. The Company tracks and analyses over 250 custodians globally and monitors the risk of over 100 capital market infrastructures. The Company has a strong position as a provider of public and private ratings and risk assessments on global custodians, domestic custodian banks and capital market infrastructures.
www.thomasmurray.com

About CDS Clearing and Depository Services Inc
CDS Clearing and Depository Services Inc. is Canada's national securities depository, clearing and settlement hub - supporting Canada's equity, fixed income and money markets. CDS is accountable for the safe custody and movement of securities, accurate record keeping, the processing of post-trade transactions, and the collection and distribution of entitlements relating to the securities that have been deposited by participants. CDS is a not-for-profit company wholly owned by The Canadian Depository for Securities Limited (CDS Limited), the holding company for the CDS Group. It is supervised by Ontario Securities Commission, Autorité des marchés financiers (AMF) de Québec and federally by the Bank of Canada.
www.cds.ca

Attachments

CDS Rating Report

Whilst reasonable care has been taken in the compilation of this information, neither Thomas Murray, its affiliates or information contributors shall have any liability for any errors, omissions, delays or inadequacies in the information or for any loss or damage however occasioned (whether arising directly or indirectly), to any person or company relying on this information, or any decision made, action or inaction taken by any party in reliance upon this information (except to the extent permitted by law).