LONDON - Thomas Murray, the specialist custody rating, risk management and research firm has affirmed the CDS Clearing and Depository Services Inc. (CDS Clearing) rating as 'AA' which represents very low risk overall. The rating is made up of the following components:

The 'AA' rating as assigned by Thomas Murray recognises CDS Clearing's ongoing commitment to minimise risk for market participants and the demonstrated robustness of its settlement process during financial instability. The outlook has been assigned as 'Stable' which suggests that there are no imminent developments that may change the rating at this stage.

CDS Clearing operates a sophisticated credit risk model, to protect participants against the risk of default of their counterparties. The model is based on loss-sharing arrangements designed in a way in which the defaulter's collateral is sufficient to cover its obligations in the vast majority of cases. This highly collateralised risk model proved resilient during the recent period of global market instability, the credit crunch, and price volatility although fortunately for CDS Clearing it did not have to manage any significant defaults. Also, CDS Clearing increased its comprehensive internal stress testing which demonstrated the robustness of the model under an increased variety of extreme conditions.

Looking ahead, the introduction of FINet to replace DetNET on 28 April may prove to have a positive impact on Liquidity Risk. (FINet provides two rather than one daily net batch process and accepts broader instrument types including repo.) Also, several medium term projects have been initiated that should reduce the volume of paper based securities on issue, and reduce the use of issuer cheques for asset servicing related payments. These measures respectively have a positive outlook for further reductions in Liquidity Risk and Asset Servicing Risk.

Although the overall rating has remained unchanged, CDS Clearing has nevertheless introduced changes during the past year which have mitigated risk. Notable actions undertaken by CDS Clearing to further mitigate risk during the year are:

• The comprehensive Canadian Institute of Chartered Accountants (CICA) 5970 audit for 2008 was completed with no major issues raised. This provides a high level of assurance that the appropriate controls and procedures are in place
• Several technology upgrades were implemented that take advantage of technology developments to further improve system reliability, increase system processing speed, and capacity, and enhance the primary and DR site links
• CDS Clearing introduced the SWIFT MT568 message type which complements the MT564 and supports STP, improves efficiency and reduces asset servicing risk in respect of the distribution of entitlement and corporate action information
• Continual enhancements of Disaster Recovery Plans and Business Continuity arrangements have improved their robustness
• The Canadian Depository for Securities Limited (CDS) and its subsidiaries (CDS INC. and CDS Innovations) had another profitable year and supported a CAD 11 million rebate to participants and a lowering of fees. (CDS reported a small operating loss of CAD 1.5 million after the rebate but retains capital of CAD 41.6 million)
• CDS introduced a comprehensive new in-house training programme which was developed in conjunction with the Canadian Securities Institute

CDS has strong governance arrangements that support the public interest borne out by their commitment to system development, ongoing fee reductions and healthy fee rebates to CDS Clearing participants, and the inclusion of participant representatives in the Risk Advisory Committee and other key committees considering system development opportunities and their priorities.

Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said when announcing the rating of CDS Clearing and Depository Services Inc., "CDS Clearing has demonstrated the resilience of its complex and sophisticated risk model through a period of global financial instability. CDS's underlying financial strength has allowed it to continue to pursue further risk reducing projects. Furthermore, CDS's strong internal and external audit programmes confirm its excellence in operational risk management. All of these factors demonstrate that CDS Clearing continues to remain one of the top rated CSDs in the world".

Ian Gilhooley, President and CEO of The Canadian Depository for Securities Limited, said "CDS has again found it worthwhile to have worked with Thomas Murray in order to obtain an independent view of our existing capabilities, processes, outcomes and plans. The rating process involved a thorough review of CDS's clearing and settlement process and gave special focus to the improvements that CDS and the Canadian market have implemented over the past year and the robustness of both the risk model and CDS Clearing operations during periods of high financial instability". Mr Gilhooley indicated that he was particularly pleased with CDS's financial outcomes and its resilient performance over the last year. He added that he expects CDS will benefit from its medium term projects over the coming years. He noted that the affirmation of the overall rating of AA demonstrates that CDS Clearing remains 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.

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