CDS 2009 Development Program by cmlang

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									CDS 2009 Development Program
September 2009
        CDS 2009 DEVELOPMENT PROGRAM                                                                    INTRODUCTION




Introduction
As part of its annual business plan, CDS identifies the human resource capacity that has been assigned to maintain
and enhance its systems and to develop new functionality. These resources are designated as System Development,
Enhancement and Maintenance (SDEM) resources and are located in three principal areas: Product Development
and Product Support, Business Systems and Development Services and Tata Consulting Services (TCS). Other
areas, such as IT Services (ITS), Information Security & Control Services, Risk Management, Legal and Corporate
Communications contribute resources as required to support SDEM-related projects. As approved in the 2009
business plan by CDS’s board of directors, the total SDEM resource capacity for fiscal 2009 is 13,000 days (the
equivalent of 57 FTEs) or approximately $6.2 million (based on internal cost recovery rates).


In August – September, 2008, CDS undertook a survey of participants for their feedback about the process by which
CDS identifies and communicates information about initiatives for development to which SDEM resources are
applied. This process involves regular interaction with the CDS Strategic Development Review Committee (SDRC)
and its subcommittees and ongoing meetings and discussions with participants, either individually or through other
forums, such as the IIROC FAS Operations Committee. Participants also were asked about their satisfaction with the
developments that have been produced by CDS, such as timeliness and adequacy of content, and for suggestions for
improvement. CDS has produced a summary of the survey and its findings, which also includes a summary of CDS’s
planned responses to the issues raised in the survey. The summary is posted on CDS’s website, www.cds.ca.


One request from respondents to the survey was improved communication about the development initiatives that
CDS is undertaking so that participants can better understand the benefits and potential impact of the initiatives. One
way that CDS intends to address this request is by producing a regular report that explains each specific
development initiative that will have a direct impact on participants, the associated benefits and impact to participants,
and the planned timelines for development and implementation. The resultant report, which follows, will be updated
by CDS on a monthly basis and will be published on the www.cds.ca website. The initiatives will be categorized by
the main service groups offered to participants – Clearing and Settlement, Depository, International Services and
Information Services – and updates will be provided on the progress of development to reflect material changes.


CDS welcomes comments about the content of this report and how it could be made more useful for participants. If
you have any questions about the initiatives identified in the report or suggestions about the report, please contact
your account manager or the contact person identified for a specific initiative.




Mark Weseluck
Chief Business Development Officer
September 16, 2009




SEPTEMBER 2009
        CDS 2009 DEVELOPMENT PROGRAM                                                         TABLE OF CONTENTS




Table of Contents


Clearing and Settlement Initiatives                                                                           2
   FINet®                                                                                                    2
   Settled Transactions report (RMS038B) enhancement                                                         4
   Exchange trade reconciliation enhancements (one-sided reconciliation)                                     5
   Exchange trade reconciliation enhancement (security quantity totals)                                      6
   Buy-in list screen enhancements                                                                           7
   Extended failed trades file for IIROC                                                                     8

Depository Initiatives                                                                                        9
   DRIP/pricing reporting                                                                                     9
   Eligibility of Spanish bonds                                                                              10
   Corporate Actions Liability Management service (CALMS)                                                    11
   Daily Warrant Subscription Alerts                                                                         13
   Settled Transactions report (RMS038B) enhancement                                                         15
   Reporting ledger quantity and payment rate in monthly 1042-S Reporting – Detail file/report               16
   Non-transferable issue (NTI) certificate destruction program                                              17

International Initiatives                                                                                    19
   SEC Regulation SHO Rule 204T – reporting                                                                  19

Information Services Initiatives                                                                             21
   New ATON transfer fields for marriage breakdowns and LIF, RLIF and RLSP account types                     21
   Bulletin extract for final corporate actions for mutual funds and limited partnerships                    22




SEPTEMBER 2009                                                                                           |   1
        CDS 2009 DEVELOPMENT PROGRAM                                        CLEARING AND SETTLEMENT INITIATIVES




Clearing and Settlement Initiatives
Category: Clearing and Settlement
Initiative:     FINet®                                         Implemented/Subsequent enhancement in progress

Description
FINet® replaces DetNet® as CDS’s fixed income netting and central counterparty (CCP) service available to any full
CDS participant for eligible fixed income trade-for-trade trades in Canada. FINet is operated on the mainframe
platform, providing for improved system robustness and future modular development. The fixed income securities
eligible for this service are Government of Canada debt and provincial bonds, treasury bills (T-bills) and notes.
Eligible trades will be netted regardless of their value dates in intraday or end-of-day netting cycles, whereas DetNet
only netted eligible forward value-dated trades involving Government of Canada debt at end-of-day. FINet also
increases netting of eligible trades by enhancing the DetNet zero-net process to allow one-to-many trade netting and
facilitating full and partial settlements throughout the day. Participants are able to have their netted trades, that have
reached value-date, automatically placed on hold after batch net settlement and/or after the intraday netting process.
Netting and reporting is available at the internal account level, not just at the customer unit identifier (CUID) level.
Following implementation of FINet, FINet participants requested that only FINet eligible trades with value dates less
than or equal to the current business date be considered for the FINet intraday netting process. Currently, in the
FINet intraday netting process eligible non-exchange trades with value dates less than, greater than or equal to the
current business date are considered for netting. No changes were requested to the current FINet end-of-day netting
process, so eligible non-exchange trades with value dates less than, greater than or equal to current business
date + 1 will continue to be considered for the FINet end-of-day netting process. There are no changes required to
the marking process as a result of this work request. The extracted (and deleted) eligible trades and the underlying
trades will continue to be marked as per the current process.
Benefits
The increased netting and novation of more eligible fixed income trades with CDS as the CCP reduces the amount of
settlement obligations for FINet participants and the level of counterparty risk and credit limits. This enables
participants to improve the management of their fixed income trades and deploy their regulatory capital more
efficiently. By operating the service on the mainframe platform, CDS’s operational risk has been reduced and future
service enhancements will be easier.
FINet participants asked that future-dated trades be excluded from the intraday netting process as these trades could
be adjusted or cancelled and participants having been holding back these trades to avoid this possibility.
External Impact
Participation in FINet is available as a fee-based subscription service to any CDS full participant that uses CDSX.
In order to participate in FINet, participants need to ensure that they:
>   Define their netting criteria further to the FINet service options so that their eligible trades can be considered for
    netting
>   Are familiar with the participant fund collateral requirement calculations and the loss allocation look back period
>   Can satisfy the FINet intraday and end-of-day participant fund collateral requirements
>   Are able to reconcile activity related to the netting and settlement processes with their service bureaus
>   Recognize the new FINet related values contained within output (i.e., files/messages) received from CDS.




SEPTEMBER 2009                                                                                                       |       2
        CDS 2009 DEVELOPMENT PROGRAM                                  CLEARING AND SETTLEMENT INITIATIVES




Milestones
1.   Business case                              November 21, 2007                 Approved by board
2.   Business requirements                      February 29, 2008                 Completed
3.   Functional analysis                        March 31, 2008                    Completed
4.   Code development                           September 30, 2008                Completed
5.   System and integration testing             October 31, 2008                  Completed
6.   User acceptance testing                    February 28, 2009                 Completed
7.   Rule and procedure amendments              March 6, 2009                     Completed
8.   Community “dry run” testing                March 20, 2009                    Completed
9. Implementation                               April 4, 2009                     Implemented on April 27, 2009
10. Business requirements for intraday          August 10, 2009                   Completed
    netting change
11. High level design/functional analysis       September 18, 2009                Completed
12. Code development                            September 30, 2009                On schedule
13. User acceptance testing                     October 30, 2009                  On schedule
14. Procedure amendments                        November 14, 2009                 Released for regulatory
                                                                                  approval
15. Implementation                              November 14, 2009 (Release 4)     On schedule
Progress Update
FINet was implemented on April 27 for Government of Canada bonds and T-bills. Provincial T-bills and notes were
made eligible for FINet on June 1. Provincial bonds were made eligible for FINet on June 9 and Canada Mortgage
Bonds were made eligible for FINet on September 15, 2009. Development of the change to the intraday process is on
schedule for implementation as part of Release 4.
Contact
Rob Argue, Senior Product Manager, Product Development | Email: rargue@cds.ca | Phone: 416.365.3887




SEPTEMBER 2009                                                                                              |     3
        CDS 2009 DEVELOPMENT PROGRAM                                      CLEARING AND SETTLEMENT INITIATIVES




Category: Clearing and Settlement (SDRC Entitlements Subcommittee initiative)
Initiative:     Settled Transactions report (RMS038B) enhancement                                        Implemented

Description
The beginning-of-day Ledger Adjustment report (RMS416) provides participants with the details of adjustments made
by CDS to their security or fund ledgers on the previous business day. To assist with their current business day
balancing, the SDRC Entitlement Subcommittee requested that this information be made available to participants on
the same day as their ledgers are adjusted. To achieve this, the intraday Settled Transactions report (RMS038B) has
been modified to include the memo field information entered for ledger adjustment transactions, along with any event
ID to show the adjustment on the same day.
Benefits
By having the ledger adjustments reported in the Settled Transactions report on the same day as the adjustments
occur, participants will be able to balance their ledgers on the same day.
External Impact
The process for reporting transactions other than ledger adjustments was not affected by the change. When a
participant enters an online report generation request for a Settled Transactions report, a memo field is reported for
all the fund and security position adjustments that have occurred in the participant’s CUID during the day up to the
point in time when the report request is generated (as the online report can be run by the participant multiple times a
day), along with an event ID number. The memo field remarks are reported in the Event-ID column, on a new line. If
there are two memo entries for a ledger adjustment transaction, the memo field remarks are reported in the Event-ID
column, on two new lines.
Milestones
1.   Subcommittee approval                        November 15, 2008                    Completed
2.   User acceptance testing                      January 23, 2009                     Completed
3.   Regression testing                           January 30, 2009                     Completed
4.   Procedure amendments                         February 6, 2009                     Completed
5.   Implementation                               February 7, 2009 (Release 1)         Completed
Progress Update
This enhancement is available following a successful implementation on February 7.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                   |       4
        CDS 2009 DEVELOPMENT PROGRAM                                          CLEARING AND SETTLEMENT INITIATIVES




Category: Clearing and Settlement (SDRC Equity Subcommittee initiative)
Initiative:        Exchange trade reconciliation enhancements                                                  Implemented
                   (one-sided reconciliation)
Description
At the end of each trading day, CDS receives an exchange trade input file from each marketplace (exchanges,
QTRSs or ATSs) containing the current day’s trade details, which CDS compares with the trade details provided by
participants (or their service bureaus). The reconciliation and reporting process is triggered by the receipt of the
participant’s data if the differences exceed the participant’s tolerance limits. If the participant or its service bureau
does not supply trade details for a specific trade source, that trade source’s files are ignored and are not used in the
reconciliation or reporting processes. To ensure that reconciliation occurs, the Equity Subcommittee requested
changes so that reconciliation activities are triggered based upon receipt of trade data from either a trade source or
the participant.
Benefits
The changes eliminated a reason for reconciliation of exchange trade with a trade source from not occurring. The
changes allow participants to reduce their fail costs, which result if they fail to send in a file and reconciliation is not
performed.
External Impact
Participants specify which sources of exchange trades should be applicable to the domestic trade reconciliation
process that is identified on their CDSX Service Eligibility Detail screen. In such cases, the trade details received from
subscribed trade sources are subject to the domestic trade reconciliation process, regardless of whether the records
have been received from the participant. Conversely, if the participant’s trade details for a trade source have been
received by CDS but the trade details have not been received from the trade source, reconciliation is performed using
the participant’s data only and all records are reported as differences for that day trades through the trade source. If
the participant has not specified the trade reconciliation process for a particular trade source, no reconciliation or
reporting of discrepancies is initialized.
Additionally, the Domestic Trade Reconciliation Detail screen was changed to enable participants to exclude the one-
sided reporting of trade source details for a source that they have identified as requiring the trade reconciliation
process. This new indicator is necessary to avoid the resulting large volume of discrepancies that would result from
non-receipt of a participant’s data when compared to records supplied by a large volume exchange (e.g., the TSX).
Sources of exchange trades did not have to make any changes to the layout of the inbound files.
Milestones
1.   Subcommittee approval                          November 15, 2008                       Completed
2.   User acceptance testing                        January 23, 2009                        Completed
3.   Regression testing                             January 30, 2009                        Completed
4.   Procedure amendments                           February 6, 2009                        Completed
5.   Implementation                                 February 7, 2009 (Release 1)            Completed
Progress Update
This enhancement is available following a successful implementation on February 7.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872



SEPTEMBER 2009                                                                                                         |       5
        CDS 2009 DEVELOPMENT PROGRAM                                         CLEARING AND SETTLEMENT INITIATIVES




Category: Clearing and Settlement (SDRC Equity Subcommittee initiative)
Initiative:     Exchange trade reconciliation enhancement                                                      Implemented
                (security quantity totals)
Description
Prior to the enhancement, participants were required to manually calculate the total quantity and difference for each
security discrepancy reported on the two Exchange Trade Reconciliation reports (RMS1953 and RMS379) in order to
complete their balancing processes. RMS1953 – Exchange Trade Reconciliation (participant version) and
RMS379 – Sub-Participant Exchange Trade Reconciliation report totals and differences for fund discrepancies, but
not for security discrepancies. The Equity Subcommittee requested that the reports be enhanced to provide quantity
subtotals by security.
Benefits
This enhancement enabled participants to more efficiently reconcile trade discrepancies.
External Impact
In order to facilitate participant reconciliation of security discrepancies, security quantity total and difference total
fields were added to both versions of the domestic Exchange Trade Reconciliation reports (RMS1953 and RMS379).
Milestones
1.   Subcommittee approval                          November 15, 2008                       Completed
2.   User acceptance testing                        January 23, 2009                        Completed
3.   Regression testing                             January 30, 2009                        Completed
4.   Implementation                                 February 7, 2009 (Release 1)            Completed
Progress Update
This enhancement is available following a successful implementation on February 7.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                         |    6
        CDS 2009 DEVELOPMENT PROGRAM                                       CLEARING AND SETTLEMENT INITIATIVES




Category: Clearing and Settlement (SDRC Equity Subcommittee initiative)
Initiative:     Buy-in list screen enhancements                                                             Implemented

Description
Prior to the enhancement, when a participant was inquiring on or maintaining buy-in transactions, they had to
navigate from various buy-in list screens to each transaction. Upon returning to the list screen(s), the cursor was
repositioned to the top of the list, losing sight of the transaction that it last viewed. The Equity Subcommittee
requested an enhancement that would position the cursor on the transaction last viewed upon returning to the
(calling) list screen. This enhancement applies to all buy-in activity (Maintain and Inquiry functions, both internal and
external versions). The Equity Subcommittee also requested that the deliverer's buy-in list screens be enhanced to
display extensions requested and extensions granted. Previously, the deliverer could only obtain this information by
accessing the buy-in transaction detail screens, or from a hardcopy report, the Maximum Execute Liability Report for
Deliverers of Buy-Ins (RMS530 and RMS98) report.
Benefits
Repositioning the cursor on all buy-in list screens to the last selected item will save participants time in dealing with
buy-ins. The ability for deliverers to view extensions requested and granted online will provide critical information in a
timelier manner.
External Impact
None, as the enhancements were applied to existing screens.
Milestones
1.   Subcommittee approval                         November 15, 2008                     Completed
2.   User acceptance testing                       January 23, 2009                      Completed
3.   Regression testing                            January 30, 2009                      Completed
4.   Procedure amendments                          February 6, 2009                      Completed
5.   Implementation                                February 7, 2009 (Release 1)          Completed
Progress Update
This enhancement is available following a successful implementation on February 7.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                      |       7
        CDS 2009 DEVELOPMENT PROGRAM                                       CLEARING AND SETTLEMENT INITIATIVES




Category: Clearing and Settlement (SDRC Equity Subcommittee initiative)
Initiative:     Extended failed trades file for IIROC                                                    Implemented

Description
In order to assist participants in complying with the regulatory reporting requirements of the Investment Industry
Regulatory Organization of Canada (IIROC), a new file has been created to identify unsettled non-exchange trades to
IIROC. The new file is based on the existing end-of-day outbound exchange and non-exchange trade file, but only
reports non-exchange trades that are outstanding 10 days past value date where the buyer is an IIROC member. The
new daily file is delivered directly to IIROC.
Benefits
This new file will assist participants that are IIROC members in complying with their extended failed trade reporting
requirement. By having CDS provide this information to IIROC, individual participant costs associated with developing
and supporting a facility to report this data are reduced or eliminated.
External Impact
The primary purpose of this file is to provide IIROC with details of its members’ extended failed trades. IIROC had to
make changes to its system coding in order to process this information.
Milestones
1.   SDRC approval                                 May 28, 2009                        Completed
2.   Business requirements                         June 19, 2009                       Completed
3.   High level design/functional analysis         June 26, 2009                       Completed
4.   Code Development                              July 13, 2009                       Completed
5.   User acceptance testing                       July 31, 2009                       Completed
6.   Procedure amendments                          August 18, 2009                     Regulatory approval received
7.   Implementation                                September 12, 2009 (Release 3)      Implemented
Progress Update
The project is on schedule for implementation as planned.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                   |      8
        CDS 2009 DEVELOPMENT PROGRAM                                                        DEPOSITORY INITIATIVES




Depositor y Initiatives
Category: Depository (SDRC Entitlements Subcommittee initiative)
Initiative:     DRIP/pricing reporting                                                                     Implemented

Description
The disbursed security price is the price determined to be the equivalent cash value of securities received in a
security receive type event (e.g., Dividend with Option, Stock Dividend). This information is added by SIES to events
in NCS when received from the agent, and is reported online in CDSX and on the 7040/7041 outbound entitlement
detail files. This pricing information may be used by participants to determine client tax implications. Rather than
participants having to perform numerous online inquiries in CDSX each day to view this information for each security,
the Entitlement Subcommittee asked CDS to provide this information to participants in a report format.
Benefits
With this enhancement, participants now have easier and more timely access to disbursed security price information.
This will enable them to more efficiently report pricing information for security receipt type events, such as the DRIP
asset option.
External Impact
A new field was added to the existing daily Summary of Payment Release report (RMS219) to report the disbursed
security price on applicable security receive type events. This provides participants with a single source of the
required information on payable date +1.
Milestones
1.   Subcommittee approval                        December 15, 2008                     Completed
2.   User acceptance testing                      January 23, 2009                      Completed
3.   Regression testing                           January 30, 2009                      Completed
4.   Implementation                               February 7, 2009 (Release 1)          Completed
Progress Update
This enhancement is available following a successful implementation on February 7.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                      |     9
        CDS 2009 DEVELOPMENT PROGRAM                                                             DEPOSITORY INITIATIVES




Category: Depository (Debt Subcommittee initiative)
Initiative:      Eligibility of Spanish bonds                                                                   Implemented

Description
The Debt Subcommittee asked CDS to make Spanish maple bonds an eligible security in CDSX. Spanish law
requires Spanish borrowers to collect and file detailed information with the Spanish tax authority on the identity of
beneficial holders eligible for "at-source" tax relief. CDS participants that hold Spanish bonds will be required to
provide the issuer with adequate information regarding their beneficial owners if they are to be exempt from the non-
resident withholding tax on entitlement payments in Spain.
As CDS does not have the ability to collect and file this information with the Spanish tax authorities, the Debt
Subcommittee agreed that CDS should work with a third party, Acupay, which already provides Spanish bond tax
services to depositories in other countries vis-à-vis the bond issuers. CDS completed a service level agreement with
Acupay and assisted Acupay in developing its processing procedures for tax data received from CDS participants.
Once the first Spanish bond has been made eligible at CDS, CDS will develop the business requirements for
automating certain processes between CDS and Acupay in order to minimize the manual effort by CDS. Funding of
the automation effort will be provided by the Debt Subcommittee allocation of SDEM resources for a separate
development initiative.
Benefits
Eligibility of Spanish bonds at CDS should help to foster a market in an alternative investment for participants to
provide to their clients. Eligibility will enable participants to use CDS’s functions to efficiently clear and settle
transactions of these bonds.
External Impact
Participants that elect to hold Spanish maple bonds and that request favourable tax treatment on coupons/entitlement
events based on the domicile of the beneficial owners will need to provide Acupay with beneficial owner information
and make an election in CDS's entitlement system.
Participants will need to educate their clients about the beneficial owner disclosure requirements of Spanish law in
order to receive favourable tax treatment and will need to put procedures in place to deal with situations where they
have mismatches between CDSX and Acupay (e.g., if less funds are received from Acupay than expected from
CDSX or if their elections in Acupay and CDSX do no match).
Milestones
1.   SDRC approval                                   March 27, 2008                         Completed
2.   Procedure amendments                            September 15, 2008                     Completed
3.   Agreement signed                                February 23, 2009                      Completed
4.   Bonds made eligible                             February 27, 2009                      Completed
Progress Update
The agreement between CDS and Acupay was completed and Spanish bonds can now be made eligible at CDS.
Contact
Alvin Ropchan, Senior Product Manager, Product Development | Email: aropchan@cds.ca | Phone: 416.365.8378




SEPTEMBER 2009                                                                                                          |   10
         CDS 2009 DEVELOPMENT PROGRAM                                                              DEPOSITORY INITIATIVES




Category: Depository (SDRC Entitlements Subcommittee initiative)
Initiative:      Corporate Actions Liability Management service (CALMS)                                             In progress

Description
The objective of the Corporate Actions Liability Management service is to replace a paper-intensive process that
takes place outside of CDS with a secure and uniform web-based electronic tracking service for liability notifications
related to voluntary corporate actions. Briefly, the process to be enhanced is described as follows:
1.   A participant who is owed securities initiates the process by faxing a letter of liability to the participant who must
     deliver the security. The letter of liability provides details of related outstanding transactions, the date and time
     when the security must be delivered and the consequence of failing to make delivery by the specified date.
2.   When the counterparty receives the letter of liability they can either accept or reject it. If accepted, the
     counterparty must deliver the security covered by the letter by the stated delivery due date/time, or be held liable
     to deliver the proceeds of the corporate action. If the counterparty delivers the target security to the participant
     who initiated the letter of liability by the stated delivery expiry date and time, the letter is considered “satisfied”. If
     the letter of liability is not satisfied, the counterparty is responsible to deliver the proceeds of the corporate action
     event in lieu of the target security. In this case, as per the letter of liability, the original trade-for-trade (TFT)
     trades are deleted and replaced with a new trade(s) reflecting the proceeds of the corporate event. The proposed
     service will facilitate the communications between the receiver and deliverer of securities.
3.   CALMS will support the ability to submit, acknowledge, accept, reject, reduce and track liability notifications in an
     automated fashion, using a browser-based interface. When initiating a liability notification, the participant will
     enter the target security’s ISIN. The system will retrieve any voluntary corporate action events related to the ISIN.
     The initiator will then be able to select the event and option for which they are holding the counterparty liable,
     eliminating the need to enter the details manually. As well, participants will be able to subscribe to email and/or
     online notifications advising them when an action, as an initiator or counterparty in a liability notification, is
     required.
The service is being launched initially as an optional service. CDS is investigating whether usage of the service
should be mandated through a rule requirement.
Benefits
For participants that choose to use the service, the current paper-based fax notification process will be replaced with
a uniform electronic communications service. This will reduce costs and risks associated with manual processing and
also will enhance straight-through processing (STP) capabilities.
External Impact
Participants will be able to utilize the web-based application to submit and track letters of liability. This will reduce
manual processes associated with delivering and following up on physical letters of liability. There has been sufficient
support indicated by members of the SDRC Entitlements Subcommittee to proceed with development of the new
service. The greater the number of users, the more effective and efficient the service will be, so CDS will continue to
inform participants of the benefits to encourage usage while pursuing the possibility of mandating usage through a
rule. Members of the Entitlements Subcommittee will be given regular reports about the features of the solution and
progress towards implementation.




SEPTEMBER 2009                                                                                                                |   11
        CDS 2009 DEVELOPMENT PROGRAM                                                    DEPOSITORY INITIATIVES




Milestones
1.   SDRC approval                                January 29, 2009                    Approved
2.   Business requirements                        April 3, 2009                       Completed April 9
3.   High level design/functional analysis        April 30, 2009                      Completed
4.   Code development                             September 30, 2009                  On schedule
5.   Rule and procedure amendments                November 6, 2009                    Under regulatory review
6.   User acceptance and regression testing       November 6, 2009                    On schedule
7.   Web user administrators/users bring-on       November 13, 2009                   On schedule
8.   Implementation                               November 14, 2009 (Release 4)       On schedule
Progress Update
The business requirements and high-level design have been completed and the work on code development is
progressing on schedule. The proposed rule changes were approved at the June meeting of the board of directors
and have been released for public and regulatory review. Further to the board’s request, CDS is investigating how
usage of CALMS might be made mandatory in order to maximize the efficiency afforded by the service.
Contact
Johann Lochner, Director, Product Support | Email: jlochner@cds.ca | Phone: 416.365.3928




SEPTEMBER 2009                                                                                                |     12
        CDS 2009 DEVELOPMENT PROGRAM                                                          DEPOSITORY INITIATIVES




Category: Depository (SDRC Entitlements Subcommittee initiative)
Initiative:     Daily Warrant Subscription Alerts                                                          Implemented

Description
The Warrant Subscription event type in CDSX allows participants to enter online requests to tender their warrant
position/subscription funds and elect to receive a pre-defined new security in exchange through CDSX. In many
cases, the subscription is ongoing, allowing participants to exercise their subscription privilege on a daily basis
throughout the life of the security. Prior to implementation of this new functionality, the CDSX functionality was only
used by limited transfer agent (TA) participants acting as depositary agents for processing the final expiry of
subscribed rights/warrant events. The depositary agents were unwilling to use the CDSX functionality for events that
allow participants to subscribe on a daily basis as they had to review all of their subscription events each day prior to
the daily expiry time in order to determine if any participant had entered a tender transaction. This manual process
was time consuming and could result in missed transactions. As a consequence, participants who wanted to exercise
warrants on behalf of their clients on a daily basis had to withdraw the warrants from CDS and submit the warrants
and a cheque to the transfer agent. The transfer agent then issued the underlying shares to the participant, who
deposited the shares in CDS. This manual warrant subscription process was both costly and risky.
To address the concerns of the limited TA participants and increase their roles as depositary and paying agents in
CDSX, the new process uses the automated notification process being developed for CALMS to deliver an email alert
message to the respective TA whenever a participant enters a tender subscription for one of their ongoing warrant
issues. Upon receipt of the alert, the TA is made aware that action is required of them to complete the subscription
transaction initiated by the tendering participant and execute the transaction accordingly.
Benefits
This new functionality enables transfer agents to be notified of daily subscriptions of warrants and thereby supports
the usage by participants of the existing CDSX functionality to exercise warrants on a daily basis. The manual
subscription process of withdrawing warrants from CDS and delivering the certificates and funds to the transfer agent
has been eliminated, thereby reducing the costs and risk associated with manual processing.
External Impact
Participants can now use existing CDSX functionality as intended. To use the new functionality, transfer agents will
need to be limited TA participants and act as a depositary agent and paying agent in CDSX. As depositary agents
already use the CDSX functionality for final expiries of subscribed warrants, they have the necessary arrangements in
place to process ongoing subscriptions, subject to receiving the alerts to notify them of the subscriptions.
Milestones
1.   SDRC approval                                   January 29, 2009                      Approved
2.   Business requirements                           March 31, 2009                        Completed
3.   High level design/functional analysis           March 31, 2009                        Completed
4.   Code development                                May 29, 2009                          Completed
5.   User acceptance testing                         June 19, 2009 July 17, 2009           Completed
                                                     August 21, 2009
6.   Rule and procedure amendments                   September 4, 2009                     Regulatory approval received
7.   Web user administrators/users bring-on          September 11, 2009                    Completed
8.   Implementation                                  September 12, 2009 (Release 3)        Implemented




SEPTEMBER 2009                                                                                                        |   13
        CDS 2009 DEVELOPMENT PROGRAM                                                      DEPOSITORY INITIATIVES




Progress Update
Implementation of the Electronic Alert Service (EAS) was implemented for Release 3 in order to support the
implementation of the daily subscriptions alerts service in Release 3 and CALMS in Release 4. All but one of the
major limited transfer agent participants have signed up for the new functionality and are in the process of completing
the steps to be set up to use the functionality. The transfer agents have committed to be ready to apply the
functionality when a new daily warrant subscription comes to market.
Contact
Johann Lochner, Director, Product Support | Email: jlochner@cds.ca | Phone: 416.365.3928




SEPTEMBER 2009                                                                                                  |   14
        CDS 2009 DEVELOPMENT PROGRAM                                                           DEPOSITORY INITIATIVES




Category: Depository
Initiative:     Settled Transactions report (RMS038B) enhancement                                            Implemented

Description
The items displayed on the Settled Transactions report (RMS038B) are sorted in transaction ID order. An account
total is calculated and displayed at the end of the report, which represents the cumulative total of all cash debits and
credits processed against the CUID for which the report was created. During the automated calculation process for
voluntary events, the NCS entitlement system generates an 'OPTN' transaction subtype to debit funds from
participants who have made elections to the event, and credits funds to the corresponding depositary agents.
In order to make the Settled Transactions report more useful for both the depositary agent and participants, the
enhancement allows all of the funds movements for voluntary corporate actions to be displayed by event and within
each event by option. When the user generating the report request specifies the transaction subtype 'OPTN', a funds
total will be calculated and reported per option within the event, as well as a grand total for the event. Additionally, all
'E' (entitlement) type transactions will be sorted in event order and within each event by option number order. This will
group all transactions related to a single event together.
Benefits
This new reporting format will eliminate the need for depositary agents to manually calculate the total amount of funds
received for each event and option.
External Impact
These reporting changes will be displayed for all participants and will eliminate the manual calculations required to
determine the total funds amounts processed for voluntary events.
Milestones
1.   SDRC approval                                  January 29, 2009                      Completed
2.   Business requirements                          May 28, 2009                          Completed
3.   High level design/functional analysis          June 11, 2009                         Completed
4.   Code development                               July 6, 2009                          Completed
5.   User acceptance testing                        July 24, 2009                         Completed
6.   Implementation                                 September 12, 2009 (Release 3)        Implemented
Progress Update
This enhancement was implemented in conjunction with the Electronic Alert Service as part of Release 3.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                        |   15
         CDS 2009 DEVELOPMENT PROGRAM                                                        DEPOSITORY INITIATIVES




Category: Depository (SDRC Tax Subcommittee initiative)
Initiative:      Reporting ledger quantity and payment rate in monthly                                     Implemented
                 1042-S Reporting – Detail file/report
Description
In order to assist participants in reconciling their 1042-S withholding tax allocations, the Tax Subcommittee requested
CDS to add a column in the monthly 1042-S Reporting – Detail file and report so that for each payment the ledger
position that the withholding tax calculation was based on is provided.
Further to a supplementary request from the SDRC Entitlements Subcommittee, the Tax Subcommittee also agreed
to include the payment rate and currency used for the entitlement. The following is used to determine the payment rates:
>    For single source U.S. cash payment events, the displayed rate and currency will be displayed.
>    For single U.S. source security payment events, the currency will be the currency for the stock price (provided by
     the agent) and the rate will be the rate used to apply withholding tax.
>    For single source security payment events, the rate will be calculated as the receive quantity rate divided by
     submit/hold quantity multiplied by the Realization Amount (stock price). This is the current formula used by CDS
     to determine the rate for DRIP withholding tax.
>    For dual source cash payments, the displayed rate will be the U.S. portion of the declared rate (as withholding
     takes place on just the U.S. portion of the entire rate).
>    For dual source security payment events, the rate will be calculated as the receive quantity rate divided by the
     submit/hold quantity multiplied by the U.S. portion of the Realization Amount (U.S. source portion/ratio of the
     stock price).
Benefits
Adding in the ledger position on which the withholding tax was calculated, as well as the inclusion of the event’s
payment rate and currency allows participants to more easily reconcile their withholding tax payments. These new
fields also will assist participants that use a field matching process as part of an automated reconciliation of
payments.
External Impact
Subscribing participants and/or their service providers are required to complete development updates in order to
process these new fields.
Milestones
1.   Business requirements                           June 18, 2009                       Completed
2.   SDRC approval                                   June 25, 2009                       Completed
3.   High level design/functional analysis           June 30, 2009                       Completed
4.   Code development                                July 17, 2009                       Completed
5.   User acceptance testing                         July 31, 2009 August 18, 2009       Completed
6.   Implementation                                  September 12, 2009 (Release 3)      Implemented
Progress Update
The enhancement to the monthly 1042-S file/report was implemented as planned as part of Release 3.
Contact
Laura Ellick, Manager, Business Systems | Email: lellick@cds.ca | Phone: 416.365.3872




SEPTEMBER 2009                                                                                                     |    16
        CDS 2009 DEVELOPMENT PROGRAM                                                          DEPOSITORY INITIATIVES




Category: Depository
Initiative:     Non-transferable issue (NTI) certificate destruction                                          In progress
                program
Description
Of the physical certificates that CDS has on deposit, over 70% are classified as non-transferable issues (NTIs)
(i.e., securities in which ownership or registration is no longer transferable). To better manage its inventory of
securities, CDS is implementing a new program whereby eligible NTI certificates will be scanned and digitally stored,
along with any attached documents, in a new database as replacements for the physical NTI certificates. Once the
issues have been scanned and saved, destruction of the NTIs will be undertaken with suitable risk controls in place.
CDS will check various sources to confirm that an issue is no longer transferable. A criterion for determining whether
an NTI is eligible for scanning and destruction is whether it has been non-transferable for at least seven consecutive
years. This period was selected as it is highly unlikely that an issue will be reactivated after that period of time and
because it reflects the period typically used for record retention (DTC in the U.S. has a similar NTI destruction
program that uses six consecutive years of non-transferability as a criterion for destruction).
The first issues will be destroyed in a pilot run scheduled to take place by the last quarter of 2009, subject to
regulatory approval. The program will be fully launched in fall 2010, when the first large number of NTI certificates will
be scanned and stored electronically and then destroyed. This will be seven years after the introduction of CDSX,
when certificates started to be recorded and tracked as NTI. A bulletin will be issued to participants to identify the
dates and issues planned for destruction. Participants will be able to deposit any of the issues identified as eligible for
the NTI certificate destruction program so that they can include their NTI certificates in the destruction process.
In the event that an NTI that has been stored electronically is reactivated by an issuer, CDS would contact the issuer
and request its approval to proceed with replacing the certificate(s) based on the electronic scanned copy and
associated documentation, without the need for a bond of indemnity. If the issuer agrees, CDS would work with the
issuer’s transfer agent to effect replacement. If the issuer or transfer agent requires a bond of indemnity, CDS would
provide one that will be issued under its insurance program.
Benefits
By replacing worthless NTI certificates, which represent the majority of CDS’s holdings of certificates, with stored
electronic images, CDS will be able to substantially reduce its demand for vault capacity while maintaining the ability
to support the reactivation of an issue at a later date. The program will allow CDS to reduce its costs and risks
associated with managing physical inventory of certificates.
External Impact
Participants’ ledger positions will not be affected nor will their holdings of depository acknowledgements (DAs), which
replaced their ledger positions in NTIs, be affected by the program. CDS will continue to reconcile its positions of
physical and electronic NTIs with participants’ ledger positions and DAs.
Milestones
1.   System changes                                June 27, 2009 (Release 2)             Completed
2.   Rule amendments                               July 31, 2009                         Under regulatory review
3.   Pilot                                         October 2009                          On schedule
4.   Launch full program                           October 2010                          On schedule




SEPTEMBER 2009                                                                                                        |    17
        CDS 2009 DEVELOPMENT PROGRAM                                                         DEPOSITORY INITIATIVES




Progress Update
The development was completed and implemented in June 2009 with Release 2. Scanning of the pilot issues is
underway as preparation for the destruction of the pilot issues in the last quarter of 2009, subject to regulatory
approval.
Contact
Mike Polak, Director, Operations Support | Email: mpolak@cds.ca | Phone: 416.365.3856




SEPTEMBER 2009                                                                                                       |   18
        CDS 2009 DEVELOPMENT PROGRAM                                                       INTERNATIONAL INITIATIVES




Inter national Initiatives
Category: International (SDRC Equity Subcommittee initiative)
Initiative:     SEC Regulation SHO Rule 204T – reporting                                                       In progress

Description
On July 27, 2009, the Securities and Exchange Commission (SEC) issued its final version of Rule 204 under
Regulation SHO (Reg SHO). Rule 204 replaced the interim final temporary Rule 204T that was issued in October
2008 and which broadened the close-out requirements for failures to deliver securities. Under the new rule, all fails in
NSCC are to be closed out by the morning after settlement date, with the exception of sales deemed to be "long"
sales or sales of “deemed to own” securities (that include Rule 144 issues), which must be closed out three business
days after settlement date and 35 calendar days after trade date, respectively.
Rule 204 (and previously Rule 204T) applies to CDS and the New York Link (NYL) participants that it sponsors in
NSCC. NYL participants are required to close out any fails in NSCC in accordance with Rule 204. To assist NYL
participants in complying with Rule 204T, CDS had developed a screen in CDSX in June 2009 that enables
participants to identify their short positions as “long” sales and “144” sales, subject to the specific close-out
requirement stipulated in Rule 204T. The reports will need to be changed to reflect the new category of “deemed to
own” securities and the revised time for closing out these failed trades (previously the limit for closing out fails in 144
securities was 36 business days after settlement date). Participants have until 10 a.m. on settlement date + 1 to
identify the short position category. Any outstanding positions will then be closed out by CDS. In addition, participants
will be able to identify positions that they will close out themselves. The Projected Threshold Close-Out – New York
Link Service (RMS140) report that participants use to monitor positions was modified in June as part of the first
implementation shown in the milestones below to accommodate the close-out processes for Rule 204T. Some
revisions to the reports need to be implemented to reflect the changes made in Rule 204, which are scheduled for
implementation on September 28, subject to regulatory approval of the associated procedural changes. In addition to
the changes for the final rule, the participant monitoring reports will also be modified to provide participants with a
breakdown of the carry-forward quantities for implementation on September 14. The breakdown of these quantities
will enable participants to monitor positions that have been covered to ensure that they do not remain outstanding
(carried forward) for more than three days. If an item were to remain outstanding for four days, that position could
potentially be non-compliant and the participant could be liable for the new non-compliance fee referred to below.
In addition to the fee that CDS charges for close-outs, the CDS board of directors approved the implementation of a
fee that will be assessed if a participant advises CDS that they were going to close out a fail and then did not do so.
This fee is being implemented as a new non-compliance fee effective October 1.
The SDRC Equity Subcommittee has asked CDS to assess the resource effort required to implement changes that
would allow participants to modify the nature of a fail that they have declared, in the event of an error, and to develop
screen list that would indicate the status of participants fails subject to Rule 204 relative to the close-out process.
Benefits
The functionality described above will provide CDS and the NYL participants with the functionality needed to
demonstrate compliance with the SEC's new rule. Non-compliance by any participant could jeopardize all NYL
participants’ ability to use the NSCC/DTC systems, as SEC looks to CDS as the participant of NSCC to ensure
compliance by sponsored participants.




SEPTEMBER 2009                                                                                                       |    19
        CDS 2009 DEVELOPMENT PROGRAM                                                   INTERNATIONAL INITIATIVES




External Impact
Participants must have processes in place to identify short sales to which Rule 204 applies and to close-out the fails
in accordance with the prescribed time frames. The processes must adequately track and document short positions
that are categorized as “long” and “deemed to own” sales if a participant wants to use the longer close-out periods
permitted in the rule. The ability to track close-outs online was implemented on September 14 to reduce or eliminate
the manual work in CDS’s Operations division and the changes to reflect the Rule amendments related to the
“deemed to own” category will be implemented for effect on September 28.
Milestones
1.   Subcommittee approval                          January 13, 2009                  Completed
2.   Detailed business requirements                 February 20, 2009                 Completed
3.   Final review of functional analysis            March 20, 2009                    Completed
4.   Development and unit testing                   April 10, 2009 May 15, 2009       Completed
5.   System and user acceptance testing             May 29, 2009 June 19, 2009        Completed
6.   Rule and procedure amendments                  June 5, 2009                      Completed
7.   Participant dry run testing                    June 15 to June 26, 2009          Completed
8.   Implementation                                 June 6, 2009 (Release 2)          Completed
                                                    June 29, 2009 (Release 2b)
9.   High-level design of reporting changes         August 31, 2009                   Completed
10. Code development                                September 11, 2009                Completed
11. User acceptance testing                         September 16, 2009                Completed
12. Procedure amendments                            September 28, 2009                Regulatory approval expected
                                                                                      by implementation date
13. Implementation of revisions to reflect          September 28, 2009                On track
     final Rule 204
Progress Update
On August 10, CDS began initiating close outs of positions that were not closed out by participants as required under
Rule 204. The internal monitoring process was implemented for monitoring by CDS Operations on September 14 and
the implementation of the changes to reflect the final amendments to Rule 204 are on track for implementation on
September 28.
Contact
Mike Polak, Director, Operations Support | Email: mpolak@cds.ca | Phone: 416-365-3856




SEPTEMBER 2009                                                                                                   |    20
        CDS 2009 DEVELOPMENT PROGRAM                                             INFORMATION SERVICES INITIATIVES




Infor mation Ser vices Initiatives
Category: Information Services (SDRC Tax Subcommittee initiative)
Initiative:      New ATON transfer fields for marriage breakdowns and                                          Implemented
                 LIF, RLIF and RLSP account types
Description
As requested by the IIROC FAS Account Transfers Working Group and the SDRC Tax Subcommittee, two new fields
have been added to the request for transfer (RFT) function in the ATON service. One field permits the identification of
any ATON account transfers that result from marriage breakdowns for all current ATON account types. This change
complements the implementation of the new CDSX trade type MB in December 2008, which was required by the
Canada Revenue Agency (CRA) for tax reporting purposes.
The second new field, Trans-Sub Type, enables further information to be populated for existing ATON account types
and is expandable for future use as may be required. This new transaction subtype enables participants to add
additional information as follows:
>    A code to define Default for a normal transfer of accounts
>    A code to define Restricted activity for RLIF and RLSP accounts
>    A code to define New or Old plan types for the new and old Ontario LIF accounts.
In addition to the screen changes, ATON reports, inbound and outbound InterLink messages for ATON, ATON files
and the output of completed transfer activity to the CDSX trade, DTCC and FundSERV files also were changed to
contain the new values as warranted.
Benefits
CDS participants, vendors and service bureaus will benefit from more detailed information relating to transfers of
accounts that fall under these changes as both the input and output will allow for: easier identification of marriage
breakdown transfers for any tax reporting required by the CRA, easier reconciliation of transfers and improved, more
efficient flow of information between the delivering and receiving firms for this type of transfer activity.
External Impact
Participants, service bureaus and vendors wanting to use any of the new values for processing ATON transactions
need to change their system coding to allow for delivery or receipt of this new field information.
Milestones
1.   Subcommittee approval                          February 3, 2009                      Completed
2.   Procedure amendments                           June 5, 2009                          Completed
3.   Testing                                        May 29, 2009                          Completed
4.   Implementation (optional application)          June 6, 2009 (Release 2)              Completed
5.   Mandatory application                          To be determined by IIROC FAS         Anticipated late fall 2009
                                                    Account Transfer Working Group
Progress Update
Mandatory use of these new fields will be determined at a later date. Based on vendor feedback it is anticipated the
enhancement will not become mandatory until late fall of this year.
Contact
Aaron Ferguson, Senior Product Manager, Product Support | Email: aferguson@cds.ca | Phone: 416.945.8977




SEPTEMBER 2009                                                                                                         |   21
        CDS 2009 DEVELOPMENT PROGRAM                                              INFORMATION SERVICES INITIATIVES




Category: Information Services (SDRC Tax Subcommittee initiative)
Initiative:         Bulletin extract for final corporate actions for mutual                                 In progress
                    funds and limited partnerships
Description
The Tax Subcommittee asked CDS to develop a means by which participants could readily identify and obtain
information about wind-up redemptions of income trust securities or other corporate action event types that have tax
implications. The solution will deliver the information through the bulletin service on a monthly basis by creating a new
bulletin type for T3, T5 and T5013 tax reporting-related items. CDS will provide a link via the bulletin database for
uploading all bulletins that correspond to the ISINs for the new bulletin type.
Benefits
CDS participants will be able to receive updated and consolidated information about wind-up redemptions and other
corporate action event types through a single source. This will save participants time in gathering relevant information
and reduce the risk of missing information about events that should be reported for tax reporting purposes, resulting
in more accurate and timely tax reporting for their investor clients.
External Impact
Participants that subscribe for this service will be able to view the new section once they log on to CDS Clearing’s
bulletin service.
Milestones
1.   SDRC approval                                 June 25, 2009                        Completed
2.   Business requirements                         August 11, 2009                      Completed
3.   High level design/functional analysis         August 21, 2009                      Completed
4.   Code development                              October 1, 2009 October 9, 2009      On track with revised target date
5.   User acceptance testing                       November 6, 2009                     On track
6.   Service description change for                November 14, 2009                    Released for regulatory review
     regulatory review
7.   Implementation                                November 14, 2009 (Release 4)        On schedule
Progress Update
The business requirements have been completed for this initiative and work is progressing on track towards
completion of the other deliverables.
Contact
Frank Baron, Manager, Product Development and Sales, CDS Innovations | Email: fbaron@cds.ca |
Phone: 416.365.3562




SEPTEMBER 2009                                                                                                     |    22

								
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