The Ontario Securities Commission’s Senior Legal Counsel for Market Regulation, Maxime Pare, presented an overview of the impending institutional trade matching rule today at the International Securities Association for Institutional Trade Communication (ISITC) quarterly conference in Toronto.

The presentation on National Instrument 24-101 — The Institutional Trade Matching Rule — was followed by a forum addressing the rule’s impact on firms and professionals.

Expected to be phased in by all of Canada’s 13 provinces and territories by July 1, 2008, the rule will affect all firms and professionals that do business in the Canadian market, especially the United States–Canada’s largest trading partner.

Canada has historically followed the U.S. lead in Straight-Through Processing (STP) initiatives, but appears to be out in front with its matching requirement.

ISITC held two panels during its Monday general session exploring the rule. The first panel examined the Instrument from an industry perspective. Facilitated by Ian Danic — Director of Electra Information Systems, Inc. — the panel highlighted perspectives from professionals in the broker/dealer (Tom White, Director of Operations for Merrill Lynch Canada), investment manager (Chuck Murray, Mackenzie Financial Corporation’s Assistant Vice President of Portfolio Administration), and custodian (Andy Pauksens, Director of Securities Operations for RBC Dexis Investor Service) sectors. David Sexsmith, Relationship and Business Development Manager of SS&C Technologies, and Lee Cutrone, Managing Director of Omgeo LLC, participated in the second panel — moderated by Canadian Depository Securities Limited’s Managing Director, Fran Daly — profiling the Instrument’s issues from a utility perspective.

A leading advocate for standard messaging and securities practices, ISITC has voiced its support of the Canadian Securities Administrators’ (CSA) decision to require same-day matching of securities transactions. “ISITC is supportive of the CSA’s efforts to provide a legislative framework that fosters timely institutional trade processing and settlement,” says ISITC Chair Steve Goswell. “These rule changes are, in our view, an important solution towards a more efficient Canadian marketplace.”

ISITC is currently responding to the rule with recommendations on how to smooth the transition process for parties affected by the rule change:

  • Trade matching for securities settling on a deliver against payment (DAP) and receive against payment (RAP) basis should be extended to include all trades executed on behalf of an institutional investor’s account, capturing all account types including Prime Brokerage accounts. The Instrument currently limits the scope of matching requirements to DAP or RAP trades, which may complicate the administration of the new rule.
  • Transitional percentages outlined in Part 10 of Instrument 24-101 may create challenges for smaller to mid-sized market participants as well as complicate cross-border settlements. The Instrument’s implementation schedule–especially performance targets to avoid exception reporting–may prove burdensome and should be carefully reviewed.
  • A 98 percent same day trade date matching rate in T+3 markets within two years is commendable, but an extended noon T+1 standard may be more realistic while still achieving the efficiencies the Instrument seeks. Revising the second tier transition date to a noon on T+1 matching deadline with a higher percentage trigger before 1 January 2008 would give firms additional time to assess the impact of the Trade Date deadline and obtain market solutions. Additionally, ISITC is recommending a gap analysis to shed more light on the cost impact to industry participants.