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Membership Standards

Excepted for Limited Clearing Members (LCMs), whose eligibility criteria are addressed below, CDCC imposes membership criteria that allow the Corporation to verify an applicant's financial situation and his ability to provide capital. CDCC Clearing Members must be financially sound and operationally healthy, and have qualified personnel to manage their operations.

Membership Process Overview (excluding Limited Clearing Members)

The membership process is an essential step in the CDCC system of managing counterparty risk. It is used to evaluate the creditworthiness of each prospective Clearing Member. The membership process is set out in CDCC's Rules.

Strict Requirements for all Clearing Members

CDCC has established membership qualifications to protect both CDCC and its existing Clearing Members. Each applicant for membership must submit an application package designed to capture, among other things, the applicant's financial condition with relation to the standards described in CDCC's Rules.

Information Sharing Process with SROs

CDCC works closely with self-regulatory organizations (SROs) to preserve the integrity of the financial markets in Canada, using strict regulatory and reporting requirements that exist within the industry. Through this liaison, CDCC and SROs have implemented an electronic information sharing process to improve the timeliness of the filing of certain financial reports. SRO Clearing Members file monthly financial reports as well as yearly Joint Regulatory Financial Questionnaire and Reports. These members are within the audit jurisdiction of the Investment Industry Regulatory Organization of Canada (IIROC). Bank Clearing Members file quarterly Capital Adequacy Returns. These members are within the audit jurisdiction of the Office of the Superintendent of Financial Institutions (OSFI).

Minimum Capital Adequacy Requirements

CDCC reviews each SRO Clearing Member's regulatory financial reports monthly (quarterly for Bank Clearing Members) to ensure that members remain financially sound. Clearing Members must also file annual audited financial statements with CDCC, which are thoroughly reviewed to ensure that Clearing Members meet minimum capital adequacy requirements on an ongoing basis. Bank Clearing Members must meet the minimum capital requirements of OSFI, which regulates the banks. SRO Clearing Members must meet the minimum capital requirements of IIROC.

Risk-Adjusted Capital Ratio

CDCC also assesses certain risks using financial ratios. CDCC uses SRO Clearing Members' monthly financial reports and their yearly Joint Regulatory Financial Questionnaire and Reports to examine Clearing Members' ratio of margin requirements to Risk Adjusted Capital (a measure of regulatory capital adequacy). This ratio provides early warning of the degree to which SRO Clearing Members could be adversely affected by major price changes in the market. If a Clearing Member's margin to Risk-Adjusted Capital ratio exceeds certain predetermined thresholds, the Clearing Member must then provide additional assurance to CDCC.

Monitoring of Clearing Members’ Financial Status

CDCC monitors SRO Clearing Members' monthly financial reports in order to alert management immediately if a Clearing Member triggers an early warning. Early warning levels for SRO Clearing Members are established by IIROC, and are based on various tests of liquidity, capital, and profitability. If an early warning is triggered, CDCC maintains contact with IIROC in order to identify the cause of the early warning and to ensure that any deficiency is resolved.

CDCC obtains from OSFI relevant information on CDCC Bank Clearing Members to monitor their financial status. The process of monitoring the Bank Clearing Members' financial status was established by OSFI to measure, among other things, the members' risk weighted assets and capital.

CDCC monitors the ratio of margin to capital in order to provide early warning of the degree to which Bank Clearing Members and SRO Clearing Members could be adversely affected by major price changes in the market.

Becoming a Member

In accordance with Section A-1A03 "Admission Procedure" of CDCC's Rules, CDCC may examine the books and records of any applicant or employ such other means as it may deem desirable to ensure that the membership criteria set forth in Section A-1A01 "Eligibility for Membership" and in Section A-1A02 "Standards of Membership" of CDCC's Rules, as applicable, are met:

  • Applicant is (i) a member or an approved participant in good standing with an exchange recognized in a Canadian province; or (ii) a bank or an authorized foreign bank to which the Bank Act (Canada) applies.
  • Applicant is a participant in good standing with CDS Clearing and Depository Services Inc.
  • Applicant satisfies the initial capital requirements of the Investment Industry Regulatory Organization of Canada (IIROC) for an investment dealer, or of the Office of the Superintendent of Financial Institutions Canada (OSFI) for a bank.
  • Applicant has adequate operational resources to meet its obligations to CDCC and other Clearing Members.
  • Applicant has deposited its initial deposit into the Clearing Fund, as applicable to the products that it is authorized to clear with CDCC, before the time limit required by CDCC Rules.
  • Applicant has been approved by CDCC's Board of Directors.
  • Applicants who wish to clear fixed income transactions with CDCC must meet the same membership criteria as those who wish to clear exchange-traded and other customized derivative instruments, with the exception of capital requirements.

Capital requirements for fixed income transactions are as follows:

  • If the applicant clears only its own fixed income transactions and those of any of its affiliates, the applicant must:
    • Have a minimum capital of $50,000,000 and be a primary dealer of the Bank of Canada; or
    • Have a minimum capital of $100,000,000.
  • If the applicant also clears fixed income transactions of its clients (other than its affiliates), the applicant must:
    • Have a minimum capital of $200,000,000.

LCM Membership Process Overview

Minimum Eligibility Criteria

LCMs are entities that fall within the following categories:

  • a Crown, a public body of a Crown, a Crown corporation, an agency or mandatory of the Crown other than the Bank of Canada 1(A); or
  • the Bank of Canada 1 (B); or
  • an entity 1(C)
    • a federally or provincially regulated pension plan board, pension fund or compensation fund, the majority of whose assets under management are used to fund obligation under one or more pension plans serving the retirement needs of employees in the broader public sector;
    • for which bankruptcy, insolvency, winding-up or restructuring or the appointment of an administrator, receiver manager, trustee or person with similar power in connection with the entity requires the taking of a special action by a federal or provincial legislative body or a governmental body, organization or agency having jurisdiction over that entity, as applicable, or in relation to which bankruptcy and insolvency laws do not apply and a winding-up of such entity is subject to an administrator's fiduciary and statutory obligations; or
  • An entity 1(D)
    • a Crown, a public body of a Crown, a Crown corporation or an agency or mandatary of the Crown, the majority of whose assets under management are used to fund obligations under one or more pension plans and, if applicable to such entity, of government funds;
    • for which bankruptcy, insolvency, winding-up or restructuring or the appointment of an administrator, receiver manager, trustee or person with similar power in connection with the entity requires the taking of a special action by a federal or provincial legislative body or a governmental body, organization or agency having jurisdiction over that entity, as Applicable.Minimum Eligibility Rating

At entry, the minimum acceptable rating are the two highest credit ratings (“Designated Eligibility Rating”) of the entity.

Minimum Eligibility Rating

Designated Rating Organization Entity 1(A) Entities 1(C) and 1(D):
DBRS Limited A Low AA
Standard & Poor’s A- AA
Moody’s Canada Inc. A3 Aa2
Fitch Inc. A- AA

LCMs that do not have a credit rating

CDCC may waive credit rating requirement under the condition that the LCM enters into an agreement with the Corporation that establishes, as determined by CDCC in its sole discretion and agreed in writing by CDCC and such LCM at the time that such Entity's Application for Membership is submitted:

  • any financial resilience metric acceptable to the Corporation (a “Replacement Metric”),
  • the minimum level of the Replacement Metric required by CDCC in order to admit such Entity as a LCM and
  • the minimum level of the Replacement Metric which must be maintained by such LCM which agreement shall be in form and substance satisfactory to CDCC.

Other standards of membership

Upon application, any LCM applicant must demonstrate:

  • operational readiness;
  • that it has been sufficiently active in the Canadian repurchase transactions market in the thee (3) previous years and the Canadian bond cash buy or sell trading market and that it is a party to at a minimum 3 standard market repurchase agreements;
  • that it has the capacity, power and authority to execute and deliver the Application for Membership to CDCC and perform its obligations under CDCC Rules;
  • that it has the capacity, power and authority to grant in favor of CDCC a first ranking pledge, lien, security interest and hypothec on any Margin Deposit, collateral or property deposited to secure the performance of all of its obligations to CDCC pursuant to these Rules;
  • that it has sound corporate governance practices, an effective corporate structure, prudent portfolio and risk management practices and procedures, a risk profile and other elements and factors.
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For more information on CDCC membership standards, or to apply for membership, please contact Corporate Operations at cdcc-ops@tmx.com