CDS aims to bolster liquidity backstops

To bolster its ability to deal with potential liquidity stress, CDS Clearing and Depository Services Inc. (CDS) is proposing beefing up its liquidity backstops.

The Ontario Securities Commission has published set of proposed amendments to liquidity risk management procedures at CDS that include requiring firms to provide cash as collateral instead of securities, and having firms finance a new liquidity fund that would be able to “cover potential liquidity stress scenarios.”

“This new fund could be used by CDS to meet various payment obligations and cover liquidity shortfalls on time with a high degree of confidence under various potential stress scenarios,” CDS said in a statement.

The proposals, which are out for comment until Jan. 13, 2020, aim to address global regulators’ concerns about liquidity risk management arrangements in critical components of financial infrastructure — such as clearing and settlement systems — in the face of possible market stress.

“These additional liquidity resources, in the form of ready-available cash, will be coupled with CDS’s existing credit facilities to meet its requirements under the [global] standards,” CDS said.

The changes are expected to take effect in the first quarter of 2020.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.