As you may be aware, the securities industry in both Canada and the US has undertaken an initiative to shorten the period for settlement of securities trades from the current three business days (T+3) to a next business day (T+1) time frame. While the target date for implementation is June 2004, the time, effort and expenditure required to achieve this goal requires that all entities involved in any aspect of investing, securities trading and securities settlement should already be preparing for this event. Experts have indicated that, for many organizations, the effort required may be far greater than that involved in getting ready for Y2K. Apart from making extensive systems changes, institutions may also have to revise the manner in which they do business.

In Canada, the Canadian Capital Markets Association (CCMA) is playing an important role by coordinating the move to T+1. Information regarding the CCMA, discussion papers and other issues regarding T+1 can be found at www.ccma-acmc.ca.

As an Observer in the CCMA Core group, OSFI has been meeting with industry representatives and regulators since last year to discuss the issues and to assess the impact of T+1 on federally regulated financial institutions and pension plans.  In order to minimize the potential for failed trades and other disruptions, it would be desirable for both service providers and counterparties to move to a T+1 settlement basis at the same time. CEOs and other individuals responsible for setting strategic and business objectives are requested to ensure that the implications of T+1 are taken into account in the planning process, not only by the “back-office” and systems groups, but by all business areas, including client service and relationship management functions.

OSFI appreciates that many federally regulated financial institutions and pension plans are devoting significant resources to this important initiative. Recently, in a letter to all registrants, the provincial securities regulators indicated that they are considering introducing new rules, such as reporting requirements, to monitor the progress of efforts to prepare for T+1. OSFI will also be considering including enquiries into T+1 preparations as part of its 2002/2003 supervisory process, once the CCMA has outlined the key steps and guidance for moving to the new settlement time frame in June 2004.

If you should have any comments or questions regarding T+1, please telephone Barbara Amsden at the CCMA, (416) 365-8704 or Nicolas Burbidge, Senior Director, Compliance Division at OSFI, (416) 973-6117.