Clearing and Depository Services Inc. PROCEDURES AND USER GUIDES. Pledge and Settlement Procedures

Transcription

1 Clearing and Depository Services Inc. PROCEDURES AND USER GUIDES Pledge and Settlement Procedures Release 9.0 June 29, 2018

2 Published by: CDS Clearing and Depository Services Inc. 100 Adelaide Street West Toronto, Ontario M5H 1S CDS Clearing and Depository Services Inc. All rights reserved. No part of this publication may be reproduced, transmitted, transcribed, stored or translated into any other form without written permission from CDS Clearing and Depository Services Inc. Pledge and Settlement Procedures Release 9.0 Page 2

3 Contents Overview Chapter 1 Introduction to pledge and settlement Life cycle of a pledge Stages for new and existing pledges Pledge functions Accessing the Pledge Menu Pledge types Pledge statuses Collateral Deleting pledges Processing a loan request Funds delivery pre-edit Pledge settlement Pledges and holiday settlement restrictions Partial pledge settlement InterLink messages System shutdown Chapter 2 Entering pledges Chapter 3 Inquiring on pledges Chapter 4 Modifying pledges Modifying a pledge Confirming a pledge DK ing a pledge Changing the details of a DK d pledge Requesting an increase, decrease or substitution in collateral Requesting an increase or repayment on a security loan Requesting an increase or repayment on a funds loan Renewing a pledge Renewing new pledges entered during or after payment exchange Requesting partial settlement Submitting a request for partial settlement Accepting a request for partial settlement Modifying and inquiring on partially settled pledges Pledge and Settlement Procedures Release 9.0 Page 3

4 CONTENTS Chapter 5 Deleting or adding loan items Chapter 6 Capturing collateral or funds Chapter 7 Pledge settlement Processing pledges during or after start of payment exchange Real-time settlement Processing pledges up to and during settlement check Processing pledges after settlement check Partial settlement Capturing collateral Pledge and Settlement Procedures Release 9.0 Page 4

5 Overview CDS participants use this document to learn about processing and settling pledges including: Security and funds loans, how to increase and repay Collateral and funds, how to capture. To view forms indicated in this manual, access CDS Forms Online on the CDS website ( Assumptions This manual is written with the following assumptions: Participants have signed the Application for Participation in CDS s services. The terminology used in the manual is standard in the industry. All dollar amounts are in Canadian funds, unless stated otherwise. Notice of implementation of procedures The predecessor service to CDSX was the Debt Clearing Service (or DCS ). Any references to DCS in the CDSX system or related documents, including data, reports, screens, forms, procedures or user guides, shall be deemed to be references to CDSX. Legal precedence The reader is advised that this procedure or user guide is one of the legal documents governing a participant s use of CDS's services. In the event of any conflict between: i) the Participant Agreement and the Rules and ii) the procedures or user guides, the Participant Agreement and the Rules shall have precedence and govern. Comments and suggestions Send any comments and suggestions for this manual to CDS Customer Service. Pledge and Settlement Procedures Release 9.0 Page 5

6 CHAPTER 1 Chapter1Introduction to pledge and settlement The Pledge function provides the lender of funds or securities with a means of securing collateral for a loan. There are two parties who participate in a pledge transaction: the lender and the borrower. A pledge involves one participant (the lender) lending securities or funds to another participant (the borrower). Any CDSX participant may act as a lender or borrower in a pledge. Generally, each party performs the following actions: The participant who submits the request (usually the borrower) enters the pledge and collateral (if any) online into CDSX using the Pledge function. The participant who accepts the request confirms the pledge transaction in order for it to be considered for settlement. The participant who submits the request identifies the account to which the securities should be deposited and the participant who accepts the request identifies the account from which the securities should be withdrawn. The default accounts include the funds account for funds loans, the restricted collateral account for lender s collateral and the general account for security loans and borrower s collateral. Once the pledge has been confirmed, the system attempts to settle the pledge, exchanging securities and/or funds positions between the participants accounts. Once settled, a pledge may be modified (e.g., collateral substitution) and settled again. A settled pledge may exist indefinitely. There may only be one modification transaction against an existing pledge at any given time. Note: Each individual pledge entry and modification transaction is restricted to a single currency (Canadian dollars or U.S. dollars). However, a settled pledge may hold funds (collateral) in more than one currency. 1.1 Life cycle of a pledge The life cycle of a pledge determines the actions permitted by the participants in pledge settlement. Both the lender and borrower participate in processing the pledge, but depending on the pledge status, the lender and borrower perform different tasks. During the lifetime of a pledge, either the lender or borrower can request substitution of collateral, an increase to the loaned amount, an increase to the collateral, or repayment of the loan, in full or in part. Loans remain in the system until they are fully repaid. The lender can capture collateral to their funds or general account. The system automatically seizes any funds collateral to the lender s funds account at payment exchange. Pledge and Settlement Procedures Release 9.0 Page 6

7 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Life cycle of a pledge From the time a pledge is entered for the first time (i.e., new pledge ID) until it settles, it is referred to as a new pledge. Once it has settled, it becomes an existing pledge, which can be modified. Modifications can take the form of collateral substitutions, increases in collateral, etc. Participants can work with an existing pledge to substitute or increase the collateral, increase the loaned amount or make full or partial repayments. Pledges remain in the system until they are fully repaid Stages for new and existing pledges The following stages apply to both loan requests (new pledges) and requests to substitute, increase or repay (collateral and loan items). 1. Entry The participant submitting the pledge enters the pledge online, using the Enter Pledge function (new loan request) or the Modify Pledge function (for a substitution, increase or repayment request). 2. Processing up to settlement check Either participant uses the Modify Pledge function to move the pledge towards settlement check. 3. Settlement check The pledge either settles or is made pending. 4. Processing after settlement check If the pledge is made pending, both parties can take steps to ensure or prevent settlement of the pledge using the Modify Pledge function. In the simplest life cycle, the participant submitting the pledge enters the new pledge and the participant accepting the pledge confirms it. On value date, the pledge settles if positions are available in the appropriate accounts and the positions move immediately. The loan is now considered an existing pledge. The borrower and lender of a security and/or funds can process pledges through CDSX or through InterLink messages. For more information, refer to CDS Batch and Interactive Services Technical Information. Pledge ID Each pledge is given a transaction ID (for example, P ) when it is first entered. In the example, P means pledge and is the Julian date the pledge was entered (the 45th day of 2001, or February 14). The number is generated by the system and is specific to that pledge. Pledge and Settlement Procedures Release 9.0 Page 7

8 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Pledge functions 1.2 Pledge functions The pledge functions are: Enter Pledge The participant submitting the pledge can use this function to enter details for a new loan request using the three pledge screens: General Information Entry, Collateral Items Entry and Security Loan Items Entry. For more information, see Entering pledges on page 15. Modify Pledge Both parties can use this function to manage a loan request through to settlement, or to enter details for a substitution, increase or repayment request against an existing pledge. For more information, see Modifying pledges on page 23. Inquire Pledge Either party can use this function to display information about pledges to which they are a party. For more information, see Inquiring on pledges on page 18. Collateral Delivery The lender can use this function to seize collateral. For more information, see Capturing collateral or funds on page 40. Delete/Add Security Loan Items Both parties can use this function to delete or add a security loan item(s) to a pledge. For more information, see Deleting or adding loan items on page Accessing the Pledge Menu To access the Pledge Menu: 1. Log on to CDS systems. For more information, refer to Participating in CDS Services. 2. On the CDS Clearing and Depository Services Inc. Main Menu, type the number identifying CDSX Customer Functions in the SELECTION field and press ENTER. The CDSX Customer Functions Menu on page 9 displays. Pledge and Settlement Procedures Release 9.0 Page 8

9 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Pledge functions CDSX Customer Functions Menu 3. Type the number identifying Pledge Menu in the SELECTION field and press ENTER. The Pledge Menu on page 9 displays. Pledge Menu Pledge and Settlement Procedures Release 9.0 Page 9

10 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Pledge types 1.3 Pledge types The following table specifies the codes that are used to identify pledge types. Loan type Pledge type Code Description Funds Advance A A loan extended by the Bank of Canada to chartered banks or direct clearing non-banks to augment settlement balances Special call C A call loan that must be repaid within 24 hours of receiving notice. Either party can call repayment on the loan Day loan D A funds loan made from a bank s secondary reserve and secured by collateral of short-term Canada bonds or T-bills Restricted L A funds loan-type transaction where the lender is the Bank of Canada and the collateral pledged is only used to support an LVTS payment to CDS LVTS account held at the Bank of Canada Miscellaneous M Loans that do not fall into another category. Special terms are negotiated between the lender and borrower Daily overdraft O A means of overnight financing, using money market instruments as collateral Regular call R A temporary funds loan secured by a variety of securities. Either party can call repayment on the loan Security Security loan S A loan of securities, which can consist of up to 300 different security loan items 1.4 Pledge statuses The status of a pledge may be set by the participant or by the system. A pledge transaction may have one of the following statuses: Unconfirmed When a new pledge is entered, or a modification to an existing pledge is requested, the initial status of the pledge transaction is unconfirmed. The participant submitting the pledge may change the status from DK to U (unconfirmed). Confirmed The participant accepting the pledge approves the pledge by confirming it. DK d If the participant accepting the pledge disagrees with the details, they DK (don t know) the pledge instead of confirming it. The participant submitting the pledge must change the details. The participant accepting the pledge then confirms or DK s the new details. Pledge and Settlement Procedures Release 9.0 Page 10

11 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Collateral Pending If either the borrower or the lender do not have sufficient aggregate collateral value (ACV), the system assigns the pledge a pending status, which remains until the settlement conditions can be met. A pledge may also be pending if either party has insufficient securities or funds to satisfy the request. 1.5 Collateral Collateral in a pledge can be in the form of securities and/or funds. Both Canadian and U.S. funds are acceptable for funds loans and collateral (i.e., holding cheques). CDSX does not verify whether the collateral entered is appropriate or sufficient to secure the pledge. The CURRENT BENCHMARK VALUE (IN $CAD) field on the Existing Pledge General Information screen identifies the total Canadian dollar value for settled collateral items for that pledge. The current value for all settled collateral items in a pledge is calculated using the formula below. Current benchmark value of collateral = Settled funds (holding + cheques) collateral Current benchmark value of all security collateral The current benchmark value of the security collateral is calculated using the formula below. Current benchmark value = CAD benchmark price x Par value or quantity per security of security collateral For U.S. dollar securities, the Canadian dollar benchmark price is obtained to determine their current value. If the Canadian dollar benchmark price is not available, the U.S. dollar benchmark price is obtained and converted to Canadian dollars. If a modification is made to the collateral of a settled pledge, a new calculation is performed when the modified pledge has been reconfirmed and settles again. Unconfirmed and unsettled new collateral items are not included in the displayed current benchmark value. 1.6 Deleting pledges The system purges pledges that have no outstanding collateral and loan items during the CDS batch processing cycle. 1.7 Processing a loan request The parties negotiate the terms of the pledge outside of CDSX. Within CDSX, participants can set up a security or funds loan. Pledge and Settlement Procedures Release 9.0 Page 11

12 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Pledge settlement One party uses the Enter Pledge function to enter (submit) the details of the loan request. The loan request is considered a new pledge until it settles, at which time it becomes an existing pledge. Both parties use the Modify Pledge function to display the new pledge screens and change the status of the loan request, thereby moving it through the life cycle until it settles. Substitutions, increases and repayments Substitutions, increases and repayment requests are made to existing pledges using the Modify Pledge function. For information on how to use the Modify Pledge function to enter collateral substitutions, loan increases or repayments, and collateral seizures, see Modifying pledges on page Funds delivery pre-edit The funds delivery pre-edit rejects pledge transactions where the funds are delivered by the lender or borrower without receipt of securities and/or funds. The pre-edit is applied to new pledges entered using the Enter Pledge function and existing pledges modified using the Modify Pledge function. The purpose of the pre-edit is to prevent the Pledge function from being used to transfer funds without securities between participants. 1.8 Pledge settlement A pledge settles on value date in real time between 12:30 a.m. ET (10:30 p.m. MT, 9:30 p.m. PT) and 4:00 a.m. ET (2:00 a.m. MT, 1:00 a.m. PT) (overnight online access) and 7:00 a.m. ET (5:00 a.m. MT, 4:00 a.m. PT) and 7:30 p.m. ET (5:30 p.m. MT, 4:30 p.m. PT). A pledge in a confirmed status settles on value date if the following criteria is met: Sufficient ledger position Sufficient available funds (positive funds account balance, unused ledger cap, unused lines of credit) Sufficient ACV No ledger restrictions (i.e., holiday, suspended ledger) No settlement restrictions. If any of the above conditions is not met, CDSX assigns the pledge a pending status and a two-character pending reason code displays beside the status code. The first character identifies the party at fault and the second identifies the reason why the transaction is pending. Pledge and Settlement Procedures Release 9.0 Page 12

13 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT Pledge settlement The first character is either: B Borrower L Lender. The second character is one of the following: S Insufficient securities F Insufficient funds C Insufficient ACV. Pending transactions are continually re-evaluated based on participant activities and are reconsidered for settlement if the participant s circumstances change and settlement conditions are met. Refer to Participating in CDS Services for more information regarding ACV and the ACV edit Pledges and holiday settlement restrictions If a participant has instructed CDS to apply a holiday restriction to their ledger for the current date, the following is true: If the ledger restriction is for funds settlement, then only those pledge transactions that do not involve funds will settle. If the ledger restriction is for securities settlement, then no pledge transactions will settle for that ledger. Participants can view the settlement restrictions for their ledger using the Holiday Profile function. For more information, refer to Participating in CDS Services Partial pledge settlement When funds are substituted for securities (i.e., a holding cheque), the parties in the pledge substitution transaction have the ability to flag that pledge modification as a partial settlement. If partial settlement is specified, the amount of the holding cheque is released in portions equivalent to the ACV value of the securities received. However, when a haircut is 100 per cent, the securities will settle without funds. In any case, all funds are released on the last partial settlement. Note: Partial pledge settlement applies only if securities are being substituted for funds and is only allowed for Canadian dollar transactions. Pledge and Settlement Procedures Release 9.0 Page 13

14 CHAPTER 1 INTRODUCTION TO PLEDGE AND SETTLEMENT System shutdown InterLink messages If the participant is set up to receive pledge InterLink messages, they are advised of any new pledges or changes to existing pledges in real time via this service. Otherwise, the participant can receive pledge details via the daily file transmission or access the same information through CDSX on the pledge screens. Refer to CDS Batch and Interactive Services Technical Information for more information on messaging and available file transmissions. 1.9 System shutdown At system shutdown, any positions that exist in the restricted collateral account are automatically moved to its corresponding unrestricted collateral account. For example, if a security position exists in the CX 001 at the end of the day, it moves to CA 001 by the next morning. Any automatic movements from the restricted collateral account to the unrestricted collateral account are shown in the following reports: Daily Transaction report Security Audit report. Refer to CDS Reporting Procedures for more information on these reports. Automatic purging of pledges All unsettled current-dated pledge transactions are purged from the system at the end of the day as shown below. Pledge status All unsettled pledges Deletion to occur at System shutdown on value date For an existing pledge, only the details of the substitution or repayment request are deleted Pledge and Settlement Procedures Release 9.0 Page 14

15 CHAPTER 2 Chapter2Entering pledges Participants can enter the details of a new funds or security loan using the Enter Pledge function, any time between system startup (7:00 a.m. ET (5:00 a.m. MT, 4:00 a.m. PT) and shutdown (7:30 p.m. ET (5:30 p.m. MT, 4:30 p.m. PT) and during the overnight online period. The required details include: Loan amount or par value borrowed Collateral Security borrowed (for security loans). A new pledge can include up to 40 different collateral items and 40 different loan items. Once the pledge has settled, participants can use the Modify Pledge function to enter up to 300 items. To enter a pledge: 1. Access the Pledge Menu on page 9. For more information, see Accessing the Pledge Menu on page Type the number identifying Enter Pledge in the SELECTION field and press ENTER. The Pledge General Information Entry screen on page 15 displays. Pledge General Information Entry screen 3. Complete this screen for both security and funds loans. For a security loan, complete the PLEDGE TYPE, ROLE and CUID fields. Leave the LOAN AMOUNT field blank. For a funds loan, complete the PLEDGE TYPE, ROLE, CUID and LOAN AMOUNT fields. Pledge and Settlement Procedures Release 9.0 Page 15

16 CHAPTER 2 ENTERING PLEDGES Complete all other fields as required. 4. Do either of the following: For a funds or security loan, press PF6. The Pledge Collateral Items Entry screen on page 16 displays. Go to step 5. Pledge Collateral Items Entry screen For a security loan, press PF6 twice. The Pledge Security Loan Items Entry screen on page 16 displays. Go to step 6. Pledge Security Loan Items Entry screen 5. On the Pledge Collateral Items Entry screen on page 16 enter the collateral details. Up to 40 collateral items may be entered in a new pledge. After 10 lines, press PF8 to display more blank lines. Pledge and Settlement Procedures Release 9.0 Page 16

17 CHAPTER 2 ENTERING PLEDGES To enter funds collateral, type the amount of the holding cheque under the PAR/ QUANTITY column, to the left of the CURR field, and type the currency to the right of the CURR field. 6. For a security loan, go to step 7 to complete the Pledge Security Loan Items Entry screen on page 16. For a funds loan, go to step Press PF6. The Pledge Security Loan Items Entry screen on page 16 displays for entry of the par value and name of securities being borrowed. Complete the PAR/QUANTITY, SECURITY NBR and SETTLEMENT TO/FROM ACCOUNT fields. Up to 40 different loan items may be entered for a new pledge. 8. Press PF10 to save. The Pledge General Information Entry screen on page 15 displays with a pledge ID shown at the bottom. For a borrower entering a new pledge, the default collateral items settlement account for the lender is the restricted collateral account (i.e., CX 000) for both securities and funds loans. Note: The lender may modify their unrestricted collateral account when viewing the pledge. Pledge and Settlement Procedures Release 9.0 Page 17

18 CHAPTER 3 Chapter3Inquiring on pledges The Inquire Pledge function allows the participant to view pledges but does not allow modifications. To inquire on a pledge: 1. Access the Pledge Menu on page 9. For more information, see Accessing the Pledge Menu on page Type the number identifying Inquire Pledge in the SELECTION field and press ENTER. The Pledge Selection screen on page 18 displays. Pledge Selection screen 3. Do either of the following: If the pledge ID is known, complete the PLEDGE ID field and press ENTER. The New Pledge General Information screen on page 19 or the Existing Pledge General Information screen on page 19 displays the selected pledge. Go to step 4. Pledge and Settlement Procedures Release 9.0 Page 18

19 CHAPTER 3 INQUIRING ON PLEDGES New Pledge General Information screen Existing Pledge General Information screen If the pledge ID is not known, enter any of the selection criteria to display a list of pledges. Press ENTER. The Pledge List screen on page 20 displays. The Pledge List screen provides a two-line summary of each pledge. Each line specifies the amount of the pledge, the participant s role (lender or borrower), the pledge type, status and other information. Both new and existing pledges are shown. Pledge and Settlement Procedures Release 9.0 Page 19

20 CHAPTER 3 INQUIRING ON PLEDGES Pledge List screen 4. To display more detailed information on any pledge, type X in the SELECT column beside the required pledge and press ENTER. The New Pledge General Information screen on page 19 or the Existing Pledge General Information screen on page 19 displays the selected pledge. 5. Press PF6. The New Pledge Collateral Items screen on page 20 or the Existing Pledge Collateral Items screen on page 21 displays. For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. New Pledge Collateral Items screen Pledge and Settlement Procedures Release 9.0 Page 20

21 CHAPTER 3 INQUIRING ON PLEDGES Existing Pledge Collateral Items screen 6. Press PF6. The New Pledge Security Loan Items screen on page 21 displays or the Existing Pledge Security Loan Items screen on page 22 displays. For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. New Pledge Security Loan Items screen Pledge and Settlement Procedures Release 9.0 Page 21

22 CHAPTER 3 INQUIRING ON PLEDGES Existing Pledge Security Loan Items screen Pledge and Settlement Procedures Release 9.0 Page 22

23 CHAPTER 4 Chapter4Modifying pledges During the lifetime of a pledge, either the lender or borrower can use the Modify Pledge Function to do any of the following: Confirm a pledge The participant accepting the pledge must confirm it to indicate their approval for settlement. See Confirming a pledge on page 29. DK a pledge The participant accepting the pledge can flag pledges that they do not recognize or do not agree with by entering a DK (don t know) status. See DK ing a pledge on page 29. Increase, decrease or substitute collateral Either party can increase, decrease or substitute collateral. See Requesting an increase, decrease or substitution in collateral on page 30. Increase or repay a security loan Either party can increase or decrease an existing loan item in full or in part (i.e., a full or partial repayment), or repay an existing security loan. See Requesting an increase or repayment on a security loan on page 32. Increase or repay a funds loan Either party can repay or increase the balance outstanding on a funds loan. See Requesting an increase or repayment on a funds loan on page 32. Note: Like the original loan, substitution, increase and repayment requests can be DK d, modified or renewed. Renew a pledge The participant submitting the pledge can renew it during and after the end of payment exchange. Pledge transactions that contain holding cheques cannot be renewed. See Renewing a pledge on page 33. Participants can view the details for one pledge or a list of pledges any time during the online periods. Participants can confirm, DK or renew one pledge, or can display a list and confirm, DK or renew several pledges, one after the other. Note: The timing, procedures and conditions for using the Modify Function on a new or existing pledge are identical. Pledge and Settlement Procedures Release 9.0 Page 23

24 CHAPTER 4 MODIFYING PLEDGES Modifying a pledge The table below provides a description for each of the existing pledge screens. Screen Existing Pledge General Information screen on page 26 Existing Pledge Collateral Items screen on page 27 Existing Pledge Security Loan Items screen on page 28 Description Displays for an existing pledge (a settled loan) Press PF6 to display the Existing Pledge Collateral Items screen on page 27 and press PF6 again to display the Existing Pledge Security Loan Items screen on page 28 Note: The first indication that a substitution, increase or repayment request has been entered for the pledge is that the status is no longer S (settled) Displays information about each item of collateral for one loan Each line represents an item of collateral for a specific loan. Press PF7 and PF8 to move from page to page To search for a specific collateral item, type the ISIN for the required item in the LOCATE EXISTING SEC field and press ENTER For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. Displays information about the securities that are being borrowed in a loan Each line represents a security that is on loan. Press PF7 and PF8 to move from page to page For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. 4.1 Modifying a pledge Participants can use the Modify Pledge function to view information on a pledge and modify the pledge details. When modifying an existing pledge, the lender cannot change either of the following: Collateral items settlement account types for the settled items Account number for the existing pledge. To modify a new or existing pledge: 1. Access the Pledge Menu on page 9. For more information, see Accessing the Pledge Menu on page 8. Pledge and Settlement Procedures Release 9.0 Page 24

25 CHAPTER 4 MODIFYING PLEDGES Modifying a pledge 2. Type the number identifying Modify Pledge in the SELECTION field and press ENTER. The Pledge Selection screen on page 25 displays. Pledge Selection screen 3. Do either of the following: If the pledge ID is known, complete the PLEDGE ID field and press ENTER. The New Pledge General Information screen on page 25 or the Existing Pledge General Information screen on page 26 displays. Go to step 5. New Pledge General Information screen Pledge and Settlement Procedures Release 9.0 Page 25

26 CHAPTER 4 MODIFYING PLEDGES Modifying a pledge Existing Pledge General Information screen If the pledge ID is not known, enter any of the selection criteria to display a list of pledges. (Participants who have authorization for all CUIDs in their ledger can blank out the REQUESTOR S CUID.) Press ENTER. The Pledge List screen on page 26 displays. The Pledge List screen provides a two-line summary of each pledge. Each line specifies the amount of the pledge, the participant s role (lender or borrower), the pledge type, status and other information. Both new and existing pledges are shown. Pledge List screen 4. To display more detailed information on any pledge, type X in the SELECT column beside the required pledge and press ENTER. The New Pledge General Information screen on page 25 or the Existing Pledge General Information screen on page 26 displays for the selected pledge. Pledge and Settlement Procedures Release 9.0 Page 26

27 CHAPTER 4 MODIFYING PLEDGES Modifying a pledge 5. Press PF6. The New Pledge Collateral Items screen on page 27 or the Existing Pledge Collateral Items screen on page 27 displays. For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. New Pledge Collateral Items screen Existing Pledge Collateral Items screen 6. Press PF6. The New Pledge Security Loan Items screen on page 28 or the Existing Pledge Security Loan Items screen on page 28 displays. For pledges that are pending due to insufficient securities, the securities that are causing the pledge to pend are highlighted for both parties to the pledge. If the status of the pledge is changed from P (pending) to DK (don t know), the securities causing the pledge to pend are no longer highlighted. Pledge and Settlement Procedures Release 9.0 Page 27

28 CHAPTER 4 MODIFYING PLEDGES Modifying a pledge New Pledge Security Loan Items screen Existing Pledge Security Loan Items screen 7. To modify a pledge, select one of the actions indicated in the table below. Action For more information, see... Confirm Confirming a pledge on page 29 DK DK ing a pledge on page 29 Increase, decrease, substitute collateral Increase or repay a security loan Increase or repay a funds loan Requesting an increase, decrease or substitution in collateral on page 30 Requesting an increase or repayment on a security loan on page 32 Requesting an increase or repayment on a funds loan on page 32 Pledge and Settlement Procedures Release 9.0 Page 28

29 CHAPTER 4 MODIFYING PLEDGES Confirming a pledge Action For more information, see... Renew Renewing a pledge on page 33 Request partial settlement Requesting partial settlement on page Confirming a pledge The participant accepting the pledge transaction may wish to review and change the default settlement account(s) assigned by the system before confirming the pledge transaction. To confirm a pledge: 1. Access the New Pledge General Information screen on page 25 or the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page Type C in the STATUS column next to the pledge to be confirmed and press PF To modify the internal account, enter the internal account in the INTERNAL AC field. This field can be modified without DK ing the pledge. (This is the only field the participant accepting the pledge can change on this screen.) Then type C in the STATUS field and press PF10 to save. The Pledge List screen on page 26 displays. Repeat for another pledge, if required. Revising the details of a confirmed or pending transaction Participants can change the details of a confirmed or pending pledge transaction. This becomes necessary if one of the collateral or loan items needs to be revised after the pledge is confirmed. To change the details, both participants must act as follows: 1. The participant accepting the pledge changes the status to DK. 2. The participant submitting the pledge revises the details. 3. The participant accepting the pledge confirms the revised pledge. 4.3 DK ing a pledge Only the participant accepting the pledge can DK a pledge and only the participant submitting the pledge can correct it. There is no limit to the number of times a pledge can be DK d and corrected. Pledge and Settlement Procedures Release 9.0 Page 29

30 CHAPTER 4 MODIFYING PLEDGES Requesting an increase, decrease or substitution in collateral To DK a pledge: 1. Access the Pledge List screen on page 26. For more information, see Modifying a pledge on page Do either of the following: To DK pledges without giving any explanation, type DK in the STATUS column next to the appropriate pledge and press PF10. To DK a pledge and provide an explanation of the errors, type X in the SELECT column beside the specific pledge and press ENTER. The New Pledge General Information screen on page 25 or the Existing Pledge General Information screen on page 26 displays. 3. Change the STATUS field to DK and, if desired, type a brief explanation in the MEMO field. (Type over the existing message, if necessary.) Press PF10 to save. The Pledge List screen on page 26 displays. Repeat for another pledge, if required Changing the details of a DK d pledge Participants can change the details of a DK d pledge. To change the details of a DK d pledge: 1. Access the New Pledge General Information screen on page 25 or the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page Change the information as required. Press PF6 to move between screens. For a funds loan request, review the information on the General Information and Collateral Items screens. For a security loan request, review the information on the General Information, Collateral Items and Security Loan Items screens. 3. Press ENTER to validate the information and press PF10 to save. The pledge status changes to U (unconfirmed), and if the borrower made the change, a Pledge Entry Notice prints at the lender s site. 4.4 Requesting an increase, decrease or substitution in collateral Participants make a request to increase, decrease or substitute collateral by entering the details on the screens for the existing pledge. By saving the screen, the status of the existing pledge changes from settled to unconfirmed. Note: A decrease in funds collateral from a restricted collateral account (i.e., CX 000) requires a corresponding delivery of additional collateral. A decrease in funds collateral from an unrestricted collateral account (i.e., CA 000) does not require a corresponding delivery of additional collateral. Pledge and Settlement Procedures Release 9.0 Page 30

31 CHAPTER 4 MODIFYING PLEDGES Requesting an increase or repayment on a security loan The total value of the substitution need not be equal to the total value of the original collateral. To request an increase, decrease or substitution in collateral: 1. Access the New Pledge General Information screen on page 25. For more information, see Modifying a pledge on page Press PF6. The Existing Pledge General Information screen on page 26 displays. 3. Do one or more of the following: To increase or decrease a security collateral item, type the amount (with a plus or minus sign) in the INCR(+)/DECR( ) column beside the required security. To add a new security, move the cursor to the line below the last collateral item and complete the PAR/QUANTITY and CURRENCY/SECURITY NBR fields. Up to 40 new collateral items may be entered, five per screen. If necessary, press PF8 to display more blank lines. The lender or borrower may also add positions to existing collateral. To increase or decrease the value of an existing holding cheque, enter the increase or decrease in the INCR(+)/DECR( ) column beside the existing holding cheque. To add a holding cheque, type the amount of the cheque in the PAR/QUANTITY field. Type CAD in the CURRENCY/SECURITY NBR field. If the borrower is submitting the holding cheque, type B in the B/L column. Note: An existing holding cheque will always have a B under the B/L column which cannot be changed. If the lender is submitting the holding cheque (i.e., a debit to the lender s funds account), type L in the B/L column. 4. Press ENTER to validate the information and press PF10 to save. The Existing Pledge General Information screen on page 26 displays the request details. Note: If a modification is made to the collateral of a settled pledge, a new calculation is performed to determine the current benchmark value. For more information, see Collateral on page Requesting an increase or repayment on a security loan To request an increase or repayment on a security loan: 1. Access the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page 24. Pledge and Settlement Procedures Release 9.0 Page 31

32 CHAPTER 4 MODIFYING PLEDGES Requesting an increase or repayment on a funds loan 2. Press PF6 twice. The Existing Pledge Security Loan Items screen on page 28 displays. 3. To change collateral as part of the request, complete the Existing Pledge Collateral Items screen on page 27 as outlined in step 3 of Requesting an increase, decrease or substitution in collateral on page Press PF6. The Existing Pledge Security Loan Items screen on page 28 displays. 5. Do one or more of the following: To make a repayment, type the par/quantity of the repayment amount with a minus sign in the INCR(+)/DECR( ) column. To increase the value of an existing loan item, type the par/quantity of the increase with a plus sign in the INCR(+)/DECR( ) column. To add a new loan item, move the cursor to the line below the last item and complete the PAR/QUANTITY and SECURITY NBR/SECURITY NAME fields. Up to 40 new loan items may be entered, five per screen. If necessary, press PF8 to display more blank lines. 6. Press ENTER to validate the information and press PF10 to save. The Existing Pledge General Information screen on page 26 displays the request details. 4.6 Requesting an increase or repayment on a funds loan To request an increase or repayment on a funds loan: 1. Access the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page Type the amount of the increase or repayment with a plus or minus sign in the PRINCIPAL CHANGE field. Type the amount of the interest payment, if applicable, in the INTEREST AMOUNT field as well. 3. Press PF6. The Existing Pledge Collateral Items screen on page 27 displays. 4. Do one of the following: To increase or decrease a security collateral item, type the amount (with a plus or minus sign) in the INCR(+)/DECR( ) column beside the required security. To add a new security, move the cursor to the line below the last collateral item and complete the PAR/QUANTITY and SECURITY NBR/SECURITY NAME fields. Up to 40 new collateral items may be entered, five per screen. If necessary, press PF8 to display more blank lines. Pledge and Settlement Procedures Release 9.0 Page 32

33 CHAPTER 4 MODIFYING PLEDGES Renewing a pledge 5. Press ENTER to validate the information and press PF10 to save. The Existing Pledge General Information screen on page 26 displays the repayment details. 4.7 Renewing a pledge If a new pledge substitution, increase or repayment request that is value-dated for today does not settle before the start of payment exchange, the request must be renewed so that the system will try to settle it on that day before system shutdown. When a renewed funds loan settles, the security positions settle, but the funds positions do not. Therefore, the parties must arrange for payment outside of the system. Note: Participants cannot renew a pledge transaction that contains a holding cheque. To renew a pledge: 1. Access the Pledge List screen on page 26 or the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page Do either of the following: On the Pledge List screen on page 26, type Y in the RN column next to the appropriate pledges and press PF10. On the Existing Pledge General Information screen on page 26, type Y in the RENEW field and press PF10. For more information about a pledge, first renew all available pledges and press PF10. Then type X in the SELECT column beside the pledge to be verified and press ENTER. The Existing Pledge General Information screen on page 26 displays for the first pledge. Renew the pledge as described above and press PF10. The Pledge List screen on page 26 displays. Repeat for another pledge, if required Renewing new pledges entered during or after payment exchange A new pledge with a pledge modification is entered with a renewed status. If DK d, the participant submitting the pledge must reset the RENEW field to Y in order for the participant accepting the pledge to be able to confirm it. To renew a new pledge entered during or after payment exchange: 1. The participant submitting the pledge enters the renewal online. The status is set to unconfirmed (unless the status was DK, in which case it remains DK). Pledge and Settlement Procedures Release 9.0 Page 33

34 CHAPTER 4 MODIFYING PLEDGES Requesting partial settlement 2. If the pledge has a DK status, the participant submitting the pledge must change the details and the participant accepting the pledge must confirm the change. 3. When both parties are satisfied with the pledge details, they arrange for an exchange of funds (if any) against the pledge. 4. The participant accepting the pledge confirms the renewed pledge online. Once confirmed, the pledge settles if sufficient security positions exist. 4.8 Requesting partial settlement When modifying an existing pledge or correcting a DK d pledge, the participant submitting the request must release a holding cheque either partially or in full against the receipt of new securities and/or cash. Note: The amount of funds to be partially released by the lender in a partial settlement is equal to the ACV value of the securities received in the partial settlement. Eligibility criteria The system processes the request for partial settlement only if the following criteria are met: The pledge is confirmed, with a value date of the current day The pledge modification consists of the release of a holding cheque (partial or full amount) against the increase of two to ten security items There are no other funds changes, e.g., an interest charge, a transfer amount or an increase in a holding cheque The lender s account type for settlement of all items is the unrestricted collateral account or the restricted collateral account The partial settlement indicator is set to Y, for Yes. A partial pledge settlement can be made only before payment exchange because holding cheque items cannot be entered after payment exchange The holding cheques are in Canadian currency. If the above criteria are not met, the system processes the settlement in the normal manner by releasing the funds only if all the securities being substituted are present in the borrower s ledger. The pledge modification settles only when all the securities being substituted have been delivered to the borrower. Pledge and Settlement Procedures Release 9.0 Page 34

35 CHAPTER 4 MODIFYING PLEDGES Requesting partial settlement Submitting a request for partial settlement Either the lender or the borrower can submit a request for partial settlement as described below: 1. Access the Existing Pledge General Information screen on page 26. For more information, see Modifying a pledge on page Press PF6. The Existing Pledge Collateral Items screen on page 27 displays. 3. Do one or more of the following: If adding a new security collateral item, type the new securities in the PAR/ QUANTITY field. If increasing the amount of a holding cheque against an existing security, type the amount (with a plus sign) on the line for the relevant security in the INCR(+)/ DECR(-) column. If releasing a security against the holding cheque, type the amount (with a minus sign) on the line for the holding cheque in the INCR(+)/DECR(-) column. 4. Leave the partial settlement indicator set to Y in the PART SETT field. The amount being released from the holding cheque is indicated with a minus sign in the INCR(+)/DECR(-) field. The amount increased against an existing security is indicated with a plus sign in the INCR(+)/DECR(-) field. Two new securities submitted against the release of part of the holding cheque are added to the list Accepting a request for partial settlement Either the lender or borrower can accept a request for partial settlement as described below: 1. Confirm the pledge modification. For more information, see Confirming a pledge on page 29. The system verifies that all the required criteria for partial settlement are met and proceeds to (partial) settlement. 2. If the participant accepting the pledge does not want the pledge to be considered for partial settlement, they must DK the pledge. For more information, see DK ing a pledge on page 29. Note: If all the required criteria for partial settlement are not met, the system flags the transaction for normal settlement. 3. If all the new securities being substituted are present in the borrower s ledger, the entire pledge modification settles. Pledge and Settlement Procedures Release 9.0 Page 35

36 CHAPTER 4 MODIFYING PLEDGES Requesting partial settlement If all the new securities are not present in the borrower s ledger, only those present settle. The outstanding securities settle when the security position becomes available in the borrower s ledger. In the event that some securities are unavailable, the status for the pledge modification changes from C (confirmed) to P (pending), on the Existing Pledge Collateral Items screen on page Modifying and inquiring on partially settled pledges The lender and borrower of pledges that are submitted for partial settlement can follow the progress of the transactions as described below: A pledge in the process of partial settlement retains a status of P (pending) until it has settled entirely. The participant accepting the pledge can change the transaction status from P to DK at any time, even if part of it has already settled. When the pledge is displayed online, the amount of the holding cheque reflects the outstanding balance to be settled. When the pledge is displayed online, an asterisk is visible to the left of the security collateral items that have settled. Participants can follow the progress of the partial settlement of pledges by consulting the following reports: Settled Transactions report Lists each partial settlement as an independent transaction. Unsettled Transactions report If a pledge has settled partially, this report lists the remaining portion of that pledge modification as one transaction. Refer to CDS Reporting Procedures for more information on these reports. Pledge and Settlement Procedures Release 9.0 Page 36

37 CHAPTER 5 Chapter5Deleting or adding loan items Participants can delete or add one or more security loan items for a settled pledge. The deletion or addition is not allowed if a pledge modification already exists. The participant accepting the pledge can confirm or DK the deleted or added security loan items. Note: Participants cannot delete and add security loan items at the same time. As well, the deletion or addition of security loan items using the Delete/Add Security Loan Items function does not affect their ledger position. To delete or add a security loan item: 1. Access the Pledge Menu on page 9. For more information, see Accessing the Pledge Menu on page Type the number identifying Delete/Add Security Loan Items in the SELECTION field and press ENTER. The Pledge Selection screen on page 37 displays. Pledge Selection screen 3. Do either of the following: If the pledge ID is known, complete the PLEDGE ID field and press ENTER. The Existing Pledge General Information screen on page 38 displays. Go to step 5. Pledge and Settlement Procedures Release 9.0 Page 37

38 CHAPTER 5 DELETING OR ADDING LOAN ITEMS Existing Pledge General Information screen If the pledge ID is not known, enter any of the selection criteria to display a list of pledges. Press ENTER. The Pledge List screen on page 38 displays. Go to step 4. Note: If the pledge is an unsettled new pledge, message 3124: TRANSACTION NOT ELIGIBLE FOR DEL/ADD LOAN ITEM FUNCTION displays. Pledge List screen 4. To display more detailed information on any pledge, type X in the SELECT column beside the required pledge and press ENTER. The Existing Pledge General Information screen on page 38 displays for that pledge. 5. Press PF6 twice. The Existing Pledge Security Loan Items screen on page 39 displays. Pledge and Settlement Procedures Release 9.0 Page 38

39 CHAPTER 5 DELETING OR ADDING LOAN ITEMS Existing Pledge Security Loan Items screen 6. Do either of the following: Type X in the DEL column to identify the security loan item(s) to delete. Press ENTER. Add the new loan item(s) on the blank line(s). Press ENTER. 7. Press PF10 to save. The Existing Pledge General Information screen on page 38 displays with the following details: DEL/ADD LOAN ITEMS field contains either: D (delete) Indicates that a security loan item has been deleted A (add) Indicates that a security loan item has been added. STAT field is U (unconfirmed). 8. The participant accepting the deletion or addition can change the status of the deleted or added security loan item to either C (confirm) or DK (don t know). Pledge and Settlement Procedures Release 9.0 Page 39

40 CHAPTER 6 Chapter6Capturing collateral or funds The lender can modify a pledge by using the Collateral Delivery function to capture collateral that is pledged to them or funds that are being used as collateral. If a pledge contains holding cheques in more than one currency, the lender is required to capture them through separate transactions. The funds collateral in a pledge is automatically captured (from the unrestricted collateral account or the restricted collateral account) to the lender s funds account at payment exchange. To capture collateral or funds: 1. Access the Pledge Menu on page 9. For more information, see Accessing the Pledge Menu on page Type the number identifying Collateral Delivery in the SELECTION field and press ENTER. The Pledge Selection screen on page 40 displays. Pledge Selection screen 3. Do either of the following: If the pledge ID is known, complete the PLEDGE ID field and press ENTER. The Existing Pledge General Information screen on page 41 displays. Go to step 5. Pledge and Settlement Procedures Release 9.0 Page 40

41 CHAPTER 6 CAPTURING COLLATERAL OR FUNDS Existing Pledge General Information screen If the pledge ID is not known, enter any of the selection criteria to display a list of pledges. Press ENTER. The Pledge List screen on page 41 displays. Go to step 4. Pledge List screen 4. To display more detailed information on any pledge, type X in the SELECT column beside the required pledge and press ENTER. The Existing Pledge General Information screen on page 41 displays. 5. Press PF6. The Existing Pledge Collateral Items screen on page 42 displays to review the collateral that will be captured. Pledge and Settlement Procedures Release 9.0 Page 41