By-law No. 7 Respecting the Large Value Transfer System (SOR/2001-281)

Termination of LVTS Cycle

10 The LVTS cycle is terminated on completion of the settlement of all participants’ multilateral net positions, and the President shall notify all participants when termination of the LVTS cycle has occurred.

Exceptions

• 11 (1) In accordance with section 65, the President may determine the need to have more than one LVTS cycle on any business day and shall communicate that fact to all participants.

• (2) An LVTS cycle may not commence unless the preceding LVTS cycle has terminated.

• (3) An LVTS cycle may span more than one business day, and in that case all payments made during the LVTS cycle retain the value date as at the commencement of the LVTS cycle.

Liability of the Association

12 Except in the case of wilful misconduct of the Association, the Association, its directors and its employees have no liability whatsoever to any member for any loss or expense suffered, or liability incurred, by that member arising from the Association’s acts or omissions in connection with the LVTS, including, without limitation, a loss resulting directly or indirectly from

• (a) a failure to transmit, send, approve or otherwise process a payment message or administrative message;

• (b) an error caused by the LVTS;

• (c) the LVTS’s failure to accurately record a bilateral credit limit or modification or failure to calculate and accurately record a net debit cap; or

• (d) the LVTS’s sending of a payment message in excess of a bilateral credit limit or an applicable net debit cap.

Access to the LVTS

Participants

13 Any member may, on completion of any application procedures that may be set out in the rules, become a participant in the LVTS if that member

• (a) has established and maintains a settlement account at the Bank of Canada and has entered into any agreements that may be required by the Bank of Canada governing the settlement of its multilateral net position, the provision by the Bank of Canada of advances for LVTS purposes and the pledging of collateral to secure those advances and any other agreements that the Bank of Canada may require from time to time;

• (b) has met any technical and other requirements that may be set out in the rules; and

• (c) has paid

  • (i) an admission fee calculated in accordance with the rules, which admission fee shall be based on the administrative costs related to its admission as a new participant, and

  • (ii) to the extent that the member, as a new participant, did not participate in the financing of the development costs (including the costs of upgrades), a reasonable share, calculated in accordance with the Canadian Payments Association By-law No. 2 — Finance, of the unamortized portion of those development costs plus interest as at the date of its becoming a participant.

Suspension of Participant Status

• 14 (1) Any participant, except the Bank of Canada, that does not at all times comply with paragraph 13(a) shall, on notice being given of that fact by the Bank of Canada to the President, have its participant status suspended automatically.

• (2) The President may at any time suspend any participant’s status as a participant, if the participant fails to meet or continue to meet the criteria for participant eligibility set out in paragraph 13(b).

• (3) The President shall, as soon as reasonably practicable, notify all participants of the name of any participant that has had its participant status suspended under subsection (1) or (2).

Revocation of Participant Status

• 15 (1) The Board may at any time revoke the participant status of a participant, except the Bank of Canada, if that participant

  • (a) does not at all times comply with paragraph 13(a); or

  • (b) fails to meet or continue to meet the criteria for participant eligibility set out in paragraph 13(b).

• (2) The President shall, as soon as reasonably practicable, notify all participants of the name of any participant that has had its participant status revoked.

Reinstatement

• 16 (1) In the event that a participant’s status as a participant is suspended or revoked, the member may apply to the Association for reinstatement, in accordance with any procedures that may be set out in the rules, once the failure leading to the suspension or revocation has been corrected.

• (2) As a condition to reinstatement, a member referred to in subsection (1) shall be required to pay an admission fee calculated in accordance with paragraph 13(c).

Withdrawal of Participant

• 17 (1) Any participant may withdraw from participation in the LVTS after notifying the President of its intention to withdraw and paying all expenses associated with its participation in the LVTS that may be specified in the rules.

• (2) If a participant’s notice of its intention to withdraw from participation occurs during an LVTS cycle, the withdrawal does not take effect before the termination of that LVTS cycle.

Survival of Rights and Obligations

• 18 (1) In the event that a participant’s status as a participant is suspended or revoked, any payment liabilities and obligations of that participant pursuant to this by-law and any payment rights and entitlements of that participant pursuant to this by-law survive the suspension or revocation as if the participant were still a participant.

• (2) Any rights or obligations that, in accordance with subsection (1), survive the suspension or revocation of a participant shall be settled for pursuant to this by-law as if that participant were still a participant.

Establishment of Tranche 1 Net Debit Cap

Tranche 1 Net Debit Cap

• 19 (1) Each participant, with the exception of the Bank of Canada, shall, during the initialization period of each LVTS cycle, set its own tranche 1 net debit cap, failing which its tranche 1 net debit cap is set at zero for the LVTS cycle then commencing.

• (2) The absolute value of each participant’s tranche 1 net debit cap is an amount equal to the value of the collateral, as determined by the Bank of Canada in accordance with section 31, apportioned in support of its tranche 1 payment messages for the LVTS cycle.

Increase of Tranche 1 Net Debit Cap

20 In accordance with any procedures that may be set out in the rules, a participant may at any time during an LVTS cycle increase its tranche 1 net debit cap by

• (a) subject to subsection 25(2), apportioning additional collateral that has been pledged to the Bank of Canada for LVTS purposes to reflect the increased tranche 1 net debit cap; or

• (b) pledging additional collateral to the Bank of Canada for LVTS purposes, subject to valuation by the Bank of Canada in accordance with section 31, and apportioning the value of that additional collateral to reflect the increased tranche 1 net debit cap.

Decrease of Tranche 1 Net Debit Cap

• 21 (1) In accordance with any procedures that may be set out in the rules, a participant may at any time during an LVTS cycle reduce its tranche 1 net debit cap by changing the apportionment of its collateral pledged to the Bank of Canada to reflect the decreased tranche 1 net debit cap.

• (2) Where a participant’s multilateral net tranche 1 position is negative, the value of the collateral apportioned by the participant under subsection (1) to reflect its tranche 1 net debit cap may not be reduced below the absolute value of that negative multilateral net tranche 1 position.

Establishment of Bilateral Credit Limits

Notice During Initialization

• 22 (1) During the initialization period of each LVTS cycle, each participant, other than the Bank of Canada, shall, in accordance with any procedures that may be set out in the rules, set the amount of any bilateral credit limits it is willing to establish for any of the other participants.

• (2) Any bilateral credit limits that are not set by a participant are deemed to be set at zero.

• (3) A bilateral credit limit shall be established by the Bank of Canada for each of the other participants.

• (4) The bilateral credit limits established by the Bank of Canada are calculated during the initialization period of each LVTS cycle by applying a mathematical function, to be established from time to time by the Bank of Canada, to the other bilateral credit limits established for each participant.

22.1 Despite subsections 22(1) and (4), a bilateral credit limit referred to in those subsections must not be set or established at an amount greater than zero if Lynx is operational for any period of time after August 28, 2021.

Determination of ASO and Tranche 2 Net Debit Cap

• 23 (1) After each participant has established any bilateral credit limits for any of the other participants and the bilateral credit limits to be established by the Bank of Canada have been calculated, the Association shall calculate the maximum ASO of each participant and the tranche 2 net debit cap of each participant and give notice of those calculations to the participant.

• (2) The Association shall also give notice to each participant of the amount of any bilateral credit limits that have been established for it.

• (3) The tranche 2 net debit cap of a participant equals the product of the sum of the bilateral credit limits established for the participant by each of the other participants, multiplied by the system-wide percentage.

Increase of Bilateral Credit Limits

• 24 (1) Subject to subsection (1.1) and in accordance with any procedures that may be set out in the rules, a participant may, at any time during the LVTS cycle, increase any of the bilateral credit limits that it has established, by notifying the Association of the increase.

• (1.1) A participant must not increase a bilateral credit limit that it has established if Lynx is operational for any period after August 28, 2021.

• (2) If because of any increase referred to in subsection (1) there is any corresponding increase in the participant’s maximum ASO, the participant shall

  • (a) subject to section 21, apportion the value of additional collateral that has been pledged to the Bank of Canada for LVTS purposes to cover any such corresponding increase in its maximum ASO; or

  • (b) pledge additional collateral to the Bank of Canada for LVTS purposes, subject to valuation by the Bank of Canada in accordance with section 31, and apportion the value of that collateral to cover any such corresponding increase in the participant’s maximum ASO.

• (3) On acceptance by the Association of any increase in a bilateral credit limit effected by a participant under subsection (1), the relevant bilateral credit limits established by the Bank of Canada, any corresponding increase in the participant’s maximum ASO and any resulting increase in any participant’s tranche 2 net debit cap shall be recalculated accordingly.

• (4) The Association shall give notice to each participant of any increase in any bilateral credit limit established for that participant and of any increase in that participant’s tranche 2 net debit cap.

Reduction of Bilateral Credit Limits

• 25 (1) In accordance with any procedures that may be set out in the rules, a participant may at any time, without prior notice to any other participant, reduce any of the bilateral credit limits that it has established.

• (2) The maximum ASO and corresponding apportionment of collateral value of a participant who reduces any bilateral credit limit under subsection (1) shall not be reduced until the LVTS cycle has terminated.

• (3) On notice being given by a participant to the Association of any decrease in any of the bilateral credit limits it has established, the bilateral credit limits established by the Bank of Canada and any resulting decrease in any participant’s tranche 2 net debit cap shall be recalculated accordingly.

• (4) The Association shall give notice to each participant of any decrease in any bilateral credit limit established for that participant and of any decrease in that participant’s tranche 2 net debit cap.

Additional Settlement Obligation

Assumption of ASO

• 26 (1) The Association shall, in accordance with section 27, calculate an ASO for each participant that has established a bilateral credit limit in favour of a defaulting participant during an LVTS cycle.

• (2) An ASO referred to in subsection (1) is calculated by the Association for any participant, including a participant that is itself in default under section 56.

Calculation of ASO

27 Subject to sections 28 and 29, the amount of a participant’s ASO is equal to the product obtained when

• (a) the portion of the absolute value of a defaulting participant’s negative multilateral net position, if any, that exceeds the sum of the amount of the defaulting participant’s collateral pledged to the Bank of Canada in accordance with section 30 and the amount of any funds in the participant’s settlement account

is multiplied by

• (b) a fraction, the numerator of which is the largest bilateral credit limit established by the participant for the defaulting participant during the LVTS cycle, and the denominator of which is the sum of the largest bilateral credit limits established by each of the participants for the defaulting participant at any time during the LVTS cycle.

Maximum ASO

28 The amount of a participant’s maximum ASO is equal to the product of the largest bilateral credit limit established by that participant for any other participant, during the LVTS cycle, multiplied by the system-wide percentage.

ASO in Multiple Default Situation

• 29 (1) If two or more participants are in default under section 56, the amount of a participant’s ASOs, whether or not that participant is itself in default, shall be calculated as set out in section 27 for each of the participants in default.

• (2) The total ASOs payable by each participant shall be the sum of the ASOs calculated with respect to each defaulting participant.

• (3) If the sum of a participant’s ASOs exceeds its maximum ASO, the participant’s ASO with respect to each of the defaulting participants shall be reduced on a pro-rated basis based on the relative amounts of those ASOs, such that the sum of a participant’s ASOs does not exceed the participant’s maximum ASO.

Pledging of Collateral

Collateral Requirements

• 30 (1) Each participant, with the exception of the Bank of Canada, shall pledge collateral to the Bank of Canada as security for any advance that the Bank of Canada may make to that participant to enable the settlement of the participant’s negative multilateral net position, if any, to occur or to enable that participant to meet its ASOs.

• (2) The value of the collateral referred to in subsection (1), determined by the Bank of Canada under section 31, must be at least equal to the sum of the participant’s maximum ASO and the absolute value of its tranche 1 net debit cap for the LVTS cycle.

• (3) During the initialization period of each LVTS cycle, each participant shall confirm the apportionment of the collateral between its tranche 1 net debit cap and its maximum ASO in accordance with any procedures that may be set out in the rules.

Valuation of Collateral

• 31 (1) Any collateral pledged by a participant for LVTS purposes during the initialization period of an LVTS cycle is subject to valuation by the Bank of Canada during that period.

• (2) Any additional collateral pledged by a participant for LVTS purposes at any time during an LVTS cycle pursuant to section 20 or 24 is subject to valuation by the Bank of Canada at the time the pledge is made.

• (3) If, on valuation of the collateral by the Bank of Canada during the initialization period, the value assigned by the Bank of Canada to the collateral pledged is less than the value apportioned by the participant to cover its tranche 1 net debit cap and maximum ASO, the absolute value of the participant’s tranche 1 net debit cap shall be reduced by an amount equal to the difference.

• (4) If the absolute value of the participant’s tranche 1 net debit cap is reduced to zero and the value assigned by the Bank of Canada to the collateral is less than the participant’s maximum ASO, the bilateral credit limits established by the participant shall be reduced, in accordance with any procedures that may be set out in the rules, so that its maximum ASO is not greater than the value assigned to the collateral by the Bank of Canada.