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

Revaluation of Collateral

• 32 (1) The Bank of Canada may revalue the collateral pledged by a participant to the Bank of Canada for LVTS purposes at any time during an LVTS cycle.

• (2) If the revaluation results in a decrease in the value assigned by the Bank of Canada to the collateral such that the value of the collateral is less than the sum of the participant’s maximum ASO and the absolute value of its tranche 1 net debit cap, the Bank of Canada shall notify the President who in turn shall notify the participant of that fact.

• (3) The participant referred to in subsection (2) shall, within a time limit specified by the Bank of Canada, pledge additional collateral as required to raise the amount of collateral to an amount at least equal to the sum of the participant’s maximum ASO and the absolute value of its tranche 1 net debit cap.

• (4) If the participant does not pledge the required additional collateral referred to in subsection (3), the participant’s tranche 1 net debit cap shall, despite subsection 21(2), be reduced by an amount equal to the amount by which the new value assigned by the Bank of Canada to the collateral is less than the sum of the participant’s maximum ASO and the absolute value of its tranche 1 net debit cap.

Availability of Collateral

• 33 (1) Collateral pledged to the Bank of Canada for LVTS purposes that has been apportioned as required for an LVTS cycle is not available to the participant for any other purpose until the termination of that LVTS cycle.

• (2) If the value of the participant’s collateral pledged exceeds the sum of the participant’s maximum ASO and the absolute value of its tranche 1 net debit cap, the participant shall, on request for a release being made to the Bank of Canada, obtain a release of the excess collateral from the pledge.

• (3) On the termination of the LVTS cycle, the Bank of Canada shall, on request for a release being made by the participant to the Bank of Canada, release the collateral from the pledge unless the collateral is required as security for advances made by the Bank of Canada to enable the settlement of the participant’s negative multilateral net position, if any, to occur or to enable that participant to meet its ASO for that LVTS cycle.

Exchange of Payment Messages

Payment Items

34 Payment messages are approved as a class of payment items.

Payment Messages

35 Each participant may, in accordance with any procedures that may be set out in the rules, send a tranche 1 payment message or a tranche 2 payment message to any other participant.

Amount of Payment Messages Sent

36 Unless otherwise specified in the rules, there is no minimum or maximum dollar amount for any payment message sent through the LVTS.

Timing of Payment Messages

37 Subject to any statutory or regulatory constraints, each participant shall ensure that certain percentages of the total value or volume of payment messages that it is sending to other participants during any LVTS cycle are sent by certain stated times that may be set out in the rules.

Clearing of Payment Messages

Payment Messages Received

• 38 (1) For the purposes of section 52, a payment message sent through the LVTS is deemed received by the receiving participant when the payment message has passed all risk control tests applicable to that payment message that are set out in this by-law.

• (2) The deemed receipt of a payment message by the receiving participant immediately creates an obligation of the sending participant to pay the receiving participant the amount of the payment message.

• (3) The payment obligation of the sending participant referred to in subsection (2) is an obligation of the participant as principal for its own account, regardless of whether the participant is sending the payment at the request of a customer, and the corresponding right of the receiving participant to payment is a right of that participant as principal for its own account, regardless of whether the payment is received for the purpose of making payment to a payee other than that participant.

Tranche 1 Payment Messages

• 39 (1) A tranche 1 payment message is considered to pass the risk control tests for tranche 1 payment messages if the sending participant’s multilateral net tranche 1 position determined after the inclusion of the amount of the payment message is not less than the maximum permissible negative amount of the sending participant’s multilateral net tranche 1 position as determined by its tranche 1 net debit cap.

• (2) If a tranche 1 payment message does not pass the risk control tests for tranche 1 payment messages, the payment message is, subject to any conditions that may be set out in the rules, placed in the payment queue or returned to the sending participant.

Tranche 2 Payment Messages

• 40 (1) A tranche 2 payment message is considered to pass the risk control tests for tranche 2 payment messages if

  • (a) after the inclusion of the amount of the payment message in the calculation of the bilateral position between the sending participant and the receiving participant, the bilateral credit limit established for the sending participant by the receiving participant is not exceeded; and

  • (b) after the inclusion of the amount of the payment message in the calculation of the multilateral net tranche 2 position of the sending participant, the multilateral net tranche 2 position of the sending participant is not less than the maximum permissible negative amount of the sending participant’s multilateral net tranche 2 position as determined by its tranche 2 net debit cap.

• (2) If a tranche 2 payment message does not pass the risk control tests for tranche 2 payment messages, the payment message is, subject to any conditions that may be set out in the rules, placed in the payment queue or returned to the sending participant.

Payment Queue

41 A payment message that is transferred to the payment queue is managed as may be specified in the rules.

No Reversal of Transaction

42 No adjustment, reversal or unwinding of any approved payment message may be made under any circumstances.

Finality of Payment to Payees

Timing of Payments to Payees

• 43 (1) On actual receipt by a receiving participant of a payment message, the receiving participant shall make the amount of the payment message finally and irrevocably available to the payee on the earlier of

  • (a) the end of the LVTS cycle, and

  • (b) a reasonable request by the payee being made to the receiving participant for the amount of the payment message.

• (2) In making the amount of a payment message available to a payee in accordance with subsection (1), a receiving participant shall, if the payee so requests, provide the payee with the payment confirmation reference number for the amount being made available.

• (3) The absence of a request for the payment confirmation reference number in no way affects a receiving participant’s obligation under subsection (1) to make the amount of the payment message finally and irrevocably available.

• (4) Before the actual receipt of a payment message, a receiving participant shall not make the amount of the payment message available to the payee as the completion of a payment sent through the LVTS.

• (5) If a receiving participant makes the amount of a payment message available to the payee before the actual receipt of the payment message, that amount is deemed to be finally and irrevocably available if

  • (a) the payee requests a payment confirmation reference number; and

  • (b) the receiving participant provides the payee with the amount of the payment as well as with a number that it represents as being the payment confirmation reference number.

Exceptions

• 44 (1) Despite the requirements of section 43,

  • (a) if, in the receiving participant’s relationship with the payee at the time the funds are to be made available, action is usually taken by the branch of account in order for the funds to be made available to the payee and either the branch of account is closed on the day the payment message is received by the participant or the payment message is received by the participant within an amount of time, as may be set out in the rules, prior to the close of business of the branch of account for the business day, the receiving participant may make the amount of the payment message finally and irrevocably available to the payee after the end of the LVTS cycle but in any event not later than the beginning of the next day that the branch of account is opened for the purpose of making such funds available or as soon after that time as is reasonably practicable;

  • (b) if the payment message has been received by the receiving participant after such time as may be set out in the rules, prior to the end of the LVTS cycle, the receiving participant may make the amount of the payment message finally and irrevocably available to the payee after the end of the LVTS cycle but in any event not later than the beginning of the next business day; or

  • (c) if the receiving participant, having exercised such standard of care in the operation of its systems as is reasonable in the circumstances and having employed such alternative operations and procedures to make the amount of the payment message available as are reasonable in the circumstances, cannot comply with the obligation to make the amount of the payment message available as set out in section 43 due to a technical malfunction beyond the reasonable control of the participant or other event beyond the reasonable control of the participant that directly impairs the continued normal functioning of the receiving participant’s operating systems and procedures, the receiving participant may make the amount of the payment message finally and irrevocably available to the payee after the end of the LVTS cycle but as soon as practicable after the restoration of the normal functioning of the receiving participant’s operating systems and procedures and in any event shall make the amount of the payment message available not later than the end of the next business day following the day the restoration is completed.

• (2) For greater certainty, under no circumstances does the failure or default of any participant constitute a reason for a participant not having to comply with its obligations set out in section 43.

Finality of Payment

45 For the purposes of sections 43, 44 and 46 to 51, once a receiving participant has actually received a payment message, final and irrevocable availability of the amount of the payment message by a receiving participant to a payee is deemed to occur on the earliest of

• (a) credit in the amount of the payment message, less any service charges (subject to any provisions that may be set out in the rules regarding the disclosure and the manner of processing of service charges), being made to the account of the payee,

• (b) lawful application by the receiving participant of the amount of the payment message, less any service charges (subject to any provisions that may be set out in the rules regarding the disclosure and the manner of processing of service charges), to a debt of the payee, and

• (c) any other action by the receiving participant that has the effect of permitting the payee to have access to the amount of the payment message, less any service charges (subject to any provisions that may be set out in the rules regarding the disclosure and the manner of processing of service charges).

Error

• 46 (1) Despite the requirements of section 43, a receiving participant shall, in accordance with any procedures that may be set out in the rules, either return the amount of a payment message to the sending participant or take steps to correct the message if

  • (a) the receiving participant’s error detection system whether automated or otherwise discovers, before making the amount of a payment message available to a payee, that

    • (i) the payee’s name and the payee account number indicated on the payment message identify different persons,

    • (ii) the payment message erroneously instructs payment to a person other than the payee intended,

    • (iii) the payment message erroneously instructs payment in an amount other than the amount intended,

    • (iv) the payment message is an erroneously transmitted duplicate of a payment message previously transmitted by the sending participant, or

    • (v) there is an error or omission in the payment message by reason of which the receiving participant cannot, without correcting the error or omission, make the amount of the payment message available to the payee; or

  • (b) an individual acting on behalf of the receiving participant is directly involved in making the amount of the payment message available to the payee and that individual has knowledge, before making the amount of that payment message available to the payee, that any of subparagraphs (a)(i) to (v) apply to that payment message.

• (2) If the payment message is returned to the sending participant, the receiving participant shall be relieved of its obligations under section 43.

• (3) If the receiving participant corrects the payment message, the receiving participant shall make the amount of the payment message finally and irrevocably available to the payee within the applicable time period set out in sections 43 and 44, except that the time of receipt of the payment message is deemed to be the time at which the receiving participant corrected the payment message.

• (4) A receiving participant has no duty to detect any of the circumstances set out in subparagraphs (1)(a)(i) to (v).

Inability to Credit Payee

47 Despite the requirements of section 43, a receiving participant is relieved of its obligation set out in that section to make the amount of a payment message available to the payee and shall return the amount of that payment message to the sending participant, in accordance with any procedures that may be set out in the rules, if a prior request has been made by the payee that the amount of the payment message not be made available to it or the receiving participant cannot make the amount of a payment message available to the payee because of

• (a) a prior restriction having been placed on the account of the payee or on the account holder by the receiving participant; or

• (b) a prior restriction having been ordered, or a prior request having been made, by a competent authority that restricts the ability of the receiving participant to make the funds available to the payee.

Obligations and Liability of a Receiving Participant

• 48 (1) The obligations of a receiving participant set out in sections 43 to 47 and 49 are to the payee.

• (2) No obligation is owed by the receiving participant to the sending participant or to the customer of the sending participant who originated the payment message, solely because of sections 43 to 47 and 49.

• (3) Where the receiving participant fails to perform its obligations set out in sections 43 to 47 and 49, the payee may make a claim for loss of interest, if the payee is otherwise entitled to such interest.

Identification of Payee

• 49 (1) If a payment message received by a receiving participant specifies an account number, in the form that may be set out in the rules, in identifying the payee to whom the amount of the payment message is to be made available, the receiving participant may rely on that account number in making the amount of the payment message available.

• (2) If the receiving participant makes the amount of the payment message available to the payee by relying on the account number, the receiving participant has satisfied its obligations to the payee under sections 43 to 48 and 50 even if the account number identifies a person different from the person identified by name in the payment message, provided that, where an individual acting on behalf of the receiving participant is directly involved in making the amount of a payment message available to the payee, that individual has no knowledge, prior to the amount of the payment message being made available to the payee, that the account number identifies a person different from the person identified by name.

• (3) If the individual referred to in subsection (2) has the prior knowledge referred to in that subsection, the receiving participant is, in accordance with section 46, relieved of its obligations set out in subsections 43(1) to (3).

• (4) The receiving participant has no duty to detect any inconsistency in identification even when it does not rely on an individual in making the amount of a payment message available to a payee.

Rights of a Payee

50 The rights of a payee under sections 43 to 49 and 51

• (a) may not be diminished by agreement or rule; and

• (b) are in addition to, and shall not diminish, any other rights that the payee may have under the general law.

Rights of Recourse

51 For greater certainty, nothing in sections 43 to 50 affects any right or remedy that a participant or any person may have under the general law, including, without limitation, the law governing mistake, unjust enrichment or restitution to recover the amount or excess amount of a payment message from any person after that amount was erroneously made available under this by-law including, without limitation, on the basis of

• (a) an erroneous payment message that results in payment being made to a person not intended to receive payment;

• (b) an erroneous payment message that results in payment being made to a payee in an amount other than the amount intended; or

• (c) an erroneously transmitted duplicate payment message.

Multilateral Netting

Netting of Payments

• 52 (1) On the deemed receipt, as referred to in section 38, by a receiving participant of a payment message, the obligation of the sending participant (in this section the “debtor participant”) to pay the amount of the payment message to the receiving participant (in this section the “creditor participant”) and the right of the creditor participant to receive the amount of the payment message from the debtor participant are extinguished and replaced by

  • (a) an obligation of the debtor participant to pay the amount of the payment message to all participants jointly; and

  • (b) a joint obligation of all participants to pay the amount of the payment message to the creditor participant.

• (2) The rights of a participant to receive payments due to it from all participants jointly are netted and set off against the obligations of that participant to pay all payments due by it to all participants jointly.

• (3) The netting processes set out in subsections (1) and (2) occur simultaneously, and each is deemed to be automatic and continuous without any action by any person, and constitutes a complete and final discharge and payment of the obligations of each participant to the extent that they are netted.

• (4) The balance calculated from this netting is the multilateral net position of that participant.

• (5) The multilateral net position of a participant shall be the only amount owing by or to that participant.