Payment Clearing and Settlement Regulations (SOR/2019-257)

Marginal note:Definitions

• 1 (1) The following definitions apply in these Regulations.

  Act

  Act means the Payment Clearing and Settlement Act. (Loi)

  affiliate

  affiliate means an affiliated person or entity within the meaning of subsection (2). (groupe)

• Marginal note:Affiliated persons or entities

  (2) For the purpose of these Regulations,

  • (a) one person or entity is affiliated with another person or entity if one of them is the subsidiary of the other or both are subsidiaries of the same person or entity or each of them is controlled by the same person or entity; and

  • (b) if two persons or entities are affiliated with the same person or entity at the same time, they are deemed to be affiliated with each other.

• Marginal note:Control

  (3) For the purpose of these Regulations,

  • (a) a person or entity controls a corporation if shares of the corporation to which are attached more than 50% of the votes that may be cast to elect directors of the corporation are held, directly or indirectly, by the person or entity and the votes attached to those shares are sufficient, if exercised, to elect a majority of the directors of the corporation;

  • (b) a person or entity controls a trust, fund or partnership (other than a limited partnership) or an unincorporated association or organization, if more than 50% of the ownership interests, however designated, into which the trust, fund, partnership, association or organization is divided are held, directly or indirectly, by the person or entity and the person or entity is able to direct the business and affairs of the trust, fund, partnership, association or organization; and

  • (c) the general partner of a limited partnership controls the limited partnership.

• Marginal note:Subsidiary

  (4) A person or entity is a subsidiary of another person or entity if

  • (a) it is controlled by

    • (i) that other person or entity,

    • (ii) that other person or entity and one or more persons or entities, each of which is controlled by that other person or entity, or

    • (iii) two or more persons or entities, each of which is controlled by that other person or entity; or

  • (b) it is a subsidiary of a subsidiary of that other person or entity.

• Marginal note:Limited clearing member

  (5) For the purposes of subsection 11.11(4) of the Act, a limited clearing member means a participant in a clearing and settlement system designated under subsection 4(1) of the Act who, under the rules of the system,

  • (a) is not required to contribute to a default fund;

  • (b) is not required to absorb any losses arising from the default of another participant in the system other than a reduction in the amount of variation margin gain that is returnable to the participant if the gain results from a transaction that was entered into by the participant and the defaulting participant and subsequently submitted for clearing to the clearing house of the system; and

  • (c) is subject to additional initial margin.

• Marginal note:Ownership interest

  (6) In these Regulations, a reference to an ownership interest in a clearing house does not include shares of the clearing house.

Marginal note:Conflict of interest

2 For the purposes of subsection 11.04(6) of the Act, no member of the committee shall beneficially own, directly or indirectly, shares of a clearing house of a clearing and settlement system designated under subsection 4(1) of the Act or of an entity that controls such a clearing house.

Marginal note:Contents of resolution plan

3 A resolution plan for a clearing and settlement system referred to in section 11.05 of the Act must include

• (a) a risk profile of the system that describes

  • (i) the design of the system,

  • (ii) the corporate governance or organizational structure of its clearing house,

  • (iii) by way of a diagram or otherwise, the intercorporate relationships between the clearing house of the system and each of its affiliates, including with respect to each affiliate

    • (A) its name and the law by or under which it was incorporated, continued or formed, and

    • (B) the percentage of votes attaching to all voting shares of the affiliate that are held, directly or indirectly, by another affiliate,

  • (iv) the critical clearing and settlement functions performed by the system or its clearing house,

  • (v) the critical services referred to in paragraph 11.07(1)(f) of the Act that are provided to its clearing house by a service provider,

  • (vi) the critical operational resources of the system and its clearing house, including staff and information technology, and

  • (vii) any contractual or operational arrangements between the system or its clearing house with other clearing houses or systems;

• (b) a resolution strategy that sets out the principal measures that could be taken in the event of a declaration of non-viability;

• (c) an assessment of the resources that may be necessary to implement the resolution strategy including the financial resources and loss allocation tools provided for in the rules, by-laws or related arrangements of the system or its clearing house;

• (d) an operational plan that sets out

  • (i) the manner in which the resolution strategy could be implemented, and

  • (ii) any potential barriers to a resolution; and

• (e) a statement that the plan has been approved by the Governor of the Bank.

Marginal note:Review and modifications

4 The Governor of the Bank must review and make any necessary modifications to the resolution plan

• (a) at least once during each 12-month period following the development or modification of the plan; and

• (b) without delay after any change referred to in any of paragraphs 9(2)(a) to (c) of the Act is made.

Marginal note:Persons from whom costs may be recovered

• 5 (1) For the purposes of section 11.18 of the Act, the Bank may recover the costs of a resolution from

  • (a) a clearing house that has been declared non-viable under section 11.06 of the Act;

  • (b) the clearing house of a clearing and settlement system that has been declared non-viable under section 11.06 of the Act; and

  • (c) any person or entity who was a participant in a clearing and settlement system on the day on which a declaration of non-viability was made in respect of the system or its clearing house or on any subsequent day.

• Marginal note:Costs

  (2) The costs of a resolution of a clearing and settlement system or clearing house are the costs incurred, and the amounts paid, by the Bank in order to

  • (a) address the financial losses, or shortfalls in liquidity or capital adequacy, of the clearing house;

  • (b) maintain the pre-funded financial resources at the level provided for in the by-laws, rules or arrangements that govern the clearing and settlement system or clearing house;

  • (c) operate the clearing and settlement system or clearing house;

  • (d) meet a participant’s financial obligations to the clearing house;

  • (e) administer the compensation process referred to in sections 6 to 18; and

  • (f) generally execute the resolution.

• Marginal note:Limited clearing member

  (3) The costs of a resolution that the Bank may recover from a limited clearing member are limited to the costs incurred, and the amounts paid, by the Bank in order to

  • (a) operate the clearing and settlement system or clearing house;

  • (b) administer the compensation process referred to in sections 6 to 18; and

  • (c) meet the member’s financial obligations to the clearing house.

• Marginal note:Amounts not included

  (4) The amounts paid under sections 13 and 18 are not included in subsections (2) or (3).

• Marginal note:Recovery of certain costs — participant

  (5) If the Bank incurs a cost or pays an amount in order to meet a participant’s financial obligations to a clearing house, it must attempt to recover that cost or amount from the participant before attempting to recover it from a clearing house or other participant.

• Marginal note:Recovery of certain costs — clearing house

  (6) If the Bank incurs a cost or pays an amount referred to in any of paragraphs (2)(a) to (c) and (f) in order to meet the obligations of a clearing house, it must attempt to recover that cost or amount from the clearing house before attempting to recover it from a participant.

Marginal note:Prescribed persons and entities

• 6 (1) The following persons or entities are prescribed for the purposes of subsection 11.26(1) of the Act:

  • (a) any person or entity that was a creditor of a clearing house immediately before a declaration of non-viability was made in respect of the clearing house or its clearing and settlement system;

  • (b) any participant that is subject to an order made under subsection 11.11(1) of the Act and was a participant in a clearing and settlement system immediately before a declaration of non-viability was made in respect of the system or its clearing house;

  • (c) any shareholder of a clearing house that is subject to an order made under paragraph 11.09(1)(b) of the Act and that was a shareholder of the clearing house immediately before a declaration of non-viability was made in respect of the clearing house or its clearing and settlement system;

  • (d) any holder of an ownership interest in a clearing house that is subject to an order made under paragraph 11.09(1)(b) of the Act and that was a holder of an ownership interest in the clearing house immediately before a declaration of non-viability was made in respect of the clearing house or its clearing and settlement system.

• Marginal note:Exclusion — creditors

  (2) Despite paragraph (1)(a), the following persons or entities are not prescribed:

  • (a) a person or entity that continues to receive, during the period beginning at the time the declaration of non-viability is made and ending on the day specified in the notice published under section 11.24 of the Act, payment in respect of the debt in accordance with the terms of the debt; or

  • (b) a person or entity to which the clearing house is indebted as a result of the clearing house

    • (i) acting as a central counter-party, or

    • (ii) providing clearing or settlement services for a clearing or settlement system.

• Marginal note:Successors, assignees and transferees

  (3) A prescribed person or entity referred to in subsection (1) includes the successor of the person or entity but does not include an assignee or transferee.

Marginal note:Compensation — creditors

7 The amount of compensation to which a prescribed person or entity referred to in paragraph 6(1)(a) is entitled is the total of any amounts owing that were not paid by or on behalf of the clearing house to the person or entity in accordance with the terms of their contract during the period beginning at the time the declaration of non-viability was made in respect of the clearing house or its clearing and settlement system and ending on the day the day specified in the notice published under section 11.24 of the Act.

Marginal note:Compensation — participants

• 8 (1) The amount of compensation to which a participant referred to in paragraph 6(1)(b) is entitled is the amount equal to the estimated value of the net losses incurred by the participant as a result of the making of an order under subsection 11.11(1) of the Act.

• Marginal note:Assumption

  (2) The value of the net losses referred to in subsection (1) must be estimated

  • (a) as if the measures to address financial loss, or shortfalls in liquidity or capital adequacy, that were specified in the by-laws or rules of the clearing house, or in an arrangement that relates to its clearing and settlement system, were exhausted; and

  • (b) without taking into consideration any assistance, financial or other, that is or may be provided to the participant, directly or indirectly, by the Bank or by Her Majesty in right of Canada or a province after the declaration of non-viability was made.