The Investment Industry Association of Canada (IIAC) outlined key points after the Government of Canada (GoC) Market Functioning Steering Group (GMF) published the final framework in support of a fee for failing to settle Government of Canada bond and T-bill trades as well as updated Q&As for the framework.
The purpose of the fee is to incentivize timely settlement and thereby, safeguard the functioning of the GoC market. The fee has a hybrid structure – a permanently activated 50 basis points static fail fee floor that will apply to delivery-versus-payment transactions settled through the Canadian Depository for Securities (CDS), and a dynamic component that would see the fee increase up to 150 basis points should fails become elevated and persistent. The fee is applied if collateral is not delivered by the applicable settlement deadline.
The fee will not be implemented immediately. Rather, there will be a minimum 18-months trial period, starting after the transition to T+1 settlement and the implementation of the CDS post-trade modernization initiative. During the trial period, fails and associated fail fees will be calculated, but not charged or disbursed. CDS will publish daily fail rates and provide a full audit trail of all underlying failed transactions to participants. Any subsequent decision to activate fail fee payments will be made by the CFIF.