The CCP has launched short-term money market instruments to help firms move away from the interest rate benchmark.
The Canadian Derivatives Clearing Corp. (CDCC) has launched a Secured General Collateral (SGC) Notes program, which are short-term discounted money market instruments, to help securities firms and their clients move away from the interest rate benchmark, the Canadian Dollar Offered Rate (CDOR), and the related Bankers’ Acceptance notes, officials say.
In a move similar to the Libor transition, Canada is moving away from CDOR to the Canadian Overnight Repo Rate Average (CORRA).
In April, officials of CDOR publisher Refinitiv Benchmark Services (U.K.) Ltd. (RBSL) announced that “all three tenors of CDOR will cease to be published after June 28, 2024. No synthetic CDOR rate will be made available or be published after RBSL ceases CDOR,” according to RBSL. “Market participants that have financial contracts referencing CDOR (or BAs) need to be prepared to transition these contracts to CORRA.”
The transition applies to loans, derivatives, and cash securities.
“A bankers’ acceptance (BA) is a negotiable piece of paper that functions like a post-dated check. A bank rather than an account holder guarantees the payment. Banker’s acceptances are also known as bills of exchange. They’re used by companies as a relatively safe form of payment for large transactions,” according to the website Investopedia. “BAs can also be short-term debt instruments, similar to U.S. Treasury bills, that trade at a discount to face value in the money markets.”
The CDCC is Canada’s national central clearing counterparty (CCP) for exchange-traded derivative products and repurchase agreements. It’s a wholly-owned subsidiary of the Montréal Exchange (MX) .
The SGC Notes were “developed by CDCC in collaboration with Canadian market participants,” officials say.
“CDCC is grateful for the input of our valued stakeholders across Canada’s money markets, including both sell- and buy-side participants, in the launch of SGC Notes and we look forward to serving their needs as our markets continue to evolve into the future,” says George Kormas, president of CDCC, in a prepared statement.
SGC Notes provide an “opportunity for Canadian money market institutional investors to roll their BA exposure into SGC Notes. SGC Notes are linked to the same highly-rated Canadian bank credit exposure as BAs but are secured with a basket of high quality debt securities (SGC Securities) which are sold to a trust through repurchase agreements cleared through CDCC,” officials say.
The SGC Notes offer investor protection “through active risk management by CDCC of the basket of SGC Securities securing the SGC Notes and to leverage TMX Group’s infrastructure, including the recently announced Canadian Collateral Management Service (CCMS), which allows for automated collateral movements,” officials add. “SGC Notes will be issued by a special purpose vehicle formed as an Ontario trust, of which ComputerShare Trust Company of Canada is trustee and CDCC is promoter, administrative agent, custodian and paying agent, according to officials.”
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