Financial Markets Atlas: Service Providers (Canada)

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Level 1 flows of the service providers of the Canadian capital markets, adapted from the US page: the firms that hold, administer, record, rate, price and index the assets, seen from the provider’s side, one diagram per service. The worked example is a Canadian custody bank in Toronto, custodian and fund administrator for the mutual funds, the ETFs and the pension plans, record keeper and transfer agent through Fundserv, securities lending agent, with its trust company as bond trustee and stock transfer agent (CAD 3,000,000,000,000 of assets under custody and administration, 1,200 clients, a network covering 100 markets, illustrative); the data group has its own examples. Each diagram follows one service with the provider at the center, its clients on one side, its network, the market, CDS and Lynx and the regulators on the other; the strip above it is the service. Columns are the parties, rows the phases; numbered steps are messages, deliveries, payments or reports between them, with the channel or system in the pill. Hover a step for the detail, click it or use the walkthrough to be taken through the diagram step by step. The clients’ side of the same services is on the asset manager, hedge fund, wealth manager and asset owner pages, the infrastructure on the market infrastructure page. Canadian market conventions and CAD throughout; all numbers illustrative. New to this? Begin with Start here.

Business

Product

How the diagrams work, the chain common to all 27 diagrams, a map of the services, who provides each service and how it is paid and controlled, and a glossary.

The clientThe listed company: its corporate secretary for the register and the meeting, its treasurer for the dividend and the coupons, its general counsel for the indenture and the circular; the agents act for the issuer and owe duties to the holders, the registered shareholders and the noteholders, who never chose them.

The serviceKeeping the legal record of who owns the shares and the notes and acting on it: the transfers and the plan shares, the money paid in by the issuer on Lynx and out through CDS the same day, the withholding and the tax slips, the lost holders and the unclaimed property, the certificates and the notices of the indenture, the default administration, the mailing, the tabulation and the scrutineers’ count.

The networkCDS first: CDS & Co. holds 95% or more of the shares and all the book-entry-only bonds, the transfer agents keep its positions as non-certificated inventory, its entitlement processing pays the participants, its omnibus proxy passes the vote; Lynx for the money; Broadridge for the intermediaries; the medallion guarantors, the provinces’ unclaimed property administrators, the solicitation agents and the proxy advisers.

The rulesNo securities rule written for transfer agents: the trust companies answer to OSFI or their province; the CBCA and the provincial statutes for the register, the trust indenture (Part VIII) and the meetings; the Securities Transfer Acts; NI 54-101 and the CSA’s reconciliation protocols for the vote; the TSX Company Manual; Part XIII of the Income Tax Act; the courts for an arrangement.

The economicsSmall fees per account, per series and per meeting (about CAD 250,000 a year for a large company’s register, CAD 5,000 a year for a bond series, illustrative), the interest on the cash held between the issuer’s payment and the holders’ credit, and the hourly fees of a default or a contest; the risks are operational (a late payment, a wrong transfer, a withholding error) and, in a default or a contest, legal.

How to read a diagram

Columns are the partiesThe clients on the left, the service provider in dark petrol at the center (the subject of every diagram), its network of sub-custodians and agents, the brokers, counterparties and issuers, the depositories and payment systems, and the regulators and auditors on the right.

Rows are the phasesTime runs down the page in the service’s own cycle: the onboarding and the setup, the trade date to the settlement date, the record date to the payment date of an event, the daily NAV and the month-end, the yearly audit. The band label gives the timing.

Arrows are stepsNumbered in order. Solid arrows are messages, deliveries or payments; dashed ones are standing flows like reports and reviews; two-headed ones are exchanged or matched. Boxes on the provider’s own lifeline are what it does internally: a check, a calculation, a reconciliation, a booking.

Pills are the channelAmber for voice and chat, blue for the portals and platforms, rose for the SWIFT messages (MT540 to MT543 for settlement, MT564 to MT566 for corporate actions, MT535 and MT536 for statements), grey for the rails and the depositories (CDS, Lynx, Fundserv, DTC for the US assets), teal for market data, lavender for the provider’s own systems. Each pill shows a one-line definition on hover.

The strip is the serviceAbove each diagram the worked example strip gives the service: the client, the volumes, the network and the systems, the rules, the fees. Hovering a step shows the full detail; clicking it opens the walkthrough.

The grouping is by line of businessThe area tabs are the provider’s businesses (custody, asset servicing, securities lending and collateral, fund administration, transfer agency and fund services, issuer services, data, ratings and indexes, the network and the controls) and the product tabs under each are the services. The facts table lists every service with the same five columns.

A flow can be read two ways: scroll the diagram and hover for detail, or press Walk through the steps above any diagram to follow it one step at a time, with the detail in a card. The arrow keys move forward and back.

The servicing chain every diagram is part of

BankThe service providerClientMarket participantsMarket infrastructuremessage or transferstanding flowexchanged and matchedoption, when needed1sequence, on the party that actsVoice, chatElectronic platform, APISWIFT messageInfrastructure system (payment, clearing, reporting)Internal systemOtherhover an arrow or a badge for the full detail

Every diagram on this page is one link of this chain: the client appoints the custodian, the trades arrive as instructions, the custodian settles them in CDS at home and through its network abroad, with the United States the largest foreign market, services the assets through their life, values and reports them, and is supervised and audited for it. What the Canadian version shows is a concentrated market of a few custodians owned by or tied to the large banks, a fund industry whose orders all pass through Fundserv, and a settlement cycle on T+1 alongside the United States.

The flows, 27 of them

Each card opens its diagram. The tabs at the top do the same; the search box finds a flow by name, rule, report or keyword.

Who provides each service, what it reaches, what carries it, what governs it, how it is paid and controlled

The same five questions for every service: who provides it and for whom, which markets, agents and counterparties it reaches, which systems and messages carry it, which rules and supervisors govern it, and how it is paid for and controlled. The answers are what make a service provider: a network and a set of systems run at scale, rules that make it the qualified holder of other people’s assets, and fees measured in basis points of what it holds.

Custody and Settlement

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Onboarding	the custodian’s deal, onboarding and transition teams for a fund complex; the investment fund manager runs the RFP and appoints the custodian as trustee of its funds; the IRC reviews the arrangement when the custodian is an affiliate	the previous custodian and its sub-custodians; the custodian’s US sub-custodian and its agent banks in 45 markets; the local registrations in India, Taiwan and Brazil; the consultant and the manager’s counsel	the RFP questionnaire; the client master; the books of record; DTCC’s ALERT for the SSIs; SWIFT MT540 to MT543, MT548 and MT535; free deliveries in CDSX, at DTC and at the foreign CSDs; Fundserv for the fund units; the conversion reconciliations	Part 6 of NI 81-102 (sections 6.1 to 6.7); NI 81-107 for the IRC; the PCMLTFA and its regulations, with FINTRAC; the sanctions under the Special Economic Measures Act; OSFI as the custodian’s supervisor	safekeeping by market tier from 0.3bp to 25bp, a blended 0.6bp; CAD 5 to CAD 50 a trade (illustrative); the conversion risk (stale SSIs, short deliveries, the first NAV); the CSAE 3416 Type 2 and the yearly section 6.7 report
Settlement	the custodian’s settlement operations for the funds; the manager’s operations instruct; the investment dealer delivers and receives through its CDS participant account	the investment dealers and their street trades in CDS CNS; DTCC’s CTM and ALERT; CDS for the equities, the Government of Canada and the corporate bonds; Lynx and the Bank of Canada for the funds	CTM matching by 3:59 a.m. ET on T+1; MT541 and MT543 instructions, MT548 statuses, MT545 and MT547 confirmations by SWIFT; the trade confirmed in CDSX; CDSX DVP; the payment exchange through Lynx at about 16:00 ET	T+1 since May 27, 2024; NI 24-101 for the matching; CDS’s rules and the Bank of Canada’s oversight under the PCSA; CIRO’s extended failed trade reports for the dealers; NI 81-102 for the funds’ borrowing	a fee per settlement (CAD 6 in CDSX, illustrative); the intraday exposure within the CDSX funds cap and the collateral; contractual settlement as credit; the overdraft at prime; the fails tracked per dealer
Settlement Abroad	the custodian’s global settlement operations and network management for its clients’ foreign trades; the manager instructs; the US sub-custodian and the agent banks settle in each market	the US sub-custodian at DTC; the agent banks in 98 other markets (Frankfurt here); the local CSDs (Clearstream Banking Frankfurt on T2S) and the ICSDs; the brokers and their local agents; CLS and the onshore FX banks; CDS’s links to DTC	MT541 and MT543 relayed in each market’s practice (SMPG); CTM for the US affirmation; MT548 statuses, MT545 confirmations, MT537 penalty reports, MT535 and MT950 statements; DTC and T2S DVP; free deliveries between DTC and CDSX	section 6.3 of NI 81-102 for the sub-custodians; the US T+1 since May 28, 2024 and Rule 15c6-2; CSDR settlement discipline with the cash penalties since February 1, 2022; T+1 in the EU, the UK and Switzerland from October 11, 2027	safekeeping by market tier and CAD 10 to CAD 75 a trade abroad (illustrative); contractual settlement in the developed markets only; the FX from CAD in CLS; the cost of pre-funding in the restricted markets; the penalties passed through; the network reconciliation daily
Cash and FX	the custodian’s cash services and its bank’s FX desk for the funds and the managers; the managers choose the standing instruction or the negotiated FX fund by fund	the US sub-custodian and the agent banks for the foreign currencies; CLS and its settlement members; the other banks in the managers’ FX competitions; the money market funds of the sweep	the books of record and the cash projection; the SI FX engine and its windows; FXall; MT300 confirmations and MT304 third-party instructions; the CLS pay-ins through Lynx and Fedwire; MT950 and camt.053 statements; the transparency report	NI 81-102 for the funds’ borrowing and their money market holdings; the Bank of Canada’s Standing Liquidity Facility; OSFI’s liquidity adequacy requirements; the FX Global Code and the Canadian Foreign Exchange Committee; the PCSA oversight of Lynx and CLS	the credit interest at the benchmark less a spread; the overdraft at prime; the SI FX spread of 3bp to 10bp in the majors (illustrative); the intraday credit limits per fund; CLS against the Herstatt risk; the daily nostro reconciliation

Asset Servicing

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Income	the custodian’s income team for the 1,200 clients’ accounts, the global custodians’ non-resident clients among them; the managers and the fund administrators use the projections and the confirmations in their own books	the issuers’ transfer agents and the bond trustees; the Bank of Canada as fiscal agent for the Government of Canada bonds; CDS for the Canadian income; the US sub-custodian and DTC for the US income; the sub-custodians in 100 markets; the dealers for the claims	CDS’s event notices and entitlement payments in CDSX; the end-of-day payment exchange on Lynx; MT564 notices and pre-advices, MT566 confirmations, MT950 cash statements; the expected income ledger in the books of record; CDS’s tax breakdown service; the client portal	the custody agreement’s contractual income terms and right of reversal; the exchange’s dividend notice rules; the ex-date equal to the record date under T+1; NI 81-102’s custodian requirements for the funds; Part XIII of the Income Tax Act for the non-residents; OSFI as supervisor of the bank	within the custody fee in basis points of the assets; the credit risk of the contractual income; the daily reconciliation of the expected and the received; the aged claims and the reversals; the CSAE 3416 report on the income controls
Tax	the custodian’s tax services: the Toronto bank as Canadian payer and agent under Part XIII for the non-residents it pays, the global custodians’ clients among them; relief at source and reclaims abroad for the Canadian funds and pension plans	the CRA; the US payers and the IRS through the QI pools; the foreign tax authorities (Germany’s BZSt, the Swiss ESTV and the others); the global custodians’ certifications; the sub-custodians for relief at source; local tax agents and counsel	Forms NR301, NR302 and NR303 and the agent and nominee certifications; the Part XIII remittances; the NR4 slips and return by March 31; Form NR7-R; the W-8BEN-E and the W-8IMY with its withholding statements; the Part XVIII and XIX reports by May 1; the reclaim tracker on the client portal	Part XIII of the Income Tax Act and the treaties (Article XXI of the Canada-US treaty for the pension plans); Information Circular IC76-12; the Canada-US intergovernmental agreement and Part XVIII; the CRS and Part XIX; the QI agreement for the US holdings; FASTER in the EU from January 1, 2030	relief at source and standard reclaims within the custody fee; a fee per complex reclaim (illustrative); the liability for Part XIII not withheld; the risk of a lapsed reclaim or a wrong rate; the CRA’s audits of the non-resident withholding
Corporate Actions	the custodian’s corporate actions team for every account it holds; the managers make the elections, the custodian notifies, instructs and allocates	CDS for the Canadian events and the elections; the depositaries, the information agents and the courts; the US sub-custodian and DTC’s ATOP for the US events; the sub-custodians and their CSDs abroad; two data vendors (illustrative)	CDS’s event notices and the elections in CDSX; the vendors’ feeds; the golden record; MT564 notices, MT565 elections, MT567 status messages, MT566 confirmations; the circulars and the court documents on SEDAR+	the arrangement provisions of the corporate statutes (section 192 of the Canada Business Corporations Act and its provincial counterparts), the interim and final orders and the dissent rights; NI 62-104 for the take-over and issuer bids; MI 61-101; the custody agreement’s deadlines and standard of care	within the custody fee, with charges on some voluntary events abroad (illustrative); a missed or wrong election paid by the custodian when the error is its own, by the client when it was late; the second check on every voluntary instruction; the deadline dashboard
Proxy Voting	the custodian supplies the positions, the OBO status and the authority as an intermediary under NI 54-101; the managers vote, with the fund boards and the pension plans as principals; Broadridge runs the chain for the intermediaries	Broadridge as the intermediaries’ agent (the market standard); the proxy advisers (ISS, Glass Lewis, illustrative); the transfer agents as scrutineers; the US sub-custodian and Broadridge’s US service for the US meetings; the sub-custodians and the local agents abroad	the notification of the meeting and record dates; CDS’s omnibus proxy; the record-date position file; the voting instruction forms on the platforms; the proxies to the transfer agent; the vote confirmation; the circulars and the voting results on SEDAR+	NI 54-101 and its client response form; the corporate statutes on proxies and majority voting; National Policy 25-201 for the proxy advisers; the CSA’s meeting vote reconciliation protocols; NI 81-106’s proxy voting record; the SEC’s proxy rules and SRD II abroad	the distribution paid by the issuers for the NOBOs, and for the OBOs when they choose; the custodian’s service within the custody fee (illustrative); the advisers paid by the managers; the risks of an over-vote, a lost instruction, a vote lost to lent shares

Securities Lending and Collateral

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Agency Lending	the custodian’s securities finance desk as agent for 250 lenders (the pension plans, the mutual funds and ETFs, the insurers) under each one’s authorization agreement; for a public mutual fund, the custodian or sub-custodian that NI 81-102 requires	25 approved borrowers (the bank-owned investment dealers and the foreign brokers) under a master securities lending agreement; the US sub-custodian for the US loans; CCMS for the domestic non-cash collateral; the lenders’ managers whose sales trigger the recalls	the agency lending system and its allocation engine; EquiLend for the availability, the trades, the marks and the returns; CDSX for the free deliveries of the loans and the collateral; CCMS; the client portal and the monthly statements	NI 81-102 sections 2.12 to 2.17 for the public funds and NI 81-106 for their disclosure; CIRO’s rules and UMIR for the borrowers; section 260 and Part XIII of the Income Tax Act; OSFI over the bank; SFTR for the European borrowers	the fee split of 80/20 on the gross revenue (illustrative); the borrower default indemnity held as a capital exposure under OSFI’s rules; the borrower limits, the daily marks, the recall and the buy-in; the CSAE 3416 report on the lending controls
Tri-Party	the custodian as CDS participant and agent for the cash investors (the money market funds, the insurers, the corporates, the pension plans with cash) in their repo with the dealers; the dealers’ own CDS accounts beside it	the bank-owned dealers as collateral providers; CDS and Clearstream for CCMS; CDCC for the dealers’ cleared repo and Repo 2.0; the Bank of Canada for its operations and CORRA; CIRO for the trade reports	the collateral schedules coded on CCMS; MT527 and the CCMS interface; CDSX for the bonds and the funds; Lynx for the end-of-day payment exchange; the compliance engine; MTRS 2.0; the client portal	the master repurchase agreement; NI 81-102 for the funds’ reverse repo and NI 81-106 for their disclosure; CDCC’s rules and its recognition by the AMF and the OSC; the Bank of Canada’s oversight of CDSX and CDCC under the Payment Clearing and Settlement Act; no Canadian clearing mandate for repo	a fee per trade and in basis points on the collateral monitored (illustrative); the CCMS fees paid by the dealers; the schedule and the limits tested on every allocation; the dealer default risk with the investor, against the collateral
Initial Margin	the custodian as third-party custodian for both directions of each relationship: the funds in scope of E-22 as pledgors and secured parties, the Canadian banks on the other side	the Canadian banks as swap dealers under E-22; Acadia for the calls and the comparisons; the SIMM calculation vendors; the fund’s own custodian when it is another bank; ISDA for the model and the documents	the segregated pledgor accounts and the eligibility engine; MT542 and CDSX for the deliveries; Lynx for the cash; the daily collateral reports and MT535; CRIF files and Acadia for the SIMM results and the calls	OSFI’s Guideline E-22 (the final phase since September 1, 2022; CAD 75,000,000 threshold; CAD 750,000 minimum transfer); the standardized haircut schedule; no reuse; the control agreement under Ontario’s Securities Transfer Act, 2006; the US margin rules and EMIR for the foreign dealers	a custody fee in basis points of the collateral held and a fee per account (illustrative); the response time to a notice of exclusive control; the eligibility and the haircut checks on every movement; the CSAE 3416 report; the legal opinions

Fund Administration

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Daily NAV	the custodian’s fund accounting and administration unit for the mutual fund trusts of a large Canadian manager, under an agreement with the manager as trustee and investment fund manager; the manager’s valuation committee owns the fair values; the custody and the record keeping of the same bank feed the ledger	the pricing vendors (the TSX and US closes, the evaluated bond prices, the fair value factors, the FX); the record keeper and the dealers through Fundserv; the sub-custodians behind the custody books; the fund data vendors for the published price; the audit firm	the fund accounting ledger as the book of record; the vendor price files and the tolerance checks; the custody books by MT535 and MT950 or files; the record keeping system; the NAV per unit in the Fundserv price file; the financial statements and the MRFPs on SEDAR+	NI 81-102 on the pricing of the orders and the settlement; NI 81-106 on the NAV and the financial statements; NI 81-107 and the independent review committee; IFRS 13 and the investment fund statements under IFRS; the mutual fund trust rules and the GST/HST; the OSC’s compliance reviews of the manager; OSFI for the bank	a basis point fee on net assets with a minimum per fund (1.0bp in the example, illustrative); the NAV error correction policy as the committee’s standing instruction; the reimbursement when the error is the administrator’s; the four-eyes review of the strike; the price challenge log; the CSAE 3416 report
Hedge Funds	the custodian’s alternative fund unit for the two funds of a Toronto manager, also custodian of the alternative mutual fund under NI 81-102; the manager keeps a shadow NAV; the dealers, the investors and the auditor rely on the administrator’s	the dealers on Fundserv and the accredited investors; the two prime brokers as borrowing agents and the ISDA dealers; the pricing vendors, the dealers’ quotes and a valuation agent for the level 3 positions; the auditor	the accounting system with the unitholder register and the series; the primes’ files and the dealers’ statements; the manager’s trade file; the limit tests of NI 81-102; Fundserv for the orders and the NAV; the investor portal; the sanctions and PEP screening	NI 81-102 for the alternative mutual fund (the limits, the custodian, the borrowing agent); NI 45-106 and the offering memorandum for the pooled fund; NI 81-106 and NI 81-107; NI 31-103 for the manager; the PCMLTFA; the mutual fund trust rules; FATCA and CRS	a basis point fee on net assets with a minimum per fund (3bp in the example, illustrative); the independent prices and the reconciliation with the shadow NAV; the daily limit breaches reported to the manager; payments only to the investor’s own account; the CSAE 3416 report
Private Markets	the custodian’s private markets unit for the buyout fund and its co-investment vehicle, appointed by the general partner; the limited partners read its notices and reports; the GP keeps the investment decisions and the valuations	the limited partners and their banks, the pension plans among them as co-investors; the subscription line’s agent and lenders; the portfolio companies and the buyers at the exits; the auditor, the valuation firm and the tax adviser	the private equity accounting system with the commitment ledger and the capital accounts; the waterfall model; the investor portal for the notices, the reports and the T5013 slips; the agent’s portal for the line; Lynx and SWIFT for the cash	the limited partnership agreement and the side letters under Ontario’s Limited Partnerships Act; NI 45-106; IFRS 13 and IFRS 10 with the IPEV guidelines; the T5013, the RL-15 and Part XIII; the GST/HST on the fee; the pension investment regulations of the LPs; the ILPA templates by agreement	a basis point fee on commitments, later on NAV (5bp in the example, illustrative); the notices checked by two people and approved by the GP; the waterfall rerun each quarter and the clawback exposure reported; the call back on any change of bank details; the CSAE 3416 report

Transfer Agency and Fund Services

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Transfer Agency	the custodian’s record keeping unit as registrar and transfer agent of the manager’s mutual fund trusts, and its trust company as trustee of the registered plans; appointed by the manager, which stays responsible, and overseen by its chief compliance officer	the mutual fund dealers, the investment dealers and the order-execution-only platforms on Fundserv; the client name unitholders through the dealers, the web and the phone; Fundserv’s settlement bank on Lynx; the print and mail vendors	Fundserv for the accounts, the orders, the confirmations, the transfers, the trailing commissions and the net settlement; the record keeping system of the register; Lynx for the cash; the CRA’s and Revenu Québec’s electronic filing	NI 81-102 on the pricing, the dealers’ transmission and the settlement; NI 31-103 for the manager and the dealers; the CSA’s 2022 reforms on the embedded commissions; the PCMLTFA; the T3, RL-16, NR4 and registered plan rules; the provincial unclaimed property laws; OSFI for the trust company	fees per account and per transaction paid by the manager or the funds; the trailing commissions paid through Fundserv; an order priced at the wrong NAV corrected under the error policy; the daily reconciliation of the units outstanding; the CSAE 3416 report
ETF Services	the custodian as custodian, fund accountant and registrar and transfer agent of the ETF, appointed by the manager as trustee; for the ETF managers and their index and active ETFs; the designated broker and the dealers as counterparties under their agreements	the designated broker and the ETF dealers (CDS participants) and the market makers behind them; the TSX and the other Canadian marketplaces; CDS; DTC and the sub-custodians for the foreign baskets; the index provider’s files; the market data vendors	the basket file to the dealers and the vendors; the agent’s order platform; CDSX for the baskets and the units, trade for trade on T+1; the book-entry units under CDS & Co.; the CDS payment exchange over Lynx; the fund accounting system for the NAV per unit and the tax lots	NI 81-102 and the ETF exemptions; the prospectus and the ETF Facts; NI 81-106 and NI 81-107; the TSX listing requirements; the mutual fund trust rules, the allocation to redeemers and the capital gains refund; T+1 since May 27, 2024	the bundled servicing fee in basis points paid by the fund; the administration fees and the cash charges paid by the dealers; the risk of a wrong basket file or a missed cut-off; the year-end distribution data on time for the slips; the CSAE 3416 report
Middle Office	the custodian’s middle office service under a long-term agreement with a Canadian asset manager, staffed in part by the manager’s lifted-out staff in Toronto and Montréal; the manager keeps the decisions, the OMS and an oversight team	the executing dealers and the OTC counterparties; the manager’s other custodians and its fund administrator; the record keeper for the mutual funds’ flows; DTCC’s CTM, CDS and DTC; Acadia; the futures clearing brokers	the OMS feed (FIX or files); CTM as the matching service utility; CDSX for the Canadian settlement; MT541 to MT543 to the custodians; the IBOR and the cash forecast on the custodian’s platform; MT535 and MT950 into the reconciliation platform; MT564 and MT565; Acadia for the margin; the performance system	NI 31-103 and its outsourcing guidance, the seven-year records; NI 24-101 and the 3:59 a.m. ET matching deadline since May 27, 2024; OSFI’s Guidelines B-10 and E-22 for the bank and insurer counterparties and clients; the GIPS standards; the OSC’s compliance reviews of the manager	a fee in basis points of the assets (0.8bp, illustrative) or per trade over a ten-year term; the service levels and the credits; the CSAE 3416 Type 2; the exit plan; the custodian liable for its errors (a missed match, a wrong IBOR, a missed election) under the standard of care

Issuer Services

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Transfer Agent	a trust company acting as stock transfer agent and registrar (the custody bank’s here; Computershare, TSX Trust and Odyssey lead the market, illustrative); for the listed company, appointed by its board as registrar, transfer agent, dividend paying agent, DRIP and plan agent	CDS as the registered holder of the street-name position through CDS & Co.; the dealers for the deposits and withdrawals; the plan broker; the medallion guarantors and the Schedule I banks; the search firms; Revenu Québec and New Brunswick’s FCSC for the unclaimed property	the central securities register; the CDS & Co. position as non-certificated inventory and the deposits and withdrawals through CDSX; the DRS advices; the dividend on Lynx to CDS and by EFT or cheque to the registered holders; the T5 and NR4 slips; the transfer agent portal and the shareholder site	the CBCA and the provincial statutes on the register; the Securities Transfer Acts; the Trust and Loan Companies Act and OSFI, or the province, for the trust company; the TSX Company Manual (Form 5, the monthly report, the compensation reserves); Part XIII of the Income Tax Act; the Quebec and New Brunswick unclaimed property laws	a base fee and a fee per registered account, transaction, dividend and issuance fees, the event fees, the interest on the balances held; the risks of a forged transfer, a wrong share count, a late payment, a withholding error; the daily balance with CDS, the CSAE 3416 report
Bond Trustee	the custody bank’s trust company, named in the trust indenture as trustee, registrar and paying agent for the holders of the series; its default administration group after an event of default	CDS as the registered holder of the global certificate and the channel to the participants; the noteholders and their custodians; the trustee’s counsel and advisers; the information agent and scrutineer of a meeting; the court and the monitor in a restructuring	the trust indenture and its supplements; the global certificate at CDS; Lynx in and CDS out on each payment date; the notices through CDS and the news releases; the covenant tracking system; the annual certificate and the SEDAR+ filings	Part VIII of the CBCA (sections 82 to 93) and the provincial statutes: the trust company as trustee, the conflicts, the evidence of compliance, the annual certificate, the notice of default, the duty of a reasonably prudent trustee; NI 44-102 and SEDAR+; section 192 of the CBCA and the CCAA in a restructuring	an acceptance fee and an annual fee per series, hourly default fees with counsel ranking ahead of the holders; the risks of a missed payment and of the default litigation; the indemnity of the directing holders; the reliance on the certificates; the CSAE 3416 report
Annual Meeting	the listed company calls the meeting and pays for it; its transfer agent, the custody bank’s trust company here, mails the registered holders and the NOBOs, tabulates and supplies the scrutineers; Broadridge acts for the intermediaries on the street side	CDS and its omnibus proxy; the dealers and custodians as intermediaries; Broadridge; the proxy solicitation agent and the proxy advisers (ISS, Glass Lewis, illustrative); a dissident in a contest	the notification of meeting and record dates; the NOBO list; the circular on SEDAR+ and the website; the notice; the forms of proxy and the voting instruction forms with control numbers; Broadridge’s voting platforms; the meeting platform; the report of voting results	NI 54-101 (the notification, notice-and-access, the NOBOs and the OBOs); CSA Staff Notice 54-305 on vote reconciliation; National Policy 25-201 for the proxy advisers; the CBCA (record dates, majority voting, proposals, requisitions); the TSX Company Manual; section 11.3 of NI 51-102	the agent’s meeting fee, Broadridge’s fees, the solicitation agent’s fee; the risks of a wrong record date file, over-votes, missed control numbers and a close count; the reconciliation with CDS’s positions; the scrutineers’ report

Data, Ratings and Indexes

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Credit Rating	a designated rating organization’s analysts and rating committees for the issuers that pay (corporates, provinces, financial institutions, securitization sponsors) and for the investors who read the ratings free or by subscription	the issuers with their dealers and counsel; the ABCP sponsors and conduits; the other designated rating organizations; the pension plans, insurers, bond funds, banks and index providers that cite the ratings	the data room and the management meeting; the methodology models; the committee records; the press release and the website; the rating feeds to the data vendors and the managers’ compliance engines	NI 25-101 since April 20, 2012: the code of conduct, the compliance officer, Form 25-101F1, the OSC as principal regulator; the designated ratings in NI 45-106 and NI 81-102; OSFI’s capital rules; National Policy 51-201 for the confidential data	issue fees in basis points within a minimum and a cap, yearly surveillance fees, subscriptions; the fees set apart from the analysts; the committee vote; the reputational and litigation risk; the two-rating rule for securitized commercial paper
Index	the index provider’s committee and operations for the ETF managers, the index funds, the Montréal Exchange and the banks that license the indexes, and for the managers and pension funds that benchmark to them	the TSX and its market on close; the data vendors for the prices, the shares and the corporate actions; the dealers and liquidity providers trading the rebalance; the Montréal Exchange and CDCC for the futures and options	the real-time calculation and dissemination through the exchange and the vendors; the daily and pro forma index data files; the press releases and the consultations; the MOC orders and the imbalance at 3:50 p.m. ET	the IOSCO Principles for Financial Benchmarks with an oversight committee and a yearly external assurance; MI 25-102 for the designated benchmarks only (Term CORRA), no equity index designated; NI 81-102 for the funds; the AMF over the Montréal Exchange; the EU and UK rules for European users	asset-based license fees in basis points, per-contract royalties, data subscriptions; the error and restatement policy; the decisions confidential until announced; the conflicts of the licensees and the exchange group
Market Data	the vendor’s ticker plant, entitlements and billing teams for the investment dealers, banks, managers and wealth firms that use the data on terminals and in their applications	the Canadian marketplaces and their direct feeds; TMX IP for the consolidated equity data and CIRO for the debt; the US exchanges and plans for the interlisted stocks; the colocation data centers in Toronto	the feed handlers and the normalization; the terminal and the real-time feed; the entitlements system; the monthly usage reports; the billing system with the pass-through lines	NI 21-101 and the information processor (TMX IP designated to June 30, 2029); the marketplaces’ fee filings; the CSA’s data fees methodology (Staff Notice 21-319, 2016); the order protection rule; the marketplaces’ policies and audits	the vendor’s fees per user; the marketplace and IP fees passed through; the non-display fees by category billed direct; the audit back-billing with interest; the client’s inventory of users and applications
Evaluated Pricing	the pricing service’s evaluators and models for the investment fund managers of the mutual funds and ETFs, the fund administrators, the custodians, the pension plans and the insurers	CIRO’s debt data (MTRS 2.0 and the information processor) for the trades; the bank-owned dealers, CanDeal and the other platforms for the quotes; the secondary source; the fund auditors	the end-of-day pricing file at 4:00 p.m. ET by SFTP and API; the pricing portal for the challenges; the fund accounting system’s tolerance checks; Fundserv for the NAVs	Part 14 of NI 81-106 (the NAV at fair value); the manager’s duty of care and registration under NI 31-103; the valuation committee; IFRS 13 levels; the IRC under NI 81-107 for the conflicts; the OSC’s compliance reviews	per-security daily fees under a yearly license; the challenge process and its statistics; the back-testing against the published trades; the secondary source; the CSAE 3416 report; the NAV error policy

Network, Controls and Billing

Service	Provided by and for	Markets, agents and counterparties	Systems and messages	Rules and oversight	Fees, risk and controls
Network	the custodian’s network management team (the market managers, the network committee) for all its clients; the custodian of the Canadian funds under NI 81-102 and the Canadian sub-custodian of foreign global custodians	100 markets: Canada direct, the US through a New York sub-custodian, 98 through 55 agent banks; the local depositories and the ICSDs; local counsel; the depository rating firms	the agent RFP and the AFME questionnaire; the AGC depository questionnaire; SWIFT in ISO 15022 and ISO 20022 with each agent; the KPI scorecard; the section 6.7 report and the advisories on the client portal; ALERT for the new instructions at a switch	sections 6.3 to 6.7 of NI 81-102 for the funds; NI 31-103 for the portfolio managers’ client assets; OSFI’s Guideline B-10 on the third parties; the Special Economic Measures Act and the other sanctions statutes, with the RCMP, CSIS and OSFI reports	the agents paid by the custodian (1.5bp a year plus CAD 12 a trade in a tier 2 market, illustrative) and billed to the clients by market tier; the custodian liable for the agents’ negligence, the country risk with the managers; the ratings, the visits, the credit limits on the agents
CSAE 3416	the custodian’s controls report office and control owners, with the service auditor; for the 1,200 clients, their auditors, the fund managers’ compliance and oversight teams and the pension plan administrators	the subservice organizations carved out (the sub-custodians, CDS, the pricing vendors) with their own reports; the clients’ auditors, participating firms of the CPAB for the reporting issuers; the consultants who read the exceptions	the GRC system for the controls and the evidence; the books of record for the samples; the report and the bridge letter on the client portal; the audit confirmations	CSAE 3416 of the AASB with ISAE 3402 and SSAE 18; CAS 402 and CAS 505 for the user auditors; NI 81-106 for the funds’ audited statements; NI 31-103 for the managers’ oversight; OSFI and Guideline B-10	the service auditor’s fees (CAD 3,000,000 for five reports, illustrative); the exceptions and the opinion as the clients’ quality signal; the remediation tracked to closure by internal audit; the bridge letter as management’s own statement
Billing	the relationship manager and the pricing desk set the schedule; billing operations calculate, invoice and collect; finance reports the revenue; for all the bank’s clients	the fund managers and their fee review teams or fee auditors; the consultants who run the custody searches and the benchmarks; the agents whose fees are the custodian’s cost; the Bank of Canada for the settlement balances	the books of record for the values and the counts; the billing system; the invoices on the client portal; the direct debit by book entry or the manager’s payment; the deposits at the Bank of Canada and in Government of Canada securities in CDSX	the custodian agreement and its fee schedule; NI 81-107 for the affiliated custodian; Part 5 of NI 81-102 for the fee increases; NI 81-106 for the expense disclosure; OSFI’s liquidity adequacy requirements for the operational deposits	asset-based fees by tier (0.715bp on average for the example, illustrative), transaction fees, the FX and the net interest income; the minimums; the disputes and the credits; the out-of-pocket expenses at cost; the repricing at renewal

Glossary

The terms that come back on every diagram. Every pill in the diagrams also shows its definition on hover.

Custody and Settlement

Sub-custodian: A local bank appointed by a custodian to hold its clients’ securities in a market outside its own (or a regional network covering several), as a participant of the local depository, in an omnibus account in the custodian’s name for its clients; for a Canadian fund it must qualify under section 6.3 of NI 81-102.

Custodian agreement: The contract between an investment fund (signed by its manager or trustee) and its custodian, with the provisions Part 6 of NI 81-102 requires (the location of the assets, the depositories used, the method of holding, the standard of care, the yearly review) and the commercial terms: the cut-offs, the security interest, the service levels, the fees, the term and the exit.

NI 81-102: The CSA’s mutual fund rule: investment restrictions (concentration, illiquid assets, derivatives, borrowing), custodian requirements, redemption rules, and since 2019 the alternative mutual funds (liquid alts) with leverage up to 300% of NAV.

Qualified custodian: Under section 6.2 of NI 81-102, the entity that may act as custodian of an investment fund’s assets in Canada: a bank listed in Schedule I, II or III of the Bank Act, a trust company with at least CAD 10,000,000 of shareholders’ equity, a qualifying affiliate of either, or a qualifying CIRO dealer.

Qualified foreign sub-custodian: Under section 6.3 of NI 81-102, an entity that may hold a fund’s assets outside Canada: a bank or trust company regulated as such in its country with shareholders’ equity of at least the equivalent of CAD 100,000,000, a qualifying affiliate of one, or an entity qualified as a custodian in Canada.

Custodian compliance report: The written report in which an investment fund’s custodian, within 60 days after each financial year of the fund, confirms that its custodial and sub-custodial arrangements comply with Part 6 of NI 81-102, after reviewing them and making the changes needed (section 6.7).

NI 81-107: The independent review committee every Canadian public fund must have to review the manager’s conflicts of interest.

PCMLTFA: The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Canada’s AML statute administered by FINTRAC.

Standing settlement instructions: The accounts at which a client receives and delivers in each market and currency (the custodian’s CUID and the client’s account in CDSX, the US sub-custodian’s DTC number, the sub-custodian and its CSD account abroad, the cash correspondent), kept in a shared database (DTCC’s ALERT) so the dealers’ confirmations carry them without a call.

CUID: The CDS User Identification, the code of a participant in CDSX; quoted in the standing settlement instructions and the trades so that the deliveries go to the right participant account.

Custody conversion: The move of a client’s assets from one custodian to another: the free deliveries in CDSX, at DTC and in each foreign market, the re-registration of the fund units through Fundserv, the transition of the pending trades, the corporate actions and the tax reclaims, the new SSIs to the dealers, and the reconciliation of the opening positions before the first NAV.

CTM: DTCC’s Central Trade Manager: matches the broker’s trade details with the client’s and its custodian’s so settlement can happen.

NI 24-101: The CSA’s institutional trade matching rule: dealers and advisers must match institutional trades (allocation and confirmation) by the deadline on trade date for T+1 settlement, and report their matching rates.

Matching service utility: Under NI 24-101, a service that matches the trade details of the dealers, the advisers and the custodians centrally (DTCC’s CTM in Canada) and reports to the CSA on its operations; the route by which most institutional trades are matched before settlement in CDSX.

CDSX: CDS’s clearing and settlement system: trades confirmed, netted in CNS or settled trade for trade, securities moved by book entry and the net funds settled through the participants’ settlement banks at Lynx at the end of the day.

Trade-for-trade settlement: The settlement of each trade on its own, by a delivery against payment between the two participants’ accounts in CDSX, used for the institutional trades between the dealers and the custodians and for the bonds; the alternative to the netting of the street trades in CDS CNS.

Extender of credit: The bank that grants a CDS participant the line of credit behind its funds cap in CDSX and guarantees its end-of-day payment at the payment exchange; a large bank is its own extender of credit.

Funds cap: The limit on the net funds debit a participant may run in CDSX during the day, set by the line of credit of its extender of credit; a delivery that would exceed it pends until other credits arrive.

Aggregate collateral value: CDSX’s second control on each delivery: the value after the haircuts of the securities and the collateral in the participant’s account must stay positive, so that CDS can realize them if the participant fails to pay.

Payment exchange: The end of the CDSX settlement day, at about 16:00 ET, when each participant’s net funds position is paid to or from CDS’s settlement account at the Bank of Canada through Lynx by its extender of credit, in central bank money and final.

Contractual settlement: The custodian’s service of posting a trade to the client’s account on the contractual settlement date whether the counterparty has delivered or not, the custodian advancing the cash or the securities; a credit facility offered in the developed markets, with the right to reverse a trade that keeps failing.

Actual settlement: The posting of a trade to the client’s account only once it has settled at the depository; the rule in the emerging markets and for the clients or instruments outside the custodian’s contractual settlement service.

Extended failed trade: A trade still unsettled ten trading days after settlement date, reported to CIRO by the dealer; the trigger for pre-borrow requirements on the security.

Beneficial owner market: A market where the depository or the regulator requires the securities to be held in an account in the investor’s own name (India, China, Taiwan, Brazil and others), often after a registration of the investor, in place of the custodian’s omnibus account.

Interlisted share: A share of a Canadian issuer listed both in Canada and in the US, traded on the TSX and the NYSE or Nasdaq and movable between CDS and DTC through CDS’s accounts at DTC, so it can settle in either country and be held in either depository.

T2S: TARGET2-Securities: the Eurosystem’s single settlement platform on which the participating CSDs (Euroclear’s ESES, Clearstream Banking Frankfurt, Monte Titoli, Iberclear and others) settle securities against central bank money, delivery versus payment, on T+2.

Cash penalties: The daily penalties CSDR imposes on the party that causes a settlement fail, computed by the CSD on the value of the instruction and the instrument’s liquidity, collected monthly and paid to the other party.

Standing instruction FX: The FX a custodian executes automatically for its clients to convert the income, the tax reclaims and the trades’ currency at a rate it sets, under a standing instruction; priced since the US litigation of 2009 to 2016 at a published benchmark plus a disclosed spread.

Negotiated FX: The FX a manager’s trader deals directly with the custodian’s desk or another bank at a price agreed at the time, often in competition on a multi-dealer platform; the alternative to standing instruction FX for the larger trades and the hedges.

Third-party FX: An FX trade a manager deals with a bank other than the custodian, notified to the custodian (MT304) so the fund’s custody cash accounts pay and receive the two currencies on the value date.

CLS: CLS Bank settles both sides of a currency trade at the same moment (payment versus payment) so neither party pays without receiving.

Standing Liquidity Facility: The Bank of Canada’s facility for the Lynx participants: intraday advances against the collateral they pledge (Government of Canada and provincial securities, NHA mortgage-backed securities and the other eligible assets, at haircuts) at no charge, an advance not repaid by the close becoming an overnight loan at the bank rate.

Restricted currency: A currency that cannot be freely delivered or held offshore (the Indian rupee, the Taiwan dollar, the Brazilian real, the onshore Chinese yuan): bought onshore through a local bank against the documents of an underlying investment, outside CLS, often a day early.

Operational deposits: The deposits a client keeps with its bank for the clearing, custody and cash management services it uses, given a 25% outflow assumption in the liquidity coverage ratio of OSFI’s liquidity adequacy requirements, against 100% for the other wholesale deposits of financial clients; the stable part of a custody bank’s funding.

FX Global Code: The global set of principles of good practice in the FX market published in 2017 by the central banks and the market participants of the Global Foreign Exchange Committee (the disclosure of the markups, the last look, the handling of the orders and the standing instructions), promoted in Canada by the Canadian Foreign Exchange Committee; the banks sign a statement of commitment.

Asset Servicing

Record date: The date at whose close the holders on the issuer’s or the depository’s books are entitled to a dividend, a distribution, an interest payment, a corporate action or a vote; in Canada under T+1 since May 27, 2024 the same day as the ex-date for a regular dividend.

Ex-date: The first day a share trades without the right to the coming dividend, set by the exchange; under T+1 the record date itself for a regular dividend, after the payable date for a large stock dividend or a significant distribution, which trade with due bills in between.

Payable date: The date on which the issuer pays a dividend, a distribution, an interest payment or the proceeds of a corporate action through its transfer agent or trustee and CDS; the custodian’s contractual credit date.

Contractual income: The custodian’s credit of a dividend, a distribution or a coupon on the payable date whether or not the cash has arrived, offered in the markets of its contractual list, with a right to reverse the credit if the payment does not come; elsewhere income is credited on actual receipt.

Income claim: The claim for a dividend or interest paid to the wrong holder because a trade did not settle by the record date: the buyer’s custodian claims it from the seller’s dealer, or the reverse; CDS adjusts the positions open in its continuous net settlement, the trade-for-trade settlements leave the claim to the parties.

CDS & Co.: CDS’s nominee, in whose name most Canadian listed shares and bonds are registered on the issuers’ registers, with the participants’ positions on CDS’s books and the beneficial owners on the participants’; it passes the votes to the participants with its omnibus proxy.

Eligible dividend: A dividend a Canadian corporation designates as paid out of income taxed at the general corporate rate, which gives the Canadian individual holders the enhanced gross-up and dividend tax credit on their T5.

Tax breakdown service: CDS’s service on which the issuers of income trusts, REITs, ETFs and limited partnerships post the tax character of their year’s distributions (the income, the capital gains, the return of capital), used by the dealers and the custodians for the T3 and T5013 slips and the NR4.

Part XIII withholding: The Canadian withholding tax on the interest, dividends, royalties and other amounts paid to non-residents (25%, reduced by the treaties to 15% or 5% on the dividends and to 0% on most arm’s-length interest), remitted by the payer.

Form NR301: The CRA’s declaration of eligibility for the treaty rate that a non-resident corporation, trust or individual gives its Canadian payer or intermediary (with Form NR302 for a partnership and NR303 for a hybrid entity): the residence, the beneficial ownership, the treaty article; without it or equivalent information the payer applies the statutory 25%.

Agent and nominee certification: The certification an intermediary in the chain gives the Canadian payer that the beneficial owners behind it are entitled to a reduced rate of Part XIII tax, under the CRA’s Information Circular IC76-12, backed by the owners’ declarations or equivalent information it keeps.

NR4: The information slip and return a Canadian payer files with the CRA by the end of March for the amounts paid to non-residents and the tax withheld (the dividends to the foreign shareholders).

Form NR7-R: The application a non-resident files with the CRA for a refund of Part XIII tax withheld above the rate it was entitled to, no later than two years after the end of the year in which the tax was remitted.

Certificate of residency: The CRA’s certification that a Canadian fund, pension plan or company is a resident of Canada for the purposes of a tax treaty, which the foreign tax authorities ask for with a relief at source or a reclaim.

Article XXI exemption: The exemption of the Canada-US tax treaty for the dividends and interest received by a trust or arrangement of the other country operated exclusively to provide pension, retirement or employee benefits: the US pension trusts pay no Part XIII tax on Canadian dividends, the Canadian pension plans no US tax on US dividends.

Qualified Intermediary: A foreign financial institution with an agreement with the IRS (since 2001; the current one for 2023 to 2028) to document its clients under its own know-your-customer rules and report them to the US payer in rate pools; a Canadian custodian uses it for its clients’ US holdings.

Relief at source: The application of the treaty rate at the time of the payment, on the strength of the beneficial owner’s documentation passed through the chain of custodians before the record date; the alternative to a reclaim after the payment.

Tax reclaim: The claim for a refund of the tax withheld above the treaty rate, filed with the source country’s tax authority after the payment with the tax certificate, the certificate of residency and a power of attorney; paid in months or years, within a time limit set by each market.

Parts XVIII and XIX: The parts of the Income Tax Act that implement FATCA under the Canada-US intergovernmental agreement (Part XVIII) and the OECD’s Common Reporting Standard (Part XIX, since July 1, 2017): the Canadian financial institutions identify the accounts of US persons and other non-residents and report them to the CRA by May 1, which exchanges the data.

Golden record: The single validated version of a corporate action the custodian publishes after comparing the depository’s notice, the vendors’ feeds, the sub-custodians’ notices and the transaction documents field by field.

Mandatory corporate action: An event that happens to every holder without a choice (a cash dividend, a split, an arrangement paid in cash and shares, a redemption); with options, a choice and a default (a cash or share election with proration).

Voluntary corporate action: An event that applies only to the holders who act before the deadline (a take-over bid, an issuer bid, a rights offering, a conversion); the source of most corporate action risk for a custodian.

Plan of arrangement: The court-approved transaction under the corporate statutes by which most Canadian acquisitions close: a shareholder vote, a fairness hearing and the exchange of the shares through CDS.

Dissent right: The right of a shareholder who votes against an arrangement, an amalgamation or another fundamental change to be paid the fair value of its shares, fixed by the court if needed; exercised by the registered holder, so a beneficial owner behind CDS & Co. has its shares registered before the deadline.

Substantial issuer bid: A Canadian company’s formal offer to buy back its own shares outside the normal course purchases, under NI 62-104: a circular, at least 35 days open, often a modified Dutch auction with proration; the price above the paid-up capital is a deemed dividend for tax.

Offer depositary: The trust company appointed in a Canadian take-over bid, issuer bid or arrangement to receive the shares tendered or exchanged, through CDS for the shares held in it and against the letter of transmittal for the registered holders, and to pay the consideration.

Proration: The scaling back of the shares taken up in a partial bid, or of the cash or share elections in an arrangement, when more are tendered or elected than the terms allow, by the same percentage for every holder; the rest is returned or paid in the other form.

Deemed dividend: The part of the price a Canadian corporation pays to buy back its shares that exceeds their paid-up capital, treated as a dividend for tax: reported to the Canadian holders and subject to Part XIII withholding for the non-residents.

NI 54-101: The Canadian rule on communicating with the beneficial owners of securities held through intermediaries: the objecting and non-objecting beneficial owners, the delivery of the circulars and the voting instructions through the intermediaries and Broadridge, the notice-and-access option.

NOBO: A non-objecting beneficial owner under NI 54-101: an owner who lets its intermediary disclose its name, address and holdings to the issuers, which may then send it the materials directly.

OBO: An objecting beneficial owner under NI 54-101: an owner who refuses the disclosure of its name to the issuers and is reached only through its intermediaries; most institutional clients of a custodian are OBOs.

Voting instruction form: The form an intermediary or Broadridge sends each beneficial owner for a meeting, on which it gives its voting instructions; the intermediary turns the instructions into a proxy for the issuer’s scrutineer.

Notice-and-access: The option, available to Canadian issuers since 2013, of posting the circular and the proxy materials online and sending the owners a notice with the voting instruction form, in place of mailing the whole package.

Proxy adviser: A firm that researches the companies’ meetings and recommends votes under its own or its clients’ policies, and executes the votes on its platform for the managers (ISS and Glass Lewis are the two largest); its conduct in Canada is addressed by National Policy 25-201.

Proxy voting record: The record of how an investment fund voted at each meeting in the year to June 30, which NI 81-106 requires it to keep and post on its website by August 31, with its proxy voting policies available on request.

Securities Lending and Collateral

Agent lender: A custodian or specialist that lends a fund’s securities on its behalf, takes the collateral and shares the fee.

Securities lending authorization agreement: The agreement by which a lender appoints its custodian or a specialist as agent to lend its securities: the securities and the accounts covered, the lender’s guidelines (the borrowers, the collateral and its margins), the fee split, the indemnification and the termination; for a Canadian public mutual fund, with the custodian or a sub-custodian NI 81-102 requires.

GMSLA: The Global Master Securities Lending Agreement, the ISLA standard contract for securities loans in Europe, with the collateral, the marks, the recalls and the manufactured payments; the counterpart of the US MSLA.

Securities lending arrangement: A loan of a qualified security that section 260 of the Income Tax Act treats as no disposition: an identical security to be returned, the borrower bound to compensate the lender for the dividends and the interest, the lender’s risk of loss and chance of gain unchanged, and at most 270 days between parties not at arm’s length.

Compensation payment: The amount a borrower pays the lender in place of a dividend or interest paid while the security is on loan; under section 260 a dividend compensation on a public company’s share is a taxable dividend for a Canadian lender and a dividend subject to Part XIII for a non-resident one.

General collateral: A security in ample supply that borrowers can find from many lenders, lent at a low fee (a fraction of a percent a year for a Canadian large-cap stock) or financed in repo at the general collateral rate; the opposite of a special.

Hard to borrow: A stock with scarce lendable supply: the borrow costs a fee above the general collateral rate, and the locate may be refused.

Non-cash collateral: Securities given by a borrower or a dealer as collateral in place of cash (in Canada mostly Government of Canada and provincial bonds, also equities), at a margin above the value lent, delivered in CDSX or allocated on a triparty service such as CCMS; the lender earns a fee in place of a reinvestment spread.

Fee split: The share of a lending program’s gross revenue kept by the lender and by the agent, from 80/20 to 90/10 by the size and the quality of the lender’s inventory; 80/20 in the worked example (illustrative).

Recall: The lender’s demand that a borrower return securities on loan, for a sale or a vote; the borrower returns within the standard settlement cycle (one day in Canada since May 27, 2024) or is bought in at its cost.

Buy-in: The purchase of securities in the market by the party owed them when the other side fails to deliver or return them (a borrower after a recall, a seller after a fail), at the defaulting side’s cost.

Borrower default indemnification: The lending agent’s promise to its lenders that if a borrower fails to return the securities, it will buy them back with the collateral and pay any shortfall itself; it covers the borrower’s default and leaves any loss on reinvested cash collateral with the lender.

Agency lending system: The lending agent’s system of record for its program: the availability from the custody positions, the allocation of each loan across the lenders, the contracts, the collateral and the marks, the recalls and the returns, the compensation payments, the earnings and the fee split.

CCMS: The Canadian Collateral Management Service, the domestic triparty collateral service launched by TMX and Clearstream in 2024 for repo and securities lending in Canadian collateral.

GMRA: The Global Master Repurchase Agreement, the ICMA standard contract for repo between two parties outside the US: the purchase and the repurchase, the margin and the marks, the substitution, the income, the events of default and the close-out.

Collateral schedule: The list a cash investor or a secured party sets for the collateral it accepts from a given counterparty: the eligible issuers and maturities, the ratings, the margins or haircuts and the concentration limits, applied by the triparty engine at every allocation.

Collateral substitution: The replacement of collateral allocated to a repo, a loan or a margin account by other eligible collateral of the same value, so the provider can use the original security (to deliver on a sale); run automatically by the triparty engine against the schedules.

CDCC: The Canadian Derivatives Clearing Corporation, the TMX company that clears the Montréal Exchange’s options and futures and, since 2012, repo on Government of Canada securities; the Canadian OCC and FICC in one.

Repo 2.0: CDCC’s program to extend its repo clearing: the cleared general collateral repo settled through CCMS in 2026 and 2027, then the sponsored access that would bring the buy side’s cash investors into the clearing house in 2028 and 2029 (planned).

CORRA: The Canadian Overnight Repo Rate Average, the Bank of Canada’s overnight benchmark that replaced CDOR in June 2024; the reference for repo, floating rate notes and derivatives.

MTRS 2.0: CIRO’s debt trade reporting system: every dealer reports its fixed income trades, with the counterparty type and the price, by the next business day; used for surveillance and market transparency.

OSFI E-22: OSFI’s margin guideline for the non-centrally cleared derivatives of the federally regulated banks: daily variation margin and, above CAD 12,000,000,000 of average notional since September 1, 2022, two-way initial margin with the financial counterparties above a CAD 75,000,000 threshold, held segregated; no margin is required from a commercial end user.

IM threshold: The amount of initial margin, up to CAD 75,000,000 per pair of consolidated groups under E-22, below which the two sides need not collect; a relationship in scope exchanges only the excess above it.

Minimum transfer amount: The amount under which no margin moves, up to CAD 750,000 for the initial and the variation margin combined under E-22, so small daily changes accumulate until they pass it.

SIMM: ISDA’s Standard Initial Margin Model, the sensitivity-based calculation both sides of an uncleared derivative use for initial margin under the uncleared margin rules.

CRIF: The Common Risk Interchange Format, ISDA’s standard file of the trade sensitivities by risk factor that each side feeds to the SIMM calculation and exchanges for the comparison of the results.

IM Credit Support Annex: The ISDA credit support documents for regulatory initial margin (the 2018 Credit Support Annex for Initial Margin under New York law, the 2016 and 2018 deeds under English law): the IM calculation, the eligible collateral, the thresholds, the custodian and the release, beside the variation margin annex.

Control agreement: The agreement among a pledgor, a secured party and a custodian over the segregated account holding the pledgor’s initial margin: who instructs before and after a notice of exclusive control, the eligibility checks, the reporting, the response time and the custodian’s liability; for an account in Ontario it gives the secured party control under the Securities Transfer Act, 2006, which perfects its interest with priority.

Notice of exclusive control: The secured party’s notice to the custodian, after the pledgor’s default, that from the end of the agreed period the custodian takes instructions on the segregated IM account from the secured party alone.

Third-party custodian: A custodian unaffiliated with either side of an uncleared derivative that holds the initial margin in a segregated account, where it cannot be reused, and releases it under the control agreement.

Standardized haircut schedule: The margin rules’ haircuts on initial margin collateral, taken from the BCBS-IOSCO framework into E-22: 0% on cash, 0.5% to 4% on the high-quality government bonds by maturity, 1% to 8% on the other eligible debt, 15% on the main index equities and gold, plus 8% for a currency mismatch.

Fund Administration

Fund administrator: The service provider that keeps the fund’s official books, strikes the NAV and prepares financial statements; often a unit of the custodian bank.

Fund accounting: The administrator’s keeping of a fund’s books: the trades and the positions, the income and the expense accruals, the prices, the units outstanding and the NAV per unit by series, every business day for a Canadian mutual fund; the fund’s general ledger, from which the IFRS financial statements and the management reports of fund performance are produced.

NAV per unit: The net asset value of a Canadian investment fund trust divided by its units outstanding, calculated by series under NI 81-106 after the 4:00 p.m. ET close and used for every purchase, redemption and switch received before the cut-off (NI 81-102); the Canadian mutual fund price, published in the Fundserv price file and by the fund data vendors.

Mutual fund trust: The Income Tax Act status of a Canadian unit trust whose units are redeemable on demand and held by at least 150 unitholders: its income and gains distributed each year flow through to the unitholders on T3 slips, it may use the capital gains refund mechanism and a December 15 tax year-end, and its units can be held in the registered plans; the usual form of a Canadian mutual fund and ETF.

Fund series: A class of units of a Canadian fund trust with its own fees and NAV per unit over one portfolio: Series A with the trailing commission, Series F for the fee-based accounts, Series I for the institutional clients, the ETF series listed on an exchange; the administrator strikes a NAV per unit for each.

NI 81-106: The CSA’s continuous disclosure rule for investment funds: the NAV calculation, the annual and interim financial statements, the management report of fund performance, the expense ratios.

Independent review committee: The committee of at least three members independent of the manager that every public investment fund in Canada has under NI 81-107: it reviews the conflict of interest matters the manager refers to it (the inter-fund trades, the related-party transactions, the NAV error policy, the allocation of expenses), approves some and recommends on others, gives standing instructions, and reports to the unitholders each year.

Standing instruction: The written approval or recommendation an independent review committee gives under NI 81-107 for a recurring conflict of interest matter, such as the correction of NAV errors or the inter-fund trades, so the manager can act within its terms without referring each case; the committee reviews its use at least once a year.

Evaluated price: A pricing vendor’s estimate of what a bond would trade at, built from the dealer quotes, the trades reported, the comparable bonds and the spreads to the curve (for the Canadian bonds from the dealers’ and the CIRO trade data, illustrative); the standard price of the bonds in a Canadian mutual fund, usually on the bid side.

Fair value factors: The adjustment a pricing vendor computes each day for an overseas stock whose market closed before 4:00 p.m. ET, from the moves of the North American markets, the futures, the ADRs and the currencies since that close; multiplied by the local close, it gives the fund a price as of its valuation time and removes the arbitrage of the stale prices.

NAV error correction policy: The manager’s policy for correcting a mispriced NAV per unit, referred to the independent review committee as a conflict of interest matter: an error of a cent a unit or more is corrected; above a materiality threshold, 0.50% of NAV in common practice, the transactions at the wrong NAV are reprocessed and the accounts above a small amount paid, and below it the fund is made whole for its net loss; the cost is borne by the party responsible.

Cease trade order: An order of a Canadian securities regulator stopping all trading in an issuer’s securities, most often for a failure to file its financial statements; the funds holding the stock lose its market price and value it at fair value until the order is revoked.

IFRS 13: The international standard on fair value used by the Canadian investment funds and pension plans: the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, with the three levels of inputs (level 1 quoted prices, level 2 observable inputs, level 3 unobservable ones) and the disclosure of the level 3 methods and sensitivities.

Investment entity: The IFRS 10 status of an entity whose business is to invest for capital appreciation or income and that measures its investments at fair value: it does not consolidate the companies it controls and carries them at fair value through profit or loss; the Canadian investment funds, the private equity funds and the large pension investment managers apply it.

Management report of fund performance: The MRFP that NI 81-106 requires of every Canadian investment fund with its annual and interim financial statements: the manager’s discussion of the results, the risks and the recent developments, the financial highlights per series (the NAV per unit, the management expense ratio, the trading expense ratio, the turnover) and the past performance; filed on SEDAR+.

GST/HST on fund fees: The goods and services tax and the harmonized sales tax charged on the management and administration fees a Canadian investment fund pays, at a blended rate the fund computes from the provinces of its unitholders under the rules for the selected listed financial institutions; part of the management expense ratio, and charged on the GP’s management fee to an investment limited partnership.

Liquid alts: Alternative mutual funds under NI 81-102 since 2019: hedge fund strategies (short selling, leverage up to 300% of NAV, derivatives) sold to retail investors under a simplified prospectus.

Offering memorandum fund: A Canadian pooled fund (a trust or a limited partnership) sold without a prospectus under the exemptions of NI 45-106, usually to accredited investors, with an offering memorandum describing the fund, its terms and its risks; not a reporting issuer, so it has no independent review committee and delivers its audited statements to its unitholders instead of filing them; the usual wrapper of a Canadian hedge fund.

Borrowing agent: The dealer, usually a prime broker, with which a Canadian investment fund borrows the securities it sells short and deposits portfolio assets as collateral; NI 81-102 limits the assets held by a borrowing agent that is not the fund’s custodian to 10% of NAV for a conventional mutual fund and 25% for an alternative mutual fund.

Aggregate gross exposure: The NI 81-102 limit for an alternative mutual fund: the cash borrowed, the market value of the short sales and the notional of the specified derivatives (less the hedges) may not exceed 300% of NAV, tested daily; with the 50% limit on the short sales and the borrowing combined.

Series accounting: The method of a fund that issues each month’s subscribers a new series of units, so each series carries its own high-water mark and performance fee accrual; the series above water are consolidated into the lead series when the fee crystallizes at the year-end.

High-water mark: The level the fund’s NAV must exceed before the incentive fee is earned again after a loss.

Crystallization: The moment a fund’s accrued performance fee becomes payable to the manager, usually at the year-end and on the units redeemed; the high-water mark is reset to the NAV at which the fee crystallized.

Shadow NAV: The NAV a fund manager computes from its own books and marks to check the administrator’s official NAV, the two reconciled line by line before the release; the manager’s own control, also called shadow accounting.

Report of exempt distribution: The report on Form 45-106F1 an issuer files with the securities regulators after a distribution under the prospectus exemptions of NI 45-106, within 10 days of the distribution, or, for an investment fund in continuous distribution, once a year within 30 days of its year-end; it lists the purchasers and the exemptions relied on.

Unfunded commitment: The part of a limited partner’s commitment to a private fund not yet called: the fund’s capacity to invest, the collateral of its subscription line and an obligation the LP plans its liquidity for.

Subscription line: A revolving credit facility to a private fund secured on the limited partners’ unfunded commitments and the GP’s right to call them, used to fund the deals before the capital is called; in CAD at Term CORRA since the end of CDOR; it smooths the calls and raises the early IRR, so the ILPA templates show the IRR with and without it.

Co-investment: A direct investment by a limited partner in a company alongside a private fund, through a vehicle the GP forms, usually with no management fee and no carried interest; the large Canadian pension plans use it to lower their cost of private equity and to build their own deal teams.

Distribution waterfall: The order in which a private fund’s distributions are split between the limited partners and the GP: the return of the capital contributed, the preferred return, the GP catch-up, then the carried interest split; whole-of-fund (European) or deal-by-deal (American).

Carried interest: The GP’s share of a private fund’s profits, usually 20%, paid through the waterfall after the limited partners have their capital and their preferred return; in Canada usually allocated as a share of the partnership’s gains, keeping their character as capital gains.

Clawback: The GP’s obligation to return the carried interest it received above its agreed share of the fund’s cumulative profits at the end of the fund’s life, net of the taxes paid on it, secured by an escrow of part of the carry and the principals’ guarantees.

ILPA templates: The Institutional Limited Partners Association’s standard reporting formats for private funds: the Reporting Template for the fees, the expenses, the offsets and the carried interest, updated in January 2025, and the Performance Template for the gross and net IRR and multiples, with and without the subscription line, used for the reports from the first quarter of 2026.

T5013: The Canadian partnership information slip, which a private fund structured as a limited partnership sends each investor for the tax return; the Canadian K-1.

Transfer Agency and Fund Services

Transfer agent: Keeps the register of a fund’s shareholders and processes subscriptions and redemptions; for ETFs, issues and cancels shares with authorized participants.

Record keeper: The firm that keeps a Canadian fund manager’s unitholder register and processes the orders that arrive through Fundserv, as registrar and transfer agent of the funds: the accounts, the pricing of the orders, the confirmations, the trailing commissions, the distributions, the statements and the tax slips; the manager’s own unit, a custodian or a specialist provider.

Fundserv: The Canadian network for mutual fund and other fund orders, confirmations, settlement and transfers between dealers and fund companies; the equivalent of Fund/SERV, also used for investment savings accounts and GICs.

Client name account: A mutual fund account registered on the fund’s register in the investor’s own name, with a dealer and a representative of record who place the orders through Fundserv; the usual model of the mutual fund dealers, the record keeper sending the unitholder the statements and the slips and its trust company acting as trustee of the registered plans held this way.

Nominee account: A mutual fund account registered in a dealer’s name and holding the units of all its clients in a fund series, the dealer keeping the client records and sending its own statements and slips; the usual model of the investment dealers and the order-execution-only platforms.

Dealer of record: The dealer, with its representative, attached to a client name account on the fund’s register: it places the orders through Fundserv, receives the trailing commissions on the account and the positions for its statements and reports; a change of dealer is processed through Fundserv’s transfer messages.

Trailing commission: The ongoing commission a Canadian fund manager pays the dealer of record out of its management fee, usually 1.00% a year on an equity fund’s Series A and 0.50% on a bond fund’s, computed by account and paid monthly through Fundserv; banned for the order-execution-only dealers since June 1, 2022 and absent from Series F.

Deferred sales charge: The redemption charge, declining over up to seven years, that a Canadian investor paid when selling units bought under a DSC option, the manager having paid the dealer a commission up front; the CSA’s reforms ended new purchases under the option on June 1, 2022, and the existing schedules run off.

Order-execution-only dealer: A CIRO dealer that executes its clients’ orders without suitability advice (a discount brokerage); since June 1, 2022 it may not receive trailing commissions, so it holds the fee-based series or the series without an embedded commission.

Short-term trading fee: The fee a Canadian mutual fund charges on units redeemed or switched soon after their purchase (often 2% within 30 days), paid to the fund to cover the cost of frequent trading, applied by the record keeper on the client name accounts and by the dealer on its nominee accounts.

Registered plans: The Canadian tax-advantaged accounts: the RRSP and RRIF (retirement, deductible contributions), the TFSA (tax-free), the RESP (education) and the FHSA (first home); the dealer is the plan administrator or uses a trustee.

T3 and RL-16: The tax slips of a Canadian trust: the T3 reports each unitholder’s share of the income, the capital gains, the dividends and the foreign income distributed for the year, filed with the T3 return within 90 days of the trust’s year-end; the RL-16 is the Québec slip for the same amounts, filed with Revenu Québec.

NR4 and Part XIII: The Canadian withholding on the payments to non-residents: Part XIII of the Income Tax Act takes 25% of the dividends, the trust distributions and some interest, reduced by the tax treaties, remitted by the 15th of the following month, and reported on the NR4 slips and return by March 31.

Unclaimed property (Canada): The provincial regimes under which a dormant financial asset, such as fund units or an uncashed cheque of an owner who cannot be found, is delivered to the province after a dormancy period and a search; in force in Québec, British Columbia, Alberta and New Brunswick, with no federal regime for securities.

ETF: An exchange-traded fund: in Canada a mutual fund under NI 81-102, usually a trust, whose units trade all day on the TSX or Cboe Canada and are issued and redeemed with the fund only in prescribed numbers of units by the designated broker and the ETF dealers; the first in the world, the Toronto 35 Index Participation units, listed on the Toronto Stock Exchange in 1990.

Designated broker: The dealer that has signed an agreement with a Canadian ETF’s manager to subscribe for the units the exchange listing requires, to subscribe in cash when the manager asks, and to keep a liquid two-way market in the units on the exchange; usually also the ETF’s main market maker.

Prescribed number of units: The block of units of a Canadian ETF (the PNU, often 25,000 to 100,000 units) that a designated broker or an ETF dealer subscribes for or redeems in one order against one basket; the Canadian creation unit.

ETF dealer: A registered dealer, a CDS participant, that has signed an agreement with a Canadian ETF’s manager to subscribe for and redeem prescribed numbers of units directly with the fund; it has no obligation to do so and acts when the gap between the units’ price and the basket pays.

Basket file: The file a Canadian ETF’s agent sends to the designated broker and the dealers before each trading day, with the securities and quantities and the estimated cash component of one prescribed number of units, also distributed by the market data vendors; the Canadian portfolio composition file.

Cash subscription: A subscription for or redemption of ETF units paid in cash: the dealer pays or receives the NAV adjusted by a charge for the fund’s cost of buying or selling the basket; the usual form for the bond ETFs and the overseas markets, and for a stock a dealer cannot deliver.

Allocation to redeemers: The method by which a Canadian mutual fund trust or ETF designates part of its realized capital gains as paid to the unitholders who redeem during the year, so the remaining unitholders are not taxed on them; limited by the Income Tax Act since the 2019 federal budget, with a formula adapted to the ETFs whose units are redeemed on the exchange.

Reinvested distribution: The year-end distribution of a Canadian ETF or mutual fund trust paid in units rather than cash and consolidated at once, so each holder keeps the same number of units, pays tax on the amount distributed and adds it to the adjusted cost base of its units; the way a Canadian ETF passes its realized gains to its unitholders.

ETF series: An exchange-traded series of a Canadian mutual fund trust, listed on the TSX or Cboe Canada beside the fund’s mutual fund series, all sharing one portfolio; offered by Canadian managers for years before the SEC granted the first US order for an ETF share class in November 2025.

Middle office outsourcing: The transfer of an asset manager’s post-trade work (the trade support, the IBOR, the reconciliations, the corporate actions, the collateral, the performance) to a custodian or a specialist provider under a long-term agreement, often with a lift-out of the staff; the manager keeps the investment decisions and its responsibility as a registrant.

Lift-out: The move of a client’s operations staff to the provider that takes over their work, by individual offers of employment in most of Canada (Québec’s Civil Code keeps the contracts in force when an enterprise is alienated), so the knowledge of the portfolios and the processes moves with the work.

IBOR: Investment book of record: the manager’s own real-time view of positions and cash, including trades not yet settled, used for investment decisions.

OSFI Guideline B-10: OSFI’s guideline on third-party risk management for the federally regulated banks, insurers and trust companies (revised, in force since May 1, 2024): the risk assessment, the due diligence, the written agreements, the monitoring, the subcontractors and the exit plans of every third-party arrangement.

Reconciliation platform: The system that matches a firm’s records against its custodians’, administrators’ and counterparties’ statements (the positions, the cash, the transactions), presents the breaks and tracks them to resolution (Duco, SmartStream TLM, illustrative).

GIPS: The Global Investment Performance Standards of the CFA Institute (the 2020 edition): how a manager computes its returns, builds its composites of similar portfolios and presents them to prospective clients, with an optional yearly verification of the firm by an independent verifier.

Service level agreement: The schedule of an outsourcing agreement that sets the measures of the service (the deadlines, the accuracy, the timeliness) and their targets, how they are reported each month and the service credits owed when they are missed.

CSAE 3416 report: The service auditor’s report on the controls of a service organization issued under CSAE 3416 of the Auditing and Assurance Standards Board, the Canadian counterpart of ISAE 3402 and the SOC 1 report; a Type 2 report covers the design and the operating effectiveness of the controls over a period.

Issuer Services

Stock transfer agent: The company’s agent for its register, in Canada a trust company: it keeps the record of the registered holders, registers the transfers, issues and cancels the shares (the plan reserves, the DRIP), pays the dividends to CDS and the registered holders with the withholding, runs the lost holder searches and the unclaimed property remittances, and mails and tabulates the meetings.

Registrar: The agent that keeps the official record of the securities issued and outstanding and checks that a transfer or an issuance does not exceed the authorized amount; for shares usually the transfer agent itself, for bonds the trustee.

Central securities register: The register of a corporation’s securities in registered form that the CBCA and the provincial statutes require it to keep, usually kept for it by its transfer agent: the registered holders, their positions and addresses, the transfers.

Non-certificated inventory: The CDS arrangement in which the transfer agent keeps the CDS & Co. position of an issue electronically on the register, without a certificate in CDS’s vault, and adjusts it for each deposit and withdrawal; certificates or DRS positions remain available to the registered holders.

Book-entry only: The form of an issue held in full at CDS for its life, as a global certificate or a non-certificated position registered to CDS & Co., with no certificate available to the holders, whose interests are book entries at CDS and its participants; the usual form of Canadian bonds.

Direct Registration System: The book-entry form of registered ownership on the issuer’s register offered by the Canadian transfer agents: the holder receives a DRS advice for each transaction and can move the shares to and from a dealer account through the agent and CDS.

Medallion guarantee: The signature guarantee of an eligible institution under one of the medallion programs, which a transfer agent requires on a transfer form before it registers a transfer; in Canada the signature guarantee stamp of a Schedule I bank is also accepted; the guarantor answers for a forged signature.

Paying agent: The agent that receives the issuer’s money for a dividend, a coupon or a redemption and pays it out on the payment date: to CDS for the position in the name of CDS & Co. and to the registered holders directly; the transfer agent for shares, the trustee for bonds.

DRIP: The dividend reinvestment plan run by the transfer agent: the participants’ dividends reinvested in shares bought in the market or issued from treasury, often at a discount of 2% to 5% to the average market price for the Canadian banks, utilities and pipelines that use it to raise equity.

Part XIII tax: The Canadian withholding tax on the dividends, rents and royalties paid to non-residents: 25% under the Income Tax Act, reduced by the treaties (15% for most US residents on dividends) for a holder who has given an NR301; withheld by the payer or the intermediary and remitted to the CRA by the 15th of the following month, with the NR4 slips by the end of March.

NR301: The declaration a non-resident gives the payer or its intermediary to claim the reduced treaty rate of Part XIII tax: its country of residence, its eligibility for the treaty benefits and its status as the beneficial owner.

Unclaimed property: The property whose owner has not been in contact for the dormancy period of a statute; in Canada there is no federal regime for securities, Quebec (for the underlying securities since 2022) and New Brunswick (since 2022) require the remittance of dormant shares and dividends after three years, Alberta and British Columbia run their own programs, and elsewhere the by-laws’ forfeiture clauses apply.

Trust company: A corporation licensed to act as trustee for the public, federal under the Trust and Loan Companies Act and supervised by OSFI, or provincial under its province’s legislation; in Canada the transfer agents and the bond trustees are trust companies.

Trust indenture: The contract between the issuer and the trustee for the holders of a bond: the terms, the covenants, the events of default, the meetings and extraordinary resolutions, the trustee’s duties and protections; governed by Part VIII of the CBCA or its provincial counterparts when the debt is distributed to the public.

Indenture trustee: The trust company that represents the holders of a bond under the trust indenture: it certifies the notes, receives the issuer’s certificates and payments, sends the notices, and acts for the holders on their direction; under the CBCA it owes the care, diligence and skill of a reasonably prudent trustee at all times.

Global certificate: The single certificate that represents a whole bond issue, registered to CDS & Co. and held at CDS, or its non-certificated equivalent; the holders’ interests are book entries at CDS and its participants.

Annual compliance certificate: The certificate the issuer gives the trustee at least once in every twelve months under section 89 of the CBCA that it has complied with the requirements of the indenture whose breach would be an event of default, or describing its failures.

Reasonably prudent trustee: The standard of care of section 91 of the CBCA for a trustee under a trust indenture: to act honestly and in good faith with a view to the best interests of the holders and to exercise the care, diligence and skill of a reasonably prudent trustee, before and after a default; section 93 forbids any term relieving the trustee of it.

Event of default: The failures listed in the indenture that let the holders accelerate the bonds: a payment of principal missed, a coupon unpaid after the grace period (usually 30 days), a covenant breached after notice and a cure period, a cross-default, an insolvency; under the CBCA the trustee gives notice of it within 30 days.

Extraordinary resolution: The resolution of the holders of a Canadian bond passed by two thirds of the principal voted at a meeting with a quorum, or by a written instrument signed by the same majority, through which the holders direct the trustee, waive a default or amend the indenture.

Canada Yield Price: The make-whole redemption price of a Canadian corporate bond: the greater of par and the price that gives the Government of Canada yield of a comparable term plus a spread set in the indenture; the Canadian counterpart of the US make-whole call.

CBCA arrangement: A plan of arrangement under section 192 of the CBCA used to restructure debt outside an insolvency filing: a solvent applicant of the group, an interim order calling a meeting of the holders as a class, two thirds of the votes cast, and a final order after the court’s fairness hearing that binds every holder of the class.

Notification of meeting and record dates: The notice a reporting issuer sends under NI 54-101 at least 25 days before the record date to CDS and the intermediaries, files on SEDAR+ and sends to the exchange: the meeting and record dates, the securities that vote, the use of notice-and-access, the direct delivery to the NOBOs and whether the issuer pays for the delivery to the OBOs.

NOBO list: The list of the non-objecting beneficial owners of an issue (the owners who have not objected to the disclosure of their names to the issuer), compiled by Broadridge for the intermediaries under NI 54-101 and paid for by the issuer, which may send the materials to them directly.

Objecting beneficial owner: A beneficial owner who has told its intermediary that it objects to the disclosure of its name to the issuer (an OBO): it receives the meeting materials only through the intermediary, and only if the issuer or the owner pays for the delivery.

Management information circular: The proxy circular a Canadian company sends with the notice of meeting: the business of the meeting, the director nominees, the executive and director pay, the governance disclosure, the auditor, the proposals; filed on SEDAR+.

Omnibus proxy: The proxy CDS gives its participants after the record date, passing the vote of the securities registered to CDS & Co. to them in proportion to their positions, so that the intermediaries can vote them on their clients’ instructions.

Meeting vote reconciliation protocols: The protocols of CSA Staff Notice 54-305 (January 2017) for the roles of the tabulators, the intermediaries, Broadridge and CDS in reconciling the votes with the positions at the record date: the entitlements built before the vote, the over-votes resolved, the confirmation that a vote was received.

Scrutineer: The person appointed under the by-laws or by the chair, usually from the transfer agent, who reports the shares represented and the quorum, rules with the chair on the validity of the proxies and ballots, counts the votes and certifies the results of a Canadian meeting.

Majority voting: The rule of the CBCA since August 31, 2022 for the uncontested election of the directors of a public company: each nominee needs more votes for than against, and a nominee who fails is not elected and may not be appointed before the next meeting, save for the residency or independence requirements; the TSX has required a majority voting policy since 2014.

Advance notice by-law: A by-law setting the window (typically 30 to 65 days before the meeting) and the information a holder must give to nominate directors at a meeting, common among Canadian listed companies.

Data, Ratings and Indexes

Designated rating organization: A credit rating agency designated by the Canadian securities regulators under NI 25-101 (DBRS, Fitch, Moody’s and S&P with their affiliates among them), whose ratings are the designated ratings the CSA instruments cite; it keeps a code of conduct, a compliance officer and files Form 25-101F1 each year.

NI 25-101: National Instrument 25-101 Designated Rating Organizations, in force since April 20, 2012: the designation of the rating agencies, the code of conduct following the IOSCO Code of Conduct Fundamentals with the provisions of its Appendix A, the compliance officer, the records, the conflicts, the annual Form 25-101F1.

Issuer-pays model: The business model in which the issuer or the sponsor of a rated security pays the agency for the rating, which is published free to all; the main conflict of the industry, managed under the agency’s code of conduct; in the subscriber-pays model the investors buy the ratings.

Rating committee: The group of analysts that votes on every rating action of an agency on the lead analyst’s recommendation, with a chair, a quorum, a majority vote and a recorded rationale; no single analyst determines a rating.

Rating trend: The Canadian agency’s view of the likely direction of a rating over the next one to two years (Positive, Stable, Negative), the counterpart of the global agencies’ outlook.

Under review: The Canadian agency’s flag on a rating likely to change within about 90 days, usually on an event (Under Review with Positive, Negative or Developing Implications), the counterpart of the global agencies’ watch.

Short-term securitized product: Asset-backed commercial paper and other short-term securitized debt distributed under the NI 45-106 exemption in force since May 5, 2015: ratings from at least two designated rating organizations, one in the highest short-term category, liquidity from regulated deposit-taking institutions, an information memorandum and monthly reports.

Necessary course of business: The exception to the tipping prohibition of the Canadian securities acts for a disclosure of material undisclosed information made in the necessary course of business, which National Policy 51-201 says includes a communication to a credit rating agency under confidentiality.

DBRS: DBRS Morningstar, the Canadian rating agency that rates most Canadian corporate, provincial and structured issues alongside the global agencies.

Fallen angel: A bond downgraded from investment grade (BBB (low), BBB- or Baa3 and above) to high yield; it leaves the investment grade indexes, the FTSE Canada Universe Bond Index among them, at the next rebalance and the mandates limited to investment grade, so the downgrade brings forced sales.

Index provider: The firm that designs, calculates, publishes and licenses indexes (illustrative of the Canadian market: S&P Dow Jones Indices for the S&P/TSX family with the TMX Group, FTSE Russell for the FTSE Canada bond indexes, MSCI, Solactive); the benchmark administrator in the IOSCO terms.

Index committee: The provider’s committee that maintains an index under its methodology: the additions and deletions, the treatment of the corporate actions, the interpretations, the proposals for methodology changes; overseen by a separate oversight function under the IOSCO principles.

Index methodology: The published rules of an index: the universe, the eligibility (domicile, size, liquidity, float, price), the weighting and the caps, the rebalance schedule, the treatment of the corporate actions and the market disruptions; changed only after a consultation.

Free float: The shares of a company available to public investors, excluding those held by insiders, controlling shareholders, governments and other strategic holders; a float-adjusted index weights each constituent by its price times its float-adjusted shares, a large adjustment for the Canadian companies with a controlling holder or multiple voting shares.

Index rebalance: The scheduled update of an index (quarterly for most equity indexes, after the close of the third Friday of March, June, September and December): the share and float updates, the additions and deletions, the caps reapplied; announced in advance and effective after the close.

IOSCO Principles for Financial Benchmarks: The 19 principles IOSCO published in July 2013 for the administrators of benchmarks: the governance and the oversight function, the conflicts, the quality of the benchmark and its methodology, the consultation on changes, the complaints and the external review; applied by the index providers with a yearly assurance report.

MI 25-102: Multilateral Instrument 25-102 Designated Benchmarks and Benchmark Administrators, in force since July 13, 2021: the rules for the benchmarks the OSC and the AMF designate and their administrators (CDOR until it ended in June 2024, Term CORRA since); the amendments in force from May 5, 2026 cover the assurance reports, including for a stock index should one be designated.

Index license: The contract under which a fund, an ETF manager, a derivatives exchange or a bank uses an index as the basis of a product, paying an asset-based fee, a per-contract royalty or a fixed fee; the index provider’s main revenue.

Exchange-traded fund: A fund whose units trade on an exchange through the day, with designated brokers and dealers creating and redeeming units in baskets so the price stays close to the NAV; in Canada governed by NI 81-102, with the ETF Facts document, and most of them track an index.

Market on close: The TSX’s closing facility: the market-on-close orders entered to 3:50 p.m. ET, the imbalance published at 3:50 p.m. ET, the offsetting limit-on-close orders to 4:00 p.m. ET, and the closing call at 4:00 p.m. ET within the price movement constraint of the 2021 redesign, setting the official closing price the indexes and the funds use.

Market data vendor: A firm that collects the marketplaces’ and the other sources’ data, normalizes it in its ticker plant and distributes it to subscribers through terminals and feeds (illustrative of the market: Bloomberg, LSEG, FactSet, ICE, TMX Datalinx for its own markets), administering the marketplaces’ entitlements and passing their fees through.

Information processor: The entity that receives the orders and trades of every marketplace under NI 21-101 and publishes the consolidated data: TMX IP for the exchange-traded securities other than options since July 1, 2009 (designated to June 30, 2029), CIRO for the corporate and government debt.

TMX IP: The information processor under NI 21-101: the consolidated feed of orders and trades from every Canadian marketplace; trades are reported to it by the marketplace, not by the dealer.

Data fees methodology: The CSA’s method, set in CSA Staff Notice 21-319 of December 2016, for reviewing the professional real-time market data fees of the Canadian marketplaces: each marketplace’s fees are compared with a reference based on its share of the trading and the quoting.

Direct feed: A marketplace’s own proprietary market data feed, delivered from its matching engine’s data center by multicast at colocation or through extranets, faster than the consolidated feed and with more content (the depth of book, the auction data); sold under the marketplace’s fee schedule filed with its regulator.

Depth of book: The quotes beyond the best bid and offer on a marketplace’s book, by price level or by order; sold in the marketplaces’ own feeds and consolidated across the Canadian marketplaces by TMX IP.

Non-display use: The use of market data by an application without a person seeing it (algorithmic trading, order routing, risk, pricing, an index calculation), licensed by category (the firm’s own trading, trading for clients) with a fee per firm and a declaration to each marketplace.

Derived data: Data calculated from market data (an index value, a VWAP, an analytic, an evaluated price) that cannot be turned back into the original; licensed under each marketplace’s derived data policy, free or charged by use.

Exchange audit: The review of a vendor’s or a subscriber’s market data use by a marketplace or an information processor under its agreements, every two to three years with a look-back of up to three years; the unreported users and uses are back-billed with interest.

Pricing service: A firm that provides evaluated prices for the securities without readily available quotations, mainly bonds and loans (illustrative of the Canadian market: FTSE Russell, CanDeal DNA, ICE Data Services, Bloomberg BVAL, LSEG), to the funds, their administrators, the custodians, the pension plans and the insurers.

Fair value hierarchy: The three levels of IFRS 13 for the inputs of a fair value: level 1 for quoted prices in active markets for the identical asset, level 2 for other observable inputs (most evaluated bond prices), level 3 for unobservable inputs; disclosed by level in the financial statements of the Canadian investment funds.

Price challenge: A client’s request to a pricing service to review an evaluated price, with the evidence (a trade, a dealer quote, a bid list); the evaluator changes the price for all clients or keeps it with the reasons, and the challenges are logged and reported.

Valuation committee: The investment fund manager’s committee that approves the valuation policy, the pricing sources and the fair value methods, reviews the overrides, the back-testing and the vendor oversight, and decides the hard-to-value prices; the counterpart in a Canadian fund family of the oversight a US fund board gives its valuation designee.

Network, Controls and Billing

Canadian custodian: A bank or trust company that holds and services its clients’ securities under one agreement and one set of reports: directly in Canada as a CDS participant, through a US sub-custodian at DTC and through sub-custodians elsewhere; the custodian of the Canadian funds, pension plans and insurers, and often the Canadian sub-custodian of foreign global custodians.

Network management: The custodian’s team that chooses, contracts, monitors and replaces its sub-custodians and assesses the depositories of each market: the agent RFPs, the due diligence visits, the risk ratings, the KPIs, the market advisories to the clients, the input to the yearly section 6.7 report.

Due diligence questionnaire: The standard questionnaire a custodian sends its sub-custodians and the candidates (the AFME questionnaire for the agent banks): the ownership and the financials, the regulation, the segregation and the reconciliations, the business continuity, the financial crime controls; the basis of the yearly review and the onsite visit.

AGC questionnaire: The questionnaire of the Association of Global Custodians’ depository information gathering project, answered by the depositories of most markets on their legal status, regulation, segregation, settlement, records and audits; the shared input of the custodians’ assessments of the foreign depositories.

Country risk: The risks of investing in a market that no custodian controls: the expropriation, the capital and currency controls, the sanctions, the market’s legal and settlement infrastructure; borne by the fund and its manager, with the custodian supplying the information.

Market advisory: The custodian’s notice to its clients of a change in a market: a new rule or settlement cycle, a holiday, a tax or registration change, a sanction or a capital control; with the effective date, the impact and the action asked of the client.

Agent conversion: The move of a market’s client assets from one sub-custodian to another: the notice to the clients, the new settlement instructions to the dealers and brokers, the realignment free of payment at the depository over a weekend, the reconciliation, and the cutover of the pending trades, the corporate actions and the tax reclaims.

Special Economic Measures Act: The federal statute under which Canada imposes most of its autonomous sanctions (the Russia regulations among them): the dealings in the property of the listed persons prohibited, the banks required to determine whether they hold such property, to disclose it to the RCMP and CSIS and to report to their regulator; permits issued by Global Affairs Canada.

Guideline B-10: OSFI’s guideline on third-party risk management, revised and in force since May 1, 2024: the federally regulated banks and insurers identify, assess, contract, monitor and exit their third-party arrangements by risk, with the controls reports of the providers as evidence.

CSAE 3416: The Canadian Standard on Assurance Engagements 3416, Reporting on Controls at a Service Organization, of the Auditing and Assurance Standards Board, in force for the periods ending after December 15, 2011: the Canadian counterpart of ISAE 3402 and of the US SOC 1 report, for the controls relevant to the clients’ financial reporting.

ISAE 3402: The IAASB’s International Standard on Assurance Engagements 3402 for the assurance reports on the controls of a service organization; CSAE 3416 follows it, and a Canadian custodian usually issues one report under both standards and the US SSAE 18.

SSAE 18: The AICPA’s Statement on Standards for Attestation Engagements No. 18 (AT-C section 320 for the reports on a service organization’s controls relevant to its clients’ financial reporting), the standard of the US SOC 1 report; a Canadian custodian with US clients meets it in the same report as CSAE 3416.

Type 2 report: A controls report that gives an opinion on the description of the system, the suitability of the design and the operating effectiveness of the controls over a period, usually twelve months, with the tests and the results; a Type 1 report covers the description and the design at one date.

Control objective: The statement in a controls report of what a group of controls achieves for the clients’ financial reporting (for example, that the trades are settled as instructed and recorded completely and accurately); the auditor’s opinion is given objective by objective.

Service auditor: The independent public accounting firm that tests a service organization’s controls and issues the CSAE 3416, ISAE 3402 or SOC 1 report; its opinion is addressed to the service organization for the use of its clients and their auditors.

Carve-out method: The presentation of a subservice organization in a controls report that leaves its controls out of the description and the testing and lists the complementary subservice organization controls; the inclusive method brings them in, with the subservice organization’s own assertion.

Complementary user entity controls: The controls a controls report assumes the clients run themselves for the control objectives to be achieved (authorized instructions, the review of the statements, the reconciliation of the holdings, the timely elections); listed in the report and tested by the clients and their auditors.

Complementary subservice organization controls: The controls a controls report assumes the carved-out subservice organizations run (the sub-custodians, the depository, the pricing vendors), listed in the report; the service organization monitors them through their own reports.

Bridge letter: A letter from a service organization’s management covering the months between the end of the controls report period and the clients’ year-end, stating that no material change to the controls and no known significant deficiency occurred; management’s own statement, untested by the service auditor.

CAS 402: The Canadian Auditing Standard on the audit considerations relating to an entity using a service organization, the counterpart of ISA 402: how the auditor of a fund, a pension plan or a company understands the service organization’s controls and uses a Type 2 report as evidence.

Basis point: One hundredth of one percent (0.01%), written bp: the unit of the custody fees; a fee of 1bp a year on CAD 1,000,000,000 of assets is CAD 100,000.

Market tier: The grouping of the markets in a custody fee schedule by cost and risk: Canada, the US and the main developed markets in the lowest tiers, the emerging and frontier markets in the highest, where the agents’ fees and the operations cost most.

Fee schedule: The schedule attached to the custody agreement: the asset-based fees by market tier, the transaction fees by type and market, the cash and FX terms, the out-of-pocket expenses, the minimums, the term and the conditions of a change.

Out-of-pocket expenses: The third-party costs a custodian passes to its clients under the fee schedule (the registration and depository fees, the stamp duties, the proxy and tax agents’ fees, the messaging charges), billed at cost under most agreements and tested first in the clients’ fee reviews.

Net interest income: The interest a bank earns on its assets (the settlement balances at the Bank of Canada, the securities, the loans) less the interest it pays on its deposits and borrowings; for a custody bank, mostly the spread on its clients’ cash balances.

Relationship pricing: The pricing of a client on the whole revenue it brings (the custody, administration and record keeping fees, the net interest income on its deposits, the FX, the securities lending) against the cost to serve and the capital, so one service can be priced below its own floor.

Fixed administration fee: A fee a Canadian fund manager charges its funds at a fixed rate of their net assets in exchange for paying their operating expenses itself (the custody, the fund accounting, the record keeping, the audit), so the funds’ expenses are known in advance and the manager bears the difference.

Management expense ratio: The total of a Canadian fund’s management fee and operating expenses as a percentage of its average net assets, disclosed in the fund facts and the management report of fund performance under NI 81-106; the custody fees are part of it.

Custody search: A client’s selection of a custodian run by a consultant: the request for proposal to the incumbent and the rivals, the fee quotes on the same assets and volumes, the visits, the scoring; the event at which most custody fee schedules are repriced.

Fee benchmark: The comparison of a client’s custody, administration or management fees with those of its peers, from the consultants’ databases or an independent fund data provider; read by the managers in their yearly reviews and at renewal.

SWIFT message types used in the diagrams

MT300: SWIFT confirmation of an FX trade.

MT305: SWIFT confirmation of an FX option.

MT320: SWIFT confirmation of a fixed-term loan or deposit.

MT950: SWIFT account statement from a correspondent bank.

camt.053: ISO 20022 end-of-day bank account statement, the successor to MT950.

MT535: SWIFT statement of securities holdings from a custodian.

MT541: SWIFT instruction to receive securities against payment.

MT543: SWIFT instruction to deliver securities against payment.

camt.057: ISO 20022 notice to the account holding bank or custodian to expect an incoming payment, the successor of the MT210.

MT900: SWIFT debit confirmation from a bank.

MT304: SWIFT advice of an FX trade from a manager to its custodian, so the custodian can settle it.

MT545: SWIFT confirmation from the custodian that securities were received against payment.

MT547: SWIFT confirmation from the custodian that securities were delivered against payment.

MT548: SWIFT settlement status from the custodian: pending, matched, failed, with the reason.

MT566: SWIFT corporate action confirmation: the cash or securities credited for an event.

MT540-543: SWIFT instructions to receive or deliver securities, with or without payment; used to move collateral.

MT515: SWIFT client confirmation of a securities trade.

MT527: SWIFT triparty collateral instruction.

MT600: SWIFT confirmation of a precious metals trade.

MT604: SWIFT precious metals transfer or allocation instruction.

MT670: SWIFT standing settlement instruction update: how a counterparty notifies its SSIs by authenticated message.

MT340: SWIFT confirmation of a forward rate agreement.

MT564: SWIFT corporate action notification from a custodian or depository: the event, the options and the deadline.

MT502: SWIFT order to buy or sell securities, sent by a client to its broker or manager.

MT509: SWIFT trade status message from a broker or custodian.

MT101: The SWIFT request for transfer a corporate sends its bank, or a bank sends another, to move funds from the customer’s account.

MT700: The SWIFT message by which a bank issues a documentary credit to the advising bank.

MT710: The SWIFT advice of a documentary credit issued by a third bank, sent by the advising bank onward.

MT742: The SWIFT reimbursement claim a paying or negotiating bank sends the reimbursing bank under a documentary credit.

MT754: The SWIFT advice of payment, acceptance or negotiation sent by the paying bank to the issuing bank under a documentary credit.

MT799: The SWIFT free-format message between banks, used for trade finance correspondence and bank-to-bank undertakings.

MT940: The SWIFT customer statement message a bank sends an account holder (or its other bank) with the day’s entries and balances.

MT540: The SWIFT instruction to receive securities free of payment, used for the stock loans and the collateral deliveries.

MT306: The Swift confirmation of the FX options the MT305 cannot describe: average rate (Asian) options and forwards, barriers, digitals and other exotic structures, with their averaging or observation dates.

MT380: The Swift FX order: an investment manager instructs its custodian to buy or sell a currency for a fund; the custodian confirms the execution with an MT381.

MT606: The Swift precious metal debit advice: the account keeper tells the account owner its metal account was debited, with the bar list when the metal moves into allocated bars.

MT607: The Swift precious metal credit advice: the account keeper tells the account owner its metal account was credited, in fine troy ounces.

MT608: The Swift statement of a metal account: the opening and closing balances in ounces and the movements of the period, or the bars held in an allocated account.

MT537: The SWIFT statement of pending transactions, used with the function PENA for the CSDR penalty reports the CSDs and the custodians send down the chain: each penalty with its instruction, its days, its amount and its party.

MT567: The SWIFT corporate action status and processing advice: the acceptance or the rejection of an MT565 election, or the status of an event.

MT536: The SWIFT statement of transactions: the settled movements of an account over a period, sent by the custodian to the client or by the sub-custodian to the custodian.

MT542: The SWIFT instruction to deliver securities free of payment: a transfer between accounts, a delivery to a lender’s collateral account, a re-registration.

MT565: The SWIFT corporate action instruction: the holder’s election on a voluntary event (a tender, an exchange, a dividend reinvestment option), sent to the custodian and passed on by it to the sub-custodian or the depository.

Custody and Settlement›Onboarding

Onboarding a Fund Complex: the RFP, the Custodian Agreement Under NI 81-102, the Qualified Custodian, the Accounts and the Conversion

Custody onboarding is the appointment of a custodian by a fund manager for its funds and the move of their assets onto the new books. The request for proposal to four custodians, the custodian agreement with the provisions Part 6 of NI 81-102 requires, the manager’s board approving a custodian qualified under section 6.2, the sub-custodians qualified under section 6.3 and the yearly compliance report, the know-your-client checks under the federal anti-money laundering rules, one account per fund and market, the local registrations, the standing settlement instructions in ALERT and the SWIFT links, and the conversion from the previous custodian through CDSX, DTC and the foreign depositories, with the opening positions reconciled before the first NAV.

Worked example, illustrative:client a large Canadian fund manager: 120 mutual funds and ETFs, CAD 150,000,000,000, 55% in Canada, 30% in the US, 15% in 45 other markets (illustrative)selection an RFP to four custodians with a consultant; five months to the choice, nine to the first conversion waveagreement one custodian agreement with the NI 81-102 provisions; the sub-custodians qualified under section 6.3; five yearsfees safekeeping from 0.3bp in Canada to 25bp in the frontier markets, a blended 0.6bp (CAD 9,000,000 a year); CAD 5 to CAD 50 a tradeaccounts 3,000 custody accounts, one per fund and market; 1,000 cash accounts in 30 currencies; the SSIs in ALERTconversion three waves over nine months; free deliveries in CDSX, at DTC and in each market; the opening positions reconciled three ways

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A custody mandate is won on the network, the fund administration and the price, and placed by a fund manager that answers to the securities regulators for the custody rules of NI 81-102. The work is in the setup and the conversion: thousands of accounts, instructions and positions that must reconcile before the first NAV on the new books.

The custody rules of NI 81-102: Part 6 requires an investment fund to hold all its portfolio assets under the custodianship of one custodian (section 6.1), a bank listed in Schedule I, II or III of the Bank Act, a trust company with at least CAD 10,000,000 of shareholders’ equity, a qualifying affiliate of either, or a qualifying CIRO dealer (section 6.2); the assets outside Canada may be held by sub-custodians that are regulated banks or trust companies in their country with shareholders’ equity of at least the equivalent of CAD 100,000,000, or qualifying affiliates (section 6.3); the agreement must carry the required provisions (section 6.4), the assets must be held segregated and recorded as the fund’s, through CDS or another depository where the market requires it (section 6.5), under the standard of care of a reasonably prudent person (section 6.6), and the custodian reviews its arrangements and reports on their compliance within 60 days after each financial year (section 6.7); the margin deposited with the dealers for the derivatives and the short sales is the exception (sections 6.8 and 6.8.1). There is no fund board and no delegation of a foreign custody role as in the US: the manager appoints, the custodian answers for its network, and the country risk stays with the manager. The pension plans hold their fund under a trust agreement within the pension standards legislation, and the portfolio managers’ separately managed accounts follow the custody requirements of NI 31-103.
The selection and the economics: the Canadian custody market is a handful of custodians, most owned by or tied to the large banks, so the bank-owned fund managers keep the custody with their group and the contested mandates are those of the independent managers, the pension plans and the insurers; a fund manager changes custodian rarely (every eight to ten years, illustrative), after an RFP on the network, the fund accounting and the record keeping, the technology, the controls and the fees; the safekeeping fee is quoted per market tier in basis points (0.2bp to 0.5bp in Canada and the US, 1bp to 3bp in the developed markets, 5bp to 15bp in the emerging ones and 25bp or more in the frontier markets, illustrative) with a fee per trade, and is usually priced in a bundle with the fund administration, the record keeping and the lending; the custodian’s return also depends on the cash the funds leave with it and the FX they deal (see Cash and FX); the fees are fund expenses, or the manager’s when it charges the funds a fixed administration fee.
Know your client and the accounts: the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations, supervised by FINTRAC, require the custodian to confirm the existence of each fund as an entity, to obtain the beneficial ownership information (for a widely held trust, the trustees and any person owning or controlling 25% or more of the units), to record the purpose and the intended nature of the relationship, to assess and monitor the risk and to keep the records five years; the sanctions lists under the Special Economic Measures Act and the Criminal Code are screened at the opening and on every change; the account structure follows the legal entities, one account per fund and market, held at home as sub-accounts of the custodian’s participant account in CDSX, with the securities registered on the issuers’ registers in the name of CDS & Co., and abroad in the custodian’s omnibus client accounts at the sub-custodians, except in the beneficial owner markets where the depository or the regulator requires an account in the fund’s own name.
The conversion: the assets move in waves by fund family over several months, each on a weekend or a month-end, under a transition agreement between the two custodians: the trades pending on the conversion date settle at the previous custodian, the open corporate actions and the tax reclaims stay with it until paid (some reclaims take years), the securities on loan are recalled or moved to the new lending agent before the date, and the dealers are told of the new SSIs; the Canadian positions move by free delivery in CDSX between the two participants, the US positions between the two US sub-custodians at DTC, the foreign ones by free delivery or book transfer in each market, and the units of other funds held by the funds of funds by re-registration through Fundserv; the first NAV on the new books is struck once the positions reconcile three ways, and most of the first weeks’ fails come from stale instructions at the dealers.

Custody and Settlement›SettlementInstrument card: Government Bond

Domestic Settlement: From the Manager’s Trade to Settled on T+1 Through CTM, CDSX and Lynx, With the Fails and the Custody Credit

Domestic settlement is the custodian’s work between a manager’s trade and the settled position in the fund’s account. The dealer’s confirmation and the manager’s allocations matched in DTCC’s CTM by 3:59 a.m. ET on T+1 under NI 24-101, the MT541 and MT543 instructions, the trade confirmed in CDSX, the delivery versus payment in CDSX within the funds cap and the collateral, the end-of-day payment exchange through Lynx at the Bank of Canada, the Government of Canada bonds settled in the same system, the posting on contractual or actual settlement, the fails, and the overdraft when a fund’s cash is short.

Worked example, illustrative:trade three funds buy 1,000,000 shares of a Canadian bank at CAD 85.00 (CAD 85,020,000 with the commission) and CAD 200,000,000 of the 10-year Government of Canada bond (illustrative)matching CTM for the confirmations and the allocations; the SSIs from ALERT; matched by 3:59 a.m. ET on T+1 under NI 24-101instructions MT541 and MT543 by SWIFT; the trade confirmed by the custodian in CDSX; statused by MT548, confirmed by MT545 and MT547settlement T+1 since May 27, 2024: DVP in CDSX within the funds cap and the collateral; the funds through Lynx at about 16:00 ETvolumes 40,000 Canadian settlements a day at the custodian; about 2% of the value failing on the settlement date (illustrative)credit contractual settlement at home; the overnight overdraft at prime; borrowing capped at 5% of net assets by NI 81-102

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Under T+1 the custodian has one night between the matching and the settlement, and its own account in CDSX and its settlement balance at the Bank of Canada carry the funds’ trades through the day. The fails and the overdrafts are where the custodian’s balance sheet meets its clients’ trades.

T+1 and institutional trade matching: the CSA moved the Canadian settlement cycle from T+2 to T+1 on May 27, 2024, one day ahead of the US, since the interlisted shares and the US securities of the Canadian investors move through the links between CDS and DTC; the amendments to NI 24-101 moved the deadline for the dealers and the advisers to match their delivery against payment and receipt against payment trades from noon on T+1 to 3:59 a.m. ET on T+1, and repealed the exception reporting on Form 24-101F1, under a moratorium since July 2020; the custodian is a party to the matching as the adviser’s settlement agent, and the matching service utilities such as DTCC’s CTM file their reports with the CSA under the instrument.
CDS and the custodian’s account: the custodian is a CDS participant and, as a bank, its own extender of credit; its clients’ positions are sub-accounts of its participant account, kept in its books, and the securities are registered in the name of CDS & Co. on the issuers’ registers; the institutional trades settle trade for trade between the dealer’s and the custodian’s accounts, while the dealers’ street trades net in CDS CNS; CDSX settles each delivery by book entry against the participants’ funds accounts within the funds cap and the aggregate collateral value, and the day’s net is paid in central bank money through Lynx at the payment exchange; CDSX has been designated systemically important by the Bank of Canada since its launch in 2003 and was replatformed in April 2025.
Contractual and actual settlement: on contractual settlement the custodian credits the sale proceeds and debits the purchase cost on the settlement date whatever the dealer does, so the manager’s cash forecast holds; it is a credit facility the custodian offers in Canada, the US and the developed markets and can withdraw from a client or a market, with the right to reverse a trade still failing after a set number of days; on actual settlement nothing is posted until the depository settles, the norm in the emerging markets; the fund accountant books the trade in the first NAV after the trade date under NI 81-106 either way, and the custodian’s posting decides when the cash is available.
Fails and the custody credit: a fail on a fund’s purchase leaves the cash with the fund and the claim against the dealer, and a fail on a sale (a loaned share recalled late, a corporate action in progress) leaves the fund short of cash (see Agency Lending); on the dealer side the fails are carried in CNS and charged in the dealer’s capital, CDS’s buy-in process serves the receiving participants, and the extended failed trades are reported to CIRO ten trading days after the settlement date with the pre-borrow requirement on the security; Canada has no locate rule and no cash penalties on fails; the overdraft that covers a fund is a borrowing under NI 81-102, allowed to a conventional mutual fund only as a temporary measure for the settlement or the redemptions and up to 5% of its net assets, with a security interest consistent with industry practice, while an alternative mutual fund may borrow up to 50% of its net asset value from a lender that qualifies as a custodian.

Custody and Settlement›Settlement AbroadInstrument card: Sovereign and SSA Bond

Settlement Abroad: a Purchase in New York and One in Frankfurt Through the Sub-Custodians, With the FX From CAD, the Fails and the CSDR Penalties

Settlement abroad is the custodian’s settlement of its clients’ foreign trades through its US sub-custodian and its network of agent banks. A global equity fund’s purchases in New York and Frankfurt on the same day: the manager’s MT541 relayed to each sub-custodian in the market’s format, the US dollars and the euros bought against Canadian dollars and settled in CLS, the pre-matching on T2S, the delivery versus payment at DTC on T+1 and on T2S on T+2 into the custodian’s omnibus accounts, the confirmations, a partial delivery and a fail in Frankfurt with the CSDR cash penalties passed through to the fund, an interlisted share moved from DTC to CDS, and the reporting back.

Worked example, illustrative:trades a global equity fund buys 300,000 shares at USD 150.00 in New York (USD 45,000,000) and 400,000 shares at EUR 100.00 in Frankfurt (EUR 40,000,000), illustrativenetwork the US sub-custodian and the Frankfurt agent bank, two of the 100 markets; each MT541 relayed in the market’s formatNew York T+1 at DTC, affirmed by 21:00 ET on T; DVP into the sub-custodian’s omnibus account for the custodian’s clientsFrankfurt T+2 at Clearstream Banking Frankfurt on T2S, DVP in central bank money; T+1 from October 11, 2027FX USD 15,000,000 bought at 1.3800 (CAD 20,700,000) and EUR 40,000,000 at 1.6000 (CAD 64,000,000), both in CLSfails EUR 16,000,000 failing three days; EUR 4,800 of CSDR penalties credited to the fund, paid monthly

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Outside Canada the custodian settles through a sub-custodian’s account at a foreign depository, under the market’s rules, cut-offs and currency, with the United States the largest foreign market of the Canadian funds. Two purchases on the same day meet two settlement cycles, two currencies bought from Canadian dollars and, in Europe, the CSDR penalties.

The network and NI 81-102: the custodian holds a fund’s assets outside Canada through sub-custodians that qualify under section 6.3 of NI 81-102 (regulated banks or trust companies in their country with shareholders’ equity of at least the equivalent of CAD 100,000,000, or qualifying affiliates), chosen and monitored by its network management team (see Network), and through the two international CSDs (Euroclear Bank and Clearstream Banking Luxembourg) for the Eurobonds; the US is the largest foreign market of the Canadian funds and is reached through a US custody bank or the custodian’s own US affiliate as sub-custodian; the sub-custodian is a direct participant of the local CSD and holds the custodian’s client assets in an omnibus account segregated from its own; the custodian’s value is the single interface (one format, one cut-off logic, one statement for 100 markets, all reported in CAD) and the liability it accepts for the sub-custodians it appoints.
The US leg and the links: the US moved to T+1 on May 28, 2024, the day after Canada, with Rule 15c6-2 asking the brokers to complete the allocations, confirmations and affirmations by the end of the trade date (DTCC’s cut-off 21:00 ET), so a Canadian manager trading US shares through a US broker matches in CTM the same evening; the trade settles at DTC in the US sub-custodian’s participant account, and the dollars come from the fund’s USD account or an FX trade the same day; the interlisted shares of the Canadian issuers can move between DTC and CDS through CDS’s accounts at DTC and its links, so a custodian can keep the funds’ Canadian shares at home whatever the market where they were bought.
T2S and the EU: since the migration waves of 2015 to 2017 the euro area CSDs settle on T2S in central bank money: the instructions match on the platform, the night-time cycle settles most of the value before the business day, and the participants’ cash sits in their dedicated cash accounts in T2 with auto-collateralization at the central bank; the CSDR settlement discipline brought the cash penalties on February 1, 2022 (daily, on every failing instruction, collected and redistributed monthly by the CSDs), the mandatory buy-in was postponed and then removed as a default by the 2024 review, and the EU, the UK and Switzerland move to T+1 on October 11, 2027, which the Canadian managers’ instructions and FX will have to meet a day earlier.
The FX and the penalties as services: the FX that funds a foreign purchase is dealt by the custodian on standing instruction or by the manager with any bank (see Cash and FX), and settles in CLS for the 18 currencies it covers, the Canadian dollar among them since 2002, or onshore for the restricted currencies, where the cash may have to be in place on the trade date (the pre-funded markets such as India and Taiwan, illustrative); the CSDR penalties are computed by the CSD on its participants, so the sub-custodian and the custodian pass them down the chain with the detail per instruction, and the manager uses the report to take up the costs with the brokers that fail; the fees abroad are the sub-custodian’s cost plus the custodian’s margin, from 0.4bp of the assets in the US and 1bp to 3bp in the developed markets to 25bp or more in the frontier ones, and CAD 10 to CAD 75 a trade (illustrative).

Custody and Settlement›Cash and FXInstrument card: FX Spot

Cash and FX: the Custody Accounts in CAD, USD and 28 Other Currencies, the Overdrafts, the Standing Instruction and the Negotiated FX, CLS Through Lynx and the Sweep

Custody cash and FX is the custodian’s banking service around the securities: the accounts that hold the funds’ cash in every currency, the Canadian and the US dollar first, and the foreign exchange that moves it between them. The cash accounts in 30 currencies and the daily projection, the custodian’s own intraday liquidity at the Bank of Canada through Lynx and the Standing Liquidity Facility, the intraday credit and the overnight overdraft within the borrowing limits of NI 81-102, the standing instruction FX executed in windows at a published spread, the negotiated FX dealt in competition with other banks, the settlement in CLS with the Canadian dollar paid in through Lynx in the night, the restricted currencies onshore, the nightly sweep, and the transparency reports and the FX Global Code.

Worked example, illustrative:accounts 1,000 cash accounts in 30 currencies for the fund complex; CAD 4,000,000,000 of balances, a third in USD (illustrative)credit intraday credit within limits per fund; the overnight overdraft at prime; borrowing capped at 5% of net assets by NI 81-102SI FX three windows a day at a published spread over the market rate; 3bp to 10bp in USD/CAD and the majors; 400 trades a monthnegotiated FX the managers’ trades in competition on FXall; the third-party trades by MT304; CLS for CAD and USD, with the same-day sessionsweep CAD 2,500,000,000 a night to a money market fund or a deposit, after the CDS payment exchangeliquidity Lynx from 00:30 ET for the CLS pay-ins; the Standing Liquidity Facility; the deposit rate at 2.20%

The cash is the part of custody that sits on the custodian’s balance sheet: a deposit, a credit line, an FX trade, with the US dollar beside the Canadian one in every fund. CLS through Lynx in the night, the published FX pricing and the sweep frame the daily balance.

The cash is a deposit: the securities the custodian holds stay the funds’ property, segregated from the bank’s assets and recorded as the funds’ under NI 81-102, while the cash in the custody accounts is a deposit, an unsecured claim on the bank above the CDIC limit of CAD 100,000; the funds therefore keep the balances low and sweep the rest each night to a money market fund (a fund under NI 81-102 limited to high-quality short-term debt, whose unit value the managers keep at CAD 10.00 by distributing the income daily) or to a deposit the custodian prices at a spread to the benchmark; the interest credited on the balances follows the Bank of Canada’s rate with a lag and a spread the client negotiates, and the US dollar balances, large in Canadian funds, follow the US rates.
Standing instruction and negotiated FX: the standing instruction service converts the many small flows of a custody account (the US and foreign income, the reclaims, the small purchases) without a trader; the US litigation of 2009 to 2016 over the pricing of that service ended in the settlements of two large custody banks (USD 714,000,000 in March 2015 and USD 530,000,000 in July 2016), after which the custodians in North America published their methodologies, their spreads by currency group and their execution windows, and gave each client a trade-by-trade report against a time-stamped market rate; the managers who want price competition deal the larger trades and the USD hedges themselves on the multi-dealer platforms or at the WM/Reuters 16:00 London fix, and the custodian settles them as third-party FX; the Bank of Canada’s single daily exchange rate, published since March 2017, is an indicative average used for the valuations, the accounts and the contracts.
CLS and Lynx: CLS Bank has settled FX payment versus payment since 2002 in 18 currencies, the Canadian dollar among the first seven with the Canadian banks as settlement members and the Bank of Canada holding CLS’s account; each member pays in only its net short position per currency during the European morning, so Lynx opens at 00:30 ET for the Canadian pay-ins, as the LVTS did before it; the same-day session for the US and the Canadian dollars settles the trades done too late for the main session; USD/CAD, the largest part of the Canadian dollar’s turnover, settles almost entirely in CLS, and the Herstatt risk the FX Global Code asks the market to reduce sits in the restricted and emerging currencies that settle gross.
The economics and the balance sheet: the funds’ CAD deposits are placed at the Bank of Canada, which runs a floor system with the deposit rate 5 basis points below the policy rate since January 2025, and in Government of Canada securities within the liquidity buffer; the spread to the rate credited to the clients is the custodian’s net interest income (see Billing); the custody clients’ deposits count as operational under OSFI’s liquidity adequacy requirements (a 25% outflow assumption against 100% for the other wholesale deposits of financial clients, the treatment OSFI applied to the high interest savings account ETFs’ deposits from January 31, 2024); the FX revenue, the overdraft interest and the sweep complete the cash line, which rose with the rate increases of 2022 and 2023 and fell back with the cuts from June 2024 (illustrative).

Asset Servicing›Income

Income Collection: Dividends and Distributions Through CDS, the Contractual Credit, the US Income and the Reconciliation

Income collection is the custodian’s service of receiving the dividends, the distributions and the interest on its clients’ securities and crediting them to the right accounts on the right day: the announcement through CDS and the vendors, the projection sent to the clients with the MT564, the record date that fixes the entitlements (the same day as the ex-date under T+1), the contractual credit at the opening of the payable date net of the Part XIII tax on the non-residents, the transfer agent funding CDS and CDS’s entitlement payment settled through Lynx, the US income through the US sub-custodian net of the US tax, the reconciliation of the expected and the received, the reversals, the claims on the trades that failed over the record date, and the confirmations, the statements and the NR4, T5 and T3 slips.

Worked example, illustrative:client the custodian’s 1,200 clients, the global custodians it serves as Canadian sub-custodian among them; 900 accounts holding the worked dividend (illustrative)volume 1,500 income events a business day; CAD 75,000,000,000 of dividends, distributions and interest collected a year (illustrative)worked event a Canadian company’s quarterly eligible dividend of CAD 1.00 a share on 100,000,000 shares: CAD 100,000,000; a US dividend of USD 0.80 on 10,000,000 shares (illustrative)dates the ex-date and the record date the same day under T+1 since May 27, 2024; the payable date two to four weeks later; CDS pays on the payable datecredit contractual income at the opening of the payable date in Canada, the US and 30 other markets, on receipt in the rest; reversal after 15 business days (illustrative)reporting MT564 notices and pre-advices; MT566 confirmations; the monthly income statement; the NR4, T5 and T3 slips

The custodian credits the dividend on the payable date as if CDS had already paid, and spends the following days making sure it did. The service is a projection before the record date and a reconciliation after the payable date, with the Part XIII tax taken off the non-residents’ share on the way.

The dates: the issuer’s board declares the dividend and sets the record date (the holders on the books at its close are paid) and the payable date, and the exchange sets the ex-date, from which the shares trade without the dividend; since the Canadian market moved to T+1 on May 27, 2024, the day before the US, the ex-date of a regular dividend is the record date itself, because a trade on the day before settles on it; for a large stock dividend or a distribution the exchange treats as significant, the ex-date follows the payable date and the shares trade with due bills in between. A bond’s interest goes to the holder on the record date set by its trust indenture, and the buyer pays the seller the accrued interest in the price of each trade; the Bank of Canada, as the government’s fiscal agent, pays the Government of Canada bonds’ interest through CDS.
Contractual and actual income: a custodian credits income on the payable date in the markets where the payments are reliable and arrive the same day (the contractual income list, revised yearly; Canada, the US and 30 others in the worked example), and on receipt in the others; the contractual credit is an advance the custodian funds and can reverse, so the list is a credit decision as much as a service. The fund administrators accrue the dividend in the NAV on the ex-date whatever the custodian’s credit date, and the reconciliation between the two is a daily control on both sides. Canada adds its own income types: the eligible dividend designation that gives the Canadian individuals the enhanced dividend tax credit, the monthly distributions of the income trusts, the REITs and the ETFs whose tax character (income, capital gains, return of capital) is known only after the year end and posted by the issuers to CDS’s tax breakdown service, and the year-end distributions of the mutual funds, most of them reinvested in units.
Foreign income: for the Canadian funds and pension plans the US is the largest foreign market, held through the custodian’s US sub-custodian at DTC (or through CDS’s link to DTC for the interlisted shares), with the US tax applied by the documentation the custodian passes down the chain; the other markets pay through their sub-custodians in the local currency, on the local payable date, net of the local tax and often under a local event type the custodian maps to the ISO standards. The conversion of the income under a standing FX instruction was the subject of lawsuits against several US custodians over the rates applied, settled in 2015 and 2016, and the clients now see the rate and the time of each conversion or send their own FX orders.
Claims and the market: CDS adjusts the entitlements on the positions still open in its continuous net settlement, while the institutional trades settled trade for trade in CDSX leave the claim to the parties: the buyer’s custodian claims the dividend paid to the seller’s dealer, and the dealer pays it by a payment in CDSX or by Lynx. The move to T+1 and the matching deadline of NI 24-101 at the end of the trade date reduced the fails, so the claims desk ages fewer items, but each claim remains a receivable the custodian follows until it is paid, and the trade-for-trade bond and money market settlements carry the same risk on their interest.

Asset Servicing›Tax

Withholding Tax: Part XIII and the NR301 Declarations, the NR4, the US Pools for the Canadian Funds and the Reclaims Abroad

Tax services are the custodian’s work to make each client pay the right rate of withholding tax on its income, in Canada and abroad: the NR301, NR302 and NR303 declarations of the non-resident owners and the tax profile of each Canadian fund and pension plan, the global custodians’ agent and nominee certifications by rate, Part XIII withheld at the payment and remitted to the CRA by the 15th of the next month, the US withholding on the Canadian funds’ US assets through the custodian’s QI pools, the German dividend at the statutory rate and the reclaim, the NR7-R refund of the Canadian tax overwithheld, the NR4 slips and return by March 31, and the FATCA and CRS reports under Parts XVIII and XIX by May 1.

Worked example, illustrative:documentation 8,000 NR301, NR302 and NR303 declarations and agent certifications on file; the W-8BEN-E of the Canadian funds and plans (illustrative)Part XIII 25% by statute on dividends to non-residents, 15% for US treaty residents, 0% for US pension trusts; remitted by the 15th of the next monthworked dividend CAD 20,000,000 paid on the non-residents’ shares: CAD 2,300,000 withheld; a CAD 100,000 refund by NR7-R (illustrative)abroad the US at 15% or exempt through the QI pools; Germany at 26.375%, with EUR 682,500 reclaimed from the BZSt (illustrative)reporting the NR4 slips and return by March 31; the T5 and T3 for the taxable Canadian accounts; Parts XVIII and XIX by May 1fees relief at source and standard reclaims within the custody fee; CAD 100 a complex reclaim; contingency fees on the EU-law claims (illustrative)

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The custodian applies Canada’s withholding tax to the non-residents it pays and claims the treaty rate abroad for the Canadian funds it holds for. On both sides the rate is the one the documentation proves before the record date, and the rest is a refund that takes months or years.

Part XIII: the Income Tax Act taxes the dividends, the trust distributions, the rents, the royalties, the management fees and the non-arm’s-length and participating interest paid to non-residents at 25%, reduced by the treaties (15% on portfolio dividends for most treaty partners, 5% for a US company holding 10% of the votes, an exemption for the pension plans under Article XXI of the Canada-US treaty), with the arm’s-length interest exempt since January 1, 2008; Part XIII.2 adds a 15% tax on some distributions of the Canadian mutual funds to non-residents. The payer and every agent or nominee in the chain that pays or credits the amount is liable to withhold and remit, so the last Canadian intermediary with the information applies the rate, on the strength of the NR301, NR302 and NR303 declarations or the agent and nominee certifications of Information Circular IC76-12 that the global custodians give their Canadian sub-custodians; the overwithheld tax comes back on Form NR7-R within two years.
The US side for the Canadian clients: the Canadian funds and pension plans are among the largest foreign holders of US securities, and the Canada-US treaty sets their rate: 15% on the portfolio dividends of a mutual fund trust or a corporation, an exemption for the trusts and arrangements operated exclusively to provide pension or retirement benefits under Article XXI. A Canadian custodian documents them on the W-8BEN-E and passes their rates to the US payers through its QI withholding statement or its US sub-custodian, so the US tax is right at the payment and the funds flow it to their unitholders as a foreign tax credit. The Canada-US intergovernmental agreement of 2014 brought FATCA into Canadian law as Part XVIII, with the reports going to the CRA, and the CRS followed as Part XIX from July 1, 2017.
Abroad: each market sets its own rate, relief and deadline: relief at source where the paying agent can see the beneficial owner’s residence (the forms collected through the chain before the record date), a refund where it cannot (Germany at 26.375% and Switzerland at 35% are the main reclaim markets for the Canadian funds), and exemption for some owners under some treaties. The refunds take from a few months to several years and the time limits run from two to five years (illustrative), so the custodian’s reclaim inventory is a book of receivables by market and by age that the clients’ auditors test. The dividend-stripping cases in Germany and Denmark (cum-ex, cum-cum) made the authorities stricter on beneficial ownership and slower to pay.
The EU-law claims and FASTER: beside the treaty claims, Canadian pension plans and funds have filed claims for the tax an EU member state charged foreign funds above its own funds, under the free movement of capital, which reaches third countries (the Santander judgment of 2012 and the DFA judgment of 2014 of the EU Court of Justice); counsel files them on contingency fees, they take years, and a fund recognizes them in its NAV when the refund is reasonably certain. The EU’s FASTER directive, adopted on December 10, 2024 and applying from January 1, 2030, brings a digital tax residence certificate, a register of certified financial intermediaries that report the payment chain, and relief at source or a quick refund, which will reach the Canadian funds’ European holdings through the custodian’s sub-custodians.

Asset Servicing›Corporate ActionsInstrument card: High Yield Bond

Corporate Actions: a Plan of Arrangement and an Issuer Bid Through CDS, From the Golden Record to the Election, the Dissent and the Entitlements

Corporate actions processing is the custodian’s service of telling its clients about every event on the securities they hold, taking their decisions and carrying out the result: a plan of arrangement under the corporate statutes paid in cash and shares and a substantial issuer bid under NI 62-104, announced by CDS, the data vendors and, for the events abroad, the sub-custodians; the golden record the custodian scrubs from those sources, the MT564 notification, the client’s election by MT565 before the custodian’s deadline, which comes earlier than CDS’s, the tender instructed to CDS or to the sub-custodian, the dissent right that only a registered holder can exercise, the payout and the entitlements confirmed by MT566 with the deemed dividend of the issuer bid, and the missed election and who pays for it.

Worked example, illustrative:volume 60,000 events a year across 100 markets, about 20% voluntary or with options; 600,000 notifications to the clients (illustrative)mandatory event a plan of arrangement paying CAD 30.00 and 0.5 acquirer share for each share; 40,000,000 shares in 500 accounts, 300,000 of them dissenting (illustrative)voluntary event a substantial issuer bid at CAD 52.00 for up to 30% of the shares; 25,000,000 shares in 300 accounts; 18,000,000 tendered, 80% taken up (illustrative)deadlines the custodian’s deadline two business days before CDS’s for the Canadian events, three to five before the market’s abroad (illustrative)sources CDS’s event notices, two vendors’ feeds, the sub-custodians’ MT564 and DTC’s announcements for the US; one golden record per eventliability the custodian pays for its own missed instruction; a late client election is taken on best efforts at the client’s risk

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Every event reaches the custodian from several sources and leaves it as one notice to each entitled account, with a deadline set ahead of CDS’s. The mandatory events are processed for the clients, the voluntary ones wait for their answers, and an answer lost on the way is the custodian’s to pay for.

Mandatory and voluntary: a mandatory event happens to every holder (a cash or stock dividend, a split or a consolidation, an arrangement or an amalgamation, a redemption, a change of name), a mandatory event with options gives a choice and a default (a dividend reinvestment plan, an arrangement with a cash or share election and proration), and a voluntary event happens only to the holders who act (a take-over bid or an issuer bid, a rights offering, a conversion of a convertible debenture); the ISO event codes and the market practice classify each event, and the classification decides whether the custodian must take an answer from its clients or only inform them. CDS announces the Canadian events, collects the elections through its participants and pays out the results, and the large custodians run the scrubbing in two or three centers to cover the time zones of their clients’ holdings.
The plan of arrangement: most Canadian acquisitions close as a court-approved arrangement under section 192 of the Canada Business Corporations Act or its provincial counterparts: the court’s interim order sets the meeting, the vote (two thirds of the votes cast, with the majority of the minority of MI 61-101 where a related party benefits) and the dissent rights; the final order follows a fairness hearing; the shares are exchanged through the depositary against the letter of transmittal for the registered holders and through CDS for the rest. The route allows a single step, flexible tax structuring and a two-thirds threshold, and its dissent right, a payment of fair value fixed by the court, belongs to the registered holder, so a beneficial owner behind CDS & Co. must have its shares registered in time.
The bids under NI 62-104: since May 9, 2016 a take-over bid must stay open at least 105 days (the target’s board can shorten it to 35), meet a minimum tender condition of more than 50% of the shares not held by the bidder, and be extended by 10 days once that condition is met; an issuer bid stays open at least 35 days, and a substantial issuer bid is often a modified Dutch auction with proration. For tax, the price an issuer pays above the paid-up capital of the shares it buys back is a deemed dividend, reported to the Canadian holders and subject to Part XIII for the non-residents, so the custodian must know each account’s residence before it allocates the proceeds.
Deadlines and liability: the custodian sets its own deadline ahead of CDS’s or the sub-custodian’s so it can aggregate the answers and instruct in time, typically one to two business days ahead in Canada and three to five abroad (illustrative); the custody agreement makes the custodian liable for its negligence (a notice not sent, an election not passed on), the client for its own lateness, and lets the default apply to the silent. For the interlisted companies the same event runs in both depositories, the US holders through DTC and the Canadian through CDS, with the depositary’s US co-agent; missed and wrong elections are a recurring source of operational losses in custody, so each voluntary instruction is checked by a second person, reconciled to CDS’s confirmation and watched on a deadline dashboard.

Asset Servicing›Proxy Voting

Proxy Voting: NI 54-101, the NOBOs and OBOs, the Voting Instructions Through Broadridge, the Foreign Meetings and the Voting Record

Proxy voting support is the custodian’s service of carrying the votes attached to its clients’ shares from the company’s meeting notice to the managers and back, as an intermediary under NI 54-101: the voting authority and the NOBO or OBO choice recorded on each account, the notification of the meeting and record dates, CDS’s omnibus proxy and the custodian’s positions sent to Broadridge, the voting instruction forms on the managers’ platforms with the proxy adviser’s research, the instructions cast before the cut-off and turned into proxies for the transfer agent as scrutineer, the vote reconciliation, the US and foreign meetings through the sub-custodians, the vote confirmation and the funds’ proxy voting record under NI 81-106.

Worked example, illustrative:volume 12,000 shareholder meetings a year across the clients’ holdings, 70% of them outside Canada, the US first (illustrative)worked meeting a Canadian company’s annual meeting with 10 resolutions; 150,000,000 shares in 1,000 accounts voted by 120 managers (illustrative)chain CDS’s omnibus proxy; the custodian’s record-date positions to Broadridge; the voting instruction forms on the platforms; the proxies to the transfer agentowners the NOBO or OBO choice under NI 54-101; the institutional clients object; notice-and-access for the circularsabroad the US meetings through Broadridge’s US service; the sub-custodians elsewhere; cut-offs five to ten days before; powers of attorney; share blocking in a few marketsreporting the vote confirmation; the funds’ proxy voting record by August 31 under NI 81-106; the shares on loan not voted

The managers decide the votes and the custodian supplies what makes them count: the position on the record date, the OBO status and the authority behind each instruction. Every link of the chain, from CDS & Co. to the account, must match the one before, and the shares lent or blocked are the votes that are lost.

The chain of authority: the registers of the Canadian public companies show CDS & Co. as the holder of most of their listed shares; CDS’s omnibus proxy passes the votes to its participants as of the record date, and the dealers and the custodians, as intermediaries under NI 54-101, pass them to their clients and the clients to their managers. The instrument splits the beneficial owners into the non-objecting (NOBOs), whose names the issuers may obtain and to whom they may send the materials directly, and the objecting (OBOs), reached only through the intermediaries; the issuers pay for the intermediaries’ delivery and decide whether to pay for the delivery to the OBOs; notice-and-access, available since 2013, lets them post the circular and mail a notice. Broadridge acts for nearly all the intermediaries.
The institutional vote: the investment funds must have proxy voting policies and keep a voting record under NI 81-106, the pension plans vote under their own principles and publish their votes, and most managers use a proxy adviser, whose conduct the CSA addressed in National Policy 25-201 (2015). Majority voting for the directors has been a TSX listing requirement since 2014 and a rule of the Canada Business Corporations Act for its distributing corporations since August 31, 2022, so each director is elected individually and a director without a majority is not; the advisory say-on-pay vote is held by most large issuers, and the contested items are where the stewardship teams engage.
The vote reconciliation: the reviews of the proxy voting infrastructure in the 2010s found over-votes, under-votes and votes the beneficial owners could not confirm, because the transfer agent did not see the intermediaries’ entitlements before the meeting; the CSA’s meeting vote reconciliation protocols of 2017 set the roles of the transfer agents, Broadridge and the intermediaries (the vote entitlement communicated before the meeting, the instructions checked against it, the confirmation on request), and the position the custodian reconciles to CDS on the record date is the base of every count.
The foreign meetings and the lending link: the Canadian funds’ largest foreign set is the US, where the SEC’s proxy rules and Broadridge’s US service run the chain and the funds vote on the same platforms; elsewhere the chain is longer (the custodian, the sub-custodian, the local CSD or the registrar), the cut-offs are earlier and the rules differ, with SRD II in the EU, powers of attorney and the few markets that still block the shares. The shares lent over the record date are votes the fund cannot cast, so the managers’ recall policies, the lending agent’s holds before the record dates and the unvoted shares in the funds’ records are part of the same service.

Securities Lending and Collateral›Agency Lending

Agency Securities Lending: the Custodian Lends Its Clients’ Securities Against Government of Canada Bonds, Marks Them and Shares the Fee

Agency securities lending is the custodian lending the securities it holds for its clients, as their agent, to the dealers that need them, against collateral and for a share of the revenue. The lender signs the authorization agreement and sets its guidelines, within NI 81-102 for a public mutual fund; the agent negotiates each loan with the dealers’ securities finance desks on EquiLend or by phone, allocates it across the lenders that hold the stock, delivers the shares in CDSX against Government of Canada bonds at 102% or other collateral, marks every loan daily, passes the borrower’s compensation payments to the lender under the securities lending arrangement rules of section 260 of the Income Tax Act, recalls for a sale or a vote, stands behind the borrower’s default with its indemnity, and splits the revenue 80/20 (illustrative).

Worked example, illustrative:program CAD 600,000,000,000 of lendable assets from 250 lenders; CAD 60,000,000,000 on loan (illustrative)borrowers 25 approved borrowers: the bank-owned investment dealers and the foreign brokers, under a master securities lending agreementcollateral mostly non-cash: Government of Canada and provincial bonds at 102%, equities at 105% to 110%, another currency at 105%; cash for some US loans (illustrative)example 1,000,000 shares lent at CAD 60.00 against CAD 61,200,000 of bonds; a CAD 2,040,000 mark; a CAD 750,000 compensation payment (illustrative)economics CAD 120,000,000 a year gross, 0.20% on loan; the fee split 80/20; the borrower default indemnity (illustrative)rules NI 81-102 (the custodian as agent, 102% collateral, 50% of net assets); CIRO for the borrowers; section 260 of the Income Tax Act; OSFI over the bank

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The lending agent puts the securities its clients hold for the long term to work with the dealers that need them, against Government of Canada bonds marked every day, and earns a share of the revenue. The tax rules keep the loan neutral for the lender, and the agent’s indemnity covers the borrower’s failure.

The legal chain: the lender and the agent sign the securities lending authorization agreement, which carries the lender’s guidelines and the indemnity; the agent and each borrower sign a master securities lending agreement, the agent acting for disclosed principals. A public mutual fund lends under sections 2.12 to 2.17 of NI 81-102: a written agreement, collateral of at least 102% of the value in cash, qualified securities or letters of credit marked to market daily, loans and repos within 50% of its net asset value, the fund’s custodian or a sub-custodian as its agent with a standard of care and the records the instrument lists, and the disclosure in its prospectus and its financial statements; some fund families hold exemptive relief to lend through another agent or beyond the limit. A pension plan lends within its statement of investment policies and procedures under the pension standards legislation, and the borrowers are investment dealers under CIRO’s rules.
The tax: section 260 of the Income Tax Act treats a qualifying securities lending arrangement (a qualified security lent, an identical security to be returned, the borrower bound to pay the lender amounts equal to the dividends and the interest, the lender’s risk of loss and chance of gain not changed in a material way, and at most 270 days where the parties do not deal at arm’s length) as no disposition, so the lender keeps its cost and defers no gain; the compensation payment for a dividend on a public company’s share is a taxable dividend for a Canadian lender (eligible if the dividend was), and for a non-resident lender it is deemed a dividend for Part XIII, while a lending fee paid to a non-resident is deemed interest. The dividend rental arrangement rules deny the dividend deduction where a loan is built around a dividend, a limit on the loans made for the dividend alone.
The market: the borrowers are the bank-owned dealers covering their clients’ shorts (Canada has no pre-borrow or locate rule for short sales, only the reasonable expectation to settle and the reports of failed trades under UMIR), the dealers covering their fails and their market making, the ETF and the interlisted arbitrage desks, and the foreign brokers; non-cash collateral dominates, Government of Canada and provincial bonds first, and CCMS, the domestic triparty service TMX and Clearstream launched in 2024, gives the Canadian collateral a triparty home beside the bilateral deliveries in CDSX. The large pension plans lend directly as well as through agents, the custody banks and a few specialist agents compete for the programs, and the lenders benchmark their utilization and their returns against their peers with the data vendors.
Transparency and stewardship: Canada has no loan-by-loan public reporting of securities loans; the marketplaces publish the short positions twice a month, the EU and UK borrowers report the loans they take from Canadian lenders under SFTR, and the US agent lenders will report the Canadian lenders’ US loans to FINRA’s SLATE under Rule 10c-1a from September 28, 2028. The funds disclose their lending revenue and the agent’s share in their financial statements, and the stewardship policies of the pension plans and the managers have made the recall for votes a standing question, so many lenders restrict their lending around the meetings of their largest holdings and the agent’s systems hold or recall the shares before the record dates.

Securities Lending and Collateral›Tri-PartyInstrument card: Repo

Tri-Party Repo in Canada: the Custodian Takes Its Clients to CCMS Inside CDS, Beside CDCC’s Clearing of the Dealers’ Repo

Tri-party collateral management in Canada runs on CCMS, the triparty service TMX and Clearstream launched in 2024 inside CDS’s books, and the custodian is its cash investors’ CDS participant and agent there: it codes each investor’s collateral schedule, checks and instructs the trades, moves the cash through CDS and Lynx, checks the collateral allocated against the fund’s rules and reports it, while the credit risk of the trade stays with the two sides. The schedules are agreed once; each morning the trades are agreed and matched, the dealers substitute collateral through the day and the CCMS engine allocates their inventory; the dealers’ Government of Canada repo clears at CDCC, the Repo 2.0 program brings cleared general collateral repo and, later, sponsored access for the buy side, and the dealers’ trade reports feed CORRA.

Worked example, illustrative:book CAD 30,000,000,000 of the clients’ triparty and bilateral repo a day through the custodian (illustrative)example a money market fund lends CAD 2,000,000,000 overnight to a dealer at 2.24% against CAD 2,040,000,000 of Government of Canada bonds (illustrative)schedules per investor and dealer: Government of Canada and Canada Mortgage Bonds at 102%, the provinces at 103%; concentration limits (illustrative)platform CCMS, the domestic triparty service of TMX and Clearstream since 2024, inside CDS’s books; the cash through Lynxclearing the dealers’ Government of Canada repo at CDCC since 2012; Repo 2.0: cleared GC in 2026 and 2027, sponsored access in 2028 and 2029 (planned)reporting the allocations daily; the dealers’ trades to CIRO through MTRS 2.0; CORRA from the overnight repo; a fee per trade and on the collateral (illustrative)

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In Canada the triparty engine runs inside the depository, where the dealers’ bonds already sit, and the custodian is how its clients reach it: the schedule, the instructions, the cash and the checks. CDCC clears the dealers’ repo, and the Repo 2.0 program would bring the buy side into the clearing house on the same platform.

The Canadian repo market: the dealers, most of them owned by the large banks and the primary dealers of the Government of Canada auctions, finance their bond and bill inventory in repo; the cash comes from the money market funds, the insurers, the corporates, the provincial treasuries and the pension plans with cash to place, while the largest pension plans are on the other side, financing their own bond holdings. Until CCMS the repo settled bilaterally, trade for trade and delivery against payment in CDSX, with the international collateral at the foreign triparty agents; CORRA, the overnight benchmark that replaced CDOR, is computed by the Bank of Canada from the overnight general collateral repo the dealers report to CIRO.
CCMS: launched by TMX and Clearstream in 2024 as Canada’s first domestic triparty service, it runs Clearstream’s collateral engine (the eligibility, the allocation, the optimization, the substitution, the valuation) on the securities held in CDS, so the collateral never leaves the depository and the cash settles with the day’s CDSX obligations; repo came first, with securities lending in Canadian collateral to follow. The cash investors reach it through their custodians as CDS participants, and the custodian’s value is in the schedule it codes, the compliance it checks and the reports it gives a fund’s managers and auditors.
CDCC and Repo 2.0: CDCC began clearing the Government of Canada repo and cash trades between its fixed income members in 2012 at the Bank of Canada’s urging after the 2008 crisis, netting the dealers’ obligations and guaranteeing them; the buy side is not yet in. The Repo 2.0 program adds the cleared general collateral repo through CCMS in 2026 and 2027 and the sponsored access in 2028 and 2029 (planned), modeled on FICC’s sponsored service; Canada has no mandate to clear repo, unlike the US Treasury clearing mandate (cash by December 31, 2026, repo by June 30, 2027), which reaches the US affiliates of the Canadian dealers.
The economics and the risks: the dealers pay CCMS for the collateral management and the custodian is paid by its clients for the access, the checks and the reporting (illustrative); a cash investor’s remaining risk is a dealer’s default, when it receives the bonds it may have to sell, so the schedules favor the Government of Canada bonds and bills, and NI 81-102 sets the collateral and the marks a public fund must have. The Bank of Canada oversees CDSX and CDCC as systemically important under the Payment Clearing and Settlement Act, and the strains of March 2020 in the bond and repo markets are part of the case it makes for wider central clearing.

Securities Lending and Collateral›Initial MarginInstrument card: Inflation Swap

Segregated Initial Margin Under OSFI’s E-22: the Third-Party Custodian for Uncleared Derivatives, From the Control Agreements to the Default

Third-party custody of initial margin is the custodian holding the collateral that a Canadian bank and its counterparty post to each other under OSFI’s Guideline E-22 for uncleared derivatives, in segregated accounts that neither side can use. The fund in scope and the bank sign the ISDA initial margin documents and one control agreement per direction, perfected under Ontario’s Securities Transfer Act, 2006; the eligible collateral and the guideline’s haircuts are coded at the custodian; each night both sides compute ISDA SIMM from their sensitivities and call each other through Acadia; the Government of Canada bonds are delivered free of payment in CDSX into the pledgor’s segregated account and reported daily to the secured party; the excess is released with the secured party’s consent, and in a default the notice of exclusive control turns the account over to the secured party while the defaulter’s counterparty recovers its own posted margin.

Worked example, illustrative:client a large asset manager’s fund in scope; CAD 25,000,000,000 of month-end average notional; 5 bank dealers (illustrative)rules OSFI’s E-22 for the banks; the final phase since September 1, 2022 above CAD 12,000,000,000; CAD 75,000,000 threshold; CAD 750,000 minimum transferdocuments the ISDA IM credit support documents; a control agreement per direction under Ontario’s Securities Transfer Act, 2006; the legal opinionsexample SIMM of CAD 300,000,000 less the threshold: CAD 225,000,000 each way; CAD 230,000,000 of Government of Canada bonds at a 2% haircut (illustrative)collateral cash, Government of Canada bonds at 0.5% to 4%, other eligible bonds at 1% to 8%, index equities at 15%; plus 8% for a currency mismatch; no reusefees a custody fee of 1bp to 3bp a year on the collateral held and a fee per account (illustrative)

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Initial margin is posted by both sides of an uncleared derivative and held where neither can use it, so the custodian’s service is the segregation and the control of who may instruct the account. Its work is daily (the eligibility, the haircuts, the reports to both sides) and its moment of truth is the default, when a notice turns the account over to the secured party.

The rules and the phases: OSFI’s Guideline E-22, issued in 2016 on the BCBS-IOSCO framework, applies to the federally regulated banks: daily variation margin with their covered counterparties, and two-way initial margin phased in by the month-end average notional of non-centrally cleared derivatives, from the largest groups in 2016 down to CAD 12,000,000,000 on September 1, 2022 after the one-year delay of 2020; the threshold of up to CAD 75,000,000 per pair of groups and the minimum transfer amount of up to CAD 750,000 follow the framework’s euro amounts. The sovereigns, the public sector entities, the multilateral development banks, the BIS and the central counterparties are outside it, the intra-group trades and the physically settled FX forwards and swaps carry no margin, and the investment funds managed by one adviser are measured one by one; E-22 binds the banks, so the fund’s relationships with the US and European dealers follow the US margin rules and EMIR.
The custodial models and the law: in the third-party model each pledgor keeps its posted IM in a segregated account at a custodian it chooses and selects the collateral itself; in the tri-party model the custodian also acts as collateral agent and selects the eligible collateral from the pledgor’s holdings. The control agreement sets who instructs before and after a notice, the custodian’s response time, its standard of care and its fees; for an account kept in Ontario, the Securities Transfer Act, 2006 gives a secured party with control priority over a security interest perfected by registration under the Personal Property Security Act, and the legal opinions on that point support the enforceability the guideline requires. The BCBS-IOSCO statement of March 2019 that the documents are needed only once a relationship nears the threshold spared many pairs of the last phases the work.
SIMM and the call: ISDA’s Standard Initial Margin Model (in use since 2016) is computed from the sensitivities of each trade in the CRIF format, with the risk weights and the correlations ISDA recalibrates regularly under the supervisors’ oversight; the alternative, the guideline’s grid of percentages of notional by asset class and maturity, is rarely used because it ignores the netting; the calls, the comparisons and the disputes run on Acadia, and a persistent difference between the two sides’ numbers is resolved trade by trade in the sensitivities.
The economics: for the fund the cost of posting IM is the funding of the collateral (the Government of Canada bonds and the cash taken out of the portfolio, or obtained through repo) and the cost of the documents and the operations, a reason to clear the swaps that can be cleared at LCH or CDCC; for the custodian the IM accounts are a fee business in basis points of the balances, built on the custody books, the CDS accounts and the collateral checks it already runs for lending and repo, with balances that rise in volatile markets when the SIMM numbers go up.

Fund Administration›Daily NAV

The Daily NAV per Unit of a Canadian Mutual Fund Trust: the Custody Books, the Prices, the Fees With the GST/HST, the Strike and the Error Policy

The custodian, as fund administrator, strikes the daily net asset value per unit of a Canadian mutual fund trust: the trades and the cash from its custody books, booked in the next NAV as NI 81-106 allows, the unit activity by series from its record keeping unit, the income accruals and the fees with the GST/HST, the prices from the vendors under the manager’s valuation policy, the checks and the fair values set by the manager’s committee, the NAV per unit struck after the 4:00 p.m. ET close and sent in the Fundserv price file by the evening deadline, the orders settled through Fundserv, the NAV error correction policy run under the standing instruction of the independent review committee of NI 81-107, and the financial statements, the management reports of fund performance, the audit and the T3 slips.

Worked example, illustrative:fund a balanced fund, a mutual fund trust of a large Canadian manager: CAD 8,000,000,000 of net assets in Series A, F and I, 900 holdings in 25 markets (illustrative)NAV CAD 15.00 a unit for Series F; struck after the 4:00 p.m. ET close, released at 6:00 p.m., in the Fundserv price file by 6:30 p.m. (illustrative)prices the TSX and US closes, the evaluated bids for the bonds, the fair value factors for the overseas equities; the manager’s valuation committee for the restaccruals the income daily; the management and administration fees with the GST/HST, about CAD 296,000 a day; the trades and the unit activity of the day before booked on Terrors 0.50% of NAV and CAD 10 an account as the thresholds; the fund made whole below, the accounts reprocessed above; the IRC’s standing instruction (illustrative)fee 1.0bp a year of net assets for the accounting and administration, CAD 800,000; the custody and the record keeping billed apart (illustrative)

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A Canadian mutual fund’s NAV per unit is a daily accounting close compressed into the early evening: the positions and the cash from the custody books, the unit activity from the record keeper, the prices from the vendors and the fair values from the manager, checked and struck by 6:00 p.m. ET. The Fundserv price file sets the deadline for the dealers, and the error policy, run under the independent review committee’s standing instruction, decides who pays when a price was wrong.

The valuation rules: NI 81-102 prices every purchase and redemption at the NAV per unit next calculated after the order is received, and the manager sets the valuation time, 4:00 p.m. ET for nearly every fund; NI 81-106 Part 14 governs the calculation (the assets at fair value, the portfolio trades and the issues and redemptions of units reflected no later than the next calculation, the minimum frequency) and the financial statements, which the investment funds have prepared under IFRS since 2014, with IFRS 13 fair value and its hierarchy; the NAV used for the transactions and the net assets of the statements can differ (a price inside the bid-ask spread, an accounting adjustment) and the difference is explained in the notes; the manager answers for the valuation as investment fund manager and trustee, delegates the calculation to the administrator and stays responsible for the outsourced work under NI 31-103, with its own valuation committee for the securities without a reliable price.
The evening and the infrastructure: the vendor files arrive from 4:15 p.m. ET and the administrator checks and strikes the NAVs of thousands of fund series in about two hours; the series structure multiplies the prices (Series A with the trailing commission, Series F for the fee-based accounts, Series I for the institutional clients, often an ETF series in the same trust), and the deferred sales charge options and the trailing commissions paid to the order-execution-only dealers ended on June 1, 2022; the NAV per unit goes into the Fundserv price file the dealers use to price the orders and value their clients’ accounts, and to the fund data vendors for the press and the advisors’ systems; nearly every mutual fund order in Canada passes through Fundserv (see Transfer Agency), and the manager’s deadline at Fundserv sets the pace of the evening.
The NAV error and the independent review committee: no securities rule sets the thresholds, and most policies follow the same practice: an error of a cent a unit or more is corrected; when it reaches the materiality threshold, usually 0.50% of NAV, the transactions processed at the wrong NAV are reprocessed and each account above a small amount paid the difference, and below it the fund alone is made whole for its net loss; the manager decides and pays when the error is its own or its administrator’s, so the policy is a conflict of interest matter it refers to the independent review committee that every public fund has had under NI 81-107 since 2007, which approves it as a standing instruction and reviews the error log; the agreements put the cost on the party responsible, the administrator for its own errors within its standard of care, the vendors with their liability capped.
The reports, the tax and the economics: the annual financial statements within 90 days and the interim ones within 60 days, the management reports of fund performance, the Fund Facts of each series and, from 2026, the fund expense ratios that feed the dealers’ total cost reports; a mutual fund trust distributes its net income and net realized gains each December (many elect a December 15 tax year-end) so it pays no income tax, uses the capital gains refund mechanism, and allocates gains to the redeeming unitholders only within the limits the Income Tax Act has set since 2019; the GST/HST on the management and administration fees is charged at a blended rate built from the provinces of the unitholders, a cost the US funds do not carry; the administrator’s fee is a basis point or two of the assets with a minimum per fund, usually bought with the custody and the record keeping of the same bank, and a few custody banks service most Canadian fund assets.

Fund Administration›Hedge Funds

Alternative Fund Administration: the Liquid Alt Under NI 81-102, the Offering Memorandum Fund, the Prime Brokers, the Performance Fee and the Shadow NAV

The custodian administers one long/short strategy that a Toronto manager runs in two wrappers: an alternative mutual fund under NI 81-102, sold to retail investors through the dealers and priced every business day through Fundserv, whose leverage, short selling and borrowing agent limits the administrator tests daily, and a pooled fund trust sold to accredited investors under NI 45-106 with an offering memorandum, priced monthly from sources independent of the manager; the subscriptions through the dealers, the primes’ statements reconciled, the series and the performance fee above each high-water mark with the GST/HST, the reconciliation with the manager’s shadow NAV, the redemptions under the gate, the year-end distributions and crystallization, the audit, the exempt distribution report and the tax reports.

Worked example, illustrative:funds one long/short strategy in two trusts: an alternative mutual fund under NI 81-102 (CAD 1,200,000,000) and an offering memorandum pooled fund (CAD 1,800,000,000) (illustrative)portfolio Canadian and US equities long and short, corporate bonds and CDS indices, futures; two prime brokers, six ISDA dealersNAV the alternative fund daily, in the Fundserv price file by 6:30 p.m. ET; the pooled fund monthly, final on business day 8; the shadow NAV within 5bpdealing the alternative fund daily through Fundserv; the pooled fund monthly for accredited investors on 30 days’ notice, a 10% gate, a 2% fee in the first yearfees 1.50% management fee and 20% performance fee above each series’ high-water mark, plus the GST/HST, crystallized on December 31 (illustrative)administration the custodian’s alternative fund unit, also custodian of the alternative fund; 3bp a year of net assets, CAD 900,000 (illustrative)

The same strategy is administered at two speeds: a daily NAV per unit for the alternative mutual fund, inside the NI 81-102 limits the administrator tests every day, and a monthly NAV for the offering memorandum fund, priced without the manager and split into series for the performance fee. The manager’s shadow NAV checks both, and the dealers and Fundserv carry the orders of both.

Two wrappers for one strategy: since January 3, 2019 NI 81-102 has allowed the alternative mutual funds, the liquid alts sold to retail investors under a simplified prospectus with daily liquidity: up to 20% of NAV in one issuer, the cash borrowing and the short sales up to 50% of NAV each and combined, an aggregate gross exposure (the borrowing, the short sales and the notional of the specified derivatives) up to 300% of NAV, the portfolio assets deposited with a borrowing agent other than the custodian up to 25% of NAV, a custodian under Part 6, an independent review committee under NI 81-107 and the Fund Facts; most managers that launched one kept their offering memorandum fund beside it for the accredited investors, with monthly dealing, wider limits and the performance fee per series; the Canadian hedge fund managers are concentrated in Toronto, and their funds reach the investors through the dealers and Fundserv.
The offering memorandum fund: a pooled fund trust distributed under the prospectus exemptions of NI 45-106, the accredited investor exemption above all, with an offering memorandum that carries the statutory rights of action where the province grants them; the manager is registered under NI 31-103 as investment fund manager, portfolio manager and exempt market dealer; an investment fund in continuous distribution may file its report of exempt distribution once a year, within 30 days of its year-end; the fund is not a reporting issuer, so NI 81-107 does not apply to it, and it delivers its audited statements to its unitholders under the filing exemption of NI 81-106; a manager with institutional or foreign investors may add a limited partnership (T5013 slips, see Private Markets) or a Cayman feeder.
The fee per investor: the management fee and the performance fee above a high-water mark, sometimes a hurdle, are charged on each investor’s own gains although the investors enter at different prices; the series method issues a new series to each month’s subscribers and consolidates the series above water at the year-end, and the alternative mutual fund computes its fee by series on its daily NAV; the GST/HST applies to both fees at the fund’s blended rate; the trusts distribute their income and gains each December, so the character of the gains reaches the unitholders on their T3 slips, and the fund that qualifies as a mutual fund trust can be held in the registered plans.
The independent administrator and the controls: the institutional investors’ operational due diligence requires an independent administrator, a recognized auditor and the assets at the custodian and the prime brokers, and the administrator’s NAV, register and limit tests are the evidence they rely on; the dealers and the manager in its exempt market dealer capacity are reporting entities under the PCMLTFA, and FINTRAC receives their reports; the FATCA and CRS reports go to the CRA under Parts XVIII and XIX of the Income Tax Act by May 1; the liquidity terms (the notice, the gate, the suspension) are applied as the documents write them, and the alternative mutual fund may suspend redemptions only in the cases NI 81-102 allows; the manager’s shadow NAV, kept in-house or by a second provider, is the monthly check on the administrator.

Fund Administration›Private Markets

Private Equity Fund Administration in Canada: the Limited Partnership, the Calls, the Pension Co-Investments, the Valuations, the Waterfall and the T5013

The custodian administers a Canadian buyout fund, an Ontario limited partnership, for its general partner: the commitments of 60 limited partners and their KYC, the deals funded first on a subscription line at Term CORRA and then by capital calls with the GST/HST on the management fee, the funding matched and the capital accounts kept, the co-investment vehicle through which two pension plans invest directly beside the fund, the companies valued each quarter at fair value under IFRS 13, the quarterly reports on the ILPA templates, the exits and the whole-of-fund waterfall, the distributions, the audit, the T5013 slips and the Part XIII withholding for the foreign LPs.

Worked example, illustrative:fund a mid-market buyout fund, an Ontario limited partnership: CAD 2,000,000,000 of commitments from 60 limited partners; a 10-year term, a 5-year investment period (illustrative)terms 2% management fee on commitments plus the GST/HST; 8% preferred return, 100% catch-up, 20% carried interest; a whole-of-fund waterfallportfolio 10 companies; the first bought with CAD 180,000,000 of the fund’s equity beside CAD 120,000,000 from two pension co-investors, sold in year 5 at 3.0x (illustrative)financing a CAD 300,000,000 subscription line at Term CORRA plus 175bp on the uncalled commitments; each draw repaid by a call within 180 days (illustrative)reporting quarterly within 60 days on the ILPA templates; the IFRS statements audited within 120 days; the T5013 slips by March 31administration the custodian’s private markets unit for the fund and the co-investment vehicle; 5bp a year of commitments, CAD 1,000,000 (illustrative)

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A Canadian private equity fund is administered as a ledger of obligations: the LPs’ commitments called and returned, the preferred return owed to them and the carry earned by the GP, with the pension plans’ co-investments run on the same ledger beside the fund. The waterfall sets the GP’s pay, and the quarterly marks under IFRS 13 are what the LPs see in between.

The fund and its ledger: a Canadian buyout fund is a closed-ended limited partnership under a provincial statute (Ontario’s, Alberta’s, Manitoba’s or Québec’s civil code), its LPs liable only for their capital as long as they take no part in the control of the business, its interests sold to accredited investors under NI 45-106; the administrator’s books hold for each LP the commitment, the capital contributed, the unfunded commitment, the distributions (the recallable ones apart) and the capital account; the later closers equalize with interest, a defaulting LP faces the remedies of the agreement, and a partnership with non-resident partners is not a Canadian partnership for tax purposes, so many sponsors run a parallel fund for the foreign investors on the same ledger; the private credit, real estate and infrastructure funds follow the same model with their own features (the income distributions, the fees on invested capital or on NAV, the evergreen funds’ monthly dealing).
The pension plans as LPs and as direct investors: the large Canadian public pension plans and their investment managers commit to the funds, then co-invest beside them and invest directly with their own deal teams; the co-investments, with no fee and no carry, lower their average cost of private equity, and the GPs grant co-investment rights in the side letters; each co-investment vehicle, the parallel funds and the plans’ holding companies are serviced on the administrator’s ledger; the 30% rule of the federal and provincial pension investment regulations, which limits a plan’s voting stake in a corporation, is why the plans hold their direct investments through investment holding companies (the federal government proposed in December 2024 to lift it for Canadian investments); the plans report under section 4600 of the CPA Canada Handbook at fair value, starting from the GPs’ NAVs.
The valuations and the waterfall: the GP values the companies each quarter at fair value under IFRS 13 with the market approach, the income approach and the calibration to the entry price, following the IPEV guidelines; the fund is an investment entity under IFRS 10 and consolidates none of the companies it controls; the valuation committee approves the marks, a valuation firm reviews a sample and the auditor’s specialists test them; in the whole-of-fund waterfall the Canadian institutional LPs favor, the GP earns carry only after the LPs have their contributions back with the preferred return, then catches up to its 20%; the clawback, net of the taxes the GP’s members paid, is secured by an escrow of part of the carry and the principals’ guarantees, and the administrator reruns the waterfall each quarter on a hypothetical liquidation to report the exposure.
The financing, the reporting and the tax: the subscription lines in CAD moved to Term CORRA when CDOR ended in June 2024, and the line raises the early IRR, so the ILPA Performance Template asks for the IRR with and without it; the ILPA templates of January 2025 are the LPs’ standard for the reports from the first quarter of 2026; the partnership files its information return with the T5013 slips by March 31 when its partners are not all corporations, the Québec partners receive the RL-15, and the interest and dividends allocated to the non-resident LPs bear the Part XIII withholding at 25% or the treaty rate; the carried interest allocated to the GP as a share of the gains keeps their character, half of a capital gain being taxable since the increase to two-thirds announced in 2024 was canceled in March 2025; the GST/HST applies to the management fee, the fund being an investment limited partnership under the excise tax rules.

Transfer Agency and Fund Services›Transfer Agency

Mutual Fund Record Keeping in Canada: the Orders Through Fundserv, the Client Name and Nominee Accounts, the Trailing Commissions, the Settlement and the Tax Slips

Mutual fund record keeping is the keeping of a Canadian fund manager’s unitholder register and the processing of every purchase, redemption and switch, here by the custodian’s record keeping unit as registrar and transfer agent of 80 mutual fund trusts: the accounts opened by the dealers through Fundserv in client name or held by the investment dealers in nominee accounts, the orders by the 4:00 p.m. ET cut-off of NI 81-102, the NAV per unit from fund accounting, the confirmations and the trailing commissions paid to the dealers of record, the net settlement through Fundserv on T+1, the short-term trading fee and the series checks, the registered plans of its trust company, the T3 and RL-16 slips, the unclaimed property and the oversight that runs through the manager and the dealers.

Worked example, illustrative:client a fund manager with 80 mutual fund trusts and CAD 150,000,000,000 of assets; the custodian’s record keeping unit and its trust company (illustrative)register 2,000,000 client name accounts opened by 600 dealers; 400 nominee accounts of the investment dealers holding 45% of the assetsorders 60,000 transactions a day, 99% through Fundserv; the 4:00 p.m. ET cut-off; CAD 900,000,000 in and CAD 780,000,000 out on the daysettlement net through Fundserv on T+1, the funds’ chosen cycle; the payments over Lynx through Fundserv’s settlement bankrules NI 81-102 on the orders and the settlement; the dealers’ know-your-client under NI 31-103 and the PCMLTFA; the T3 and RL-16 slips; the provincial unclaimed property lawsfees CAD 15 a year per account plus the transactions; CAD 45,000,000 of trailing commissions a month paid to the dealers (illustrative)

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Every Canadian mutual fund order arrives through Fundserv, so the record keeper’s day is the cut-off, the next NAV per unit, the confirmations and the net settlement, and its month ends with the trailing commissions. The register is shared between the client name accounts it keeps for the dealers and the nominee accounts the investment dealers keep themselves.

Fundserv and the cut-off: Fundserv is the network every Canadian fund manager and dealer uses for the mutual funds and the other products sold like them (the segregated funds, the GICs, the investment savings accounts, the exempt funds): the account opening, the orders and the confirmations, the transfers between dealers, the positions, the trailing commission payments and the net settlement through its settlement bank; NI 81-102 prices every order at the NAV per unit next calculated after its receipt and asks the dealer to send the order on the day it receives it, so the evidence that an order was taken before 4:00 p.m. ET sits in the dealer’s systems and is tested by CIRO and by the manager; the OSC settled market timing cases with five Canadian managers in December 2004, and the short-term trading fees and the fair value factors on the overseas funds date from that period.
Client name and nominee: a client name account puts the unitholder on the fund’s register with a dealer and a representative of record, the usual model of the mutual fund dealers, whose clients’ units sit at the fund companies; the record keeper sends those unitholders their statements and slips and its trust company is the trustee of their registered plans; a nominee account registers the units in the dealer’s name for all its clients, the model of the investment dealers and the order-execution-only platforms, which keep the client records and send their own statements and slips; a change of dealer moves the account through Fundserv’s transfer messages, or through ATON when the units move between dealers’ nominee accounts; since 2023 CIPF covers the clients of the CIRO mutual fund dealers as well as those of the investment dealers.
Compensation and its reforms: the trailing commission is embedded in the management fee of Series A and paid by the manager to the dealer of record each month, from the record keeper’s computation by account; the CSA’s reforms ended the deferred sales charge options and the trailing commissions paid to the order-execution-only dealers on June 1, 2022, and the existing schedules run off; the Client Focused Reforms put the conflicts of the embedded commissions before the dealers, and the total cost reporting that applies from 2026 adds each fund series’ expense ratio and the dollar cost of ownership to the dealers’ yearly reports, so the manager supplies the fund expense ratios by series that the record keeper and the dealers carry.
AML, tax and unclaimed property: the PCMLTFA puts the identity checks and the reporting on the dealers, the trust companies and the other reporting entities, so a manager that is not a dealer relies on the dealer that opened the account, and its trust company reports for the plans it administers; the tax side is the T3 and RL-16 slips for the distributions, the Part XIII withholding and the NR4 for the non-residents, the RRSP receipts and the T4RSP and T4RIF slips, the TFSA and RESP returns; there is no federal unclaimed property regime for fund units, and the provinces that have one (Québec, British Columbia, Alberta, New Brunswick) set their own dormancy periods and reports; the large bank-owned managers keep their record keeping in-house, and the others outsource it to a few providers on shared platforms priced per account and per transaction.

Transfer Agency and Fund Services›ETF ServicesInstrument card: ETF

ETF Servicing in Canada: the Basket Each Morning, the Designated Broker, the Subscriptions and Redemptions Through CDSX and the Year-End Distributions

ETF servicing is the custodian acting as the custodian, fund accountant and registrar and transfer agent of an exchange-traded fund, here a Canadian equity index ETF of CAD 8,000,000,000 listed on the TSX, a mutual fund trust under NI 81-102: the manager’s basket turned into the file sent to the designated broker and the dealers before the open, the subscriptions and redemptions of whole prescribed numbers of units by the cut-off, the baskets settled trade for trade in CDSX on T+1 against the units issued and canceled in book entry at CDS, the cash subscriptions and their costs, the NAV per unit and the ETF Facts, the arbitrage that keeps the TSX price at the NAV, and the year-end distributions and allocations that carry the trust’s gains to the unitholders.

Worked example, illustrative:fund a Canadian equity index ETF, a mutual fund trust; CAD 8,000,000,000 of assets, 230 holdings, listed on the TSX (illustrative)units a prescribed number of units of 50,000, CAD 2,000,000 at a NAV of CAD 40; 6 subscribed and 2 redeemed on the daydealers one designated broker and 15 ETF dealers; the cut-off at 4:00 p.m. ET in kind, 2:00 p.m. in cash (illustrative)settlement the basket file before the open; the baskets and the units in CDSX on T+1; the units registered to CDS & Co.tax a mutual fund trust: the gains allocated to the redeemers within the limits; a year-end distribution in units, consolidated at oncefees CAD 500 per order and up to 2% on the cash orders, paid by the dealers; 1.5bp a year to the custodian, paid by the fund (illustrative)

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A Canadian ETF’s units trade on the TSX all day without the fund, and once a day the designated broker and the dealers subscribe or redeem whole prescribed numbers of units against a basket the custodian sends each morning. The custodian settles the baskets in CDSX, issues and cancels the units registered to CDS & Co., and strikes the NAV per unit the arbitrage holds the price to.

The rules: the first exchange-traded fund in the world, the Toronto 35 Index Participation units, listed on the Toronto Stock Exchange in 1990, and a Canadian ETF today is a mutual fund under NI 81-102, usually a trust: a prospectus, the ETF Facts delivered to the purchasers since 2018, a custodian under Part 6, an independent review committee under NI 81-107, the investment restrictions of the instrument, and the exemptions written into the instrument or granted in each prospectus for the ETF features (the designated broker, the prescribed number of units, the purchases on the exchange); the TSX or Cboe Canada lists the units, and the designated broker’s agreement with the manager carries the obligations to subscribe for the listing and to keep a market; many managers also offer an ETF series of their mutual funds, the same portfolio in the same trust, a structure the US allowed for the first time in November 2025.
The tax effect: a Canadian ETF trust realizes a gain on each security it delivers in kind or sells, and the Income Tax Act has no exclusion for the redemptions in kind, so the trust allocates gains to the redeeming dealers (the allocation to redeemers, limited since 2019 by rules that include a formula adapted to the ETFs), uses the capital gains refund mechanism, and distributes the rest at the year-end, usually as a distribution paid in units and consolidated at once; the unitholders pay tax on it and add it to their adjusted cost base; an ETF holding US stocks bears the 15% US withholding on the dividends, recoverable as a foreign tax credit in a taxable account and lost in most registered plans.
The plumbing: the subscriptions and redemptions settle in CDSX trade for trade on T+1 since May 27, 2024, the basket securities against the units, with the net cash in the CDS payment exchange over Lynx; the units exist only in book entry at CDS under CDS & Co., and the agent’s register shows that one holder; the US baskets settle at DTC through the custodian’s US network or the CDS link, the overseas baskets in cash or through the sub-custodians on the local cycle; the bond ETFs mostly subscribe in cash or on negotiated baskets, and in March 2020 several traded at discounts to NAVs struck on stale bond prices, the ETF price leading the bond market; the dealers other than the designated broker have no duty to subscribe or redeem, and act when the gap between the price and the basket pays.
The economics: ETF servicing is priced from fractions of a basis point to a few basis points of the assets, bundled across the custody, the fund accounting and the registrar and transfer agency, and concentrated in the Canadian custody banks that service the large index managers; the transfer agency of an ETF is light (one registered holder, CDS & Co.), and the value is in the basket, the order desk, the in-kind settlement on time and the year-end distribution data the dealers depend on for the slips; the administration fee offsets the cost of the transfers and the cash charge the cost of the trading, and the primary market is a small share of the trading: CAD 12,000,000 subscribed against CAD 250,000,000 traded on the TSX on the day in the worked example.

Transfer Agency and Fund Services›Middle Office

Middle Office Outsourcing in Canada: the Trade Capture, the Matching by 3:59 a.m., the IBOR, the Reconciliations, the Collateral and the Lift-Out

Middle office outsourcing is the custodian running an asset manager’s post-trade work on its own platform, here for a Canadian manager of CAD 250,000,000,000 whose 90 operations staff move to the custodian in a lift-out (illustrative): the trades captured from the manager’s order management system, matched in CTM by the 3:59 a.m. ET deadline on T+1 of NI 24-101 and settled in CDSX, instructed to the custodians, the investment book of record and the cash forecast by 7:00 a.m., the reconciliations with the custodians and the administrator, the corporate actions consolidated, the margin calls, the performance and the attribution, and the service levels, the CSAE 3416 report and the manager’s duties under NI 31-103 that frame the service.

Worked example, illustrative:client a Canadian asset manager with CAD 250,000,000,000 under management, 1,500 portfolios, three custodians (illustrative)lift-out 90 staff moved to the custodian, 12 kept for oversight; three waves over 18 months; a ten-year agreementtrades 3,000 a day from the OMS; matched in CTM; 96% matched on trade date against the NI 24-101 deadline of 3:59 a.m. ET on T+1books the IBOR and the cash forecast by 7:00 a.m. ET; 1,200,000 records reconciled a day, 99.5% automaticallyevents and collateral 150 voluntary corporate actions a month; 30 credit support annexes margined daily through Acadiafees 0.8bp of the assets a year (CAD 20,000,000); service credits up to 10% of the month’s fee

A Canadian manager that outsources its middle office keeps the investment decisions and the accountability under NI 31-103, and the custodian runs the work between the trade and the books with the manager’s former staff on its own platform. The service is measured by the matching rate before the 3:59 a.m. ET deadline, the time of the morning IBOR and the age of the breaks.

What moves and what stays: a middle office outsourcing moves the work between the trade and the books (the trade support and the matching, the IBOR and the cash forecast, the reconciliations, the corporate actions, the collateral and the margin, the performance, often the security master and the pricing data) to the custodian’s platform, and leaves the manager the investment decisions, the trading, the order management system and an oversight team; the variants run from the full lift-out with the staff to a component deal (the performance alone, the reconciliations alone) and to the front-to-back platform where the provider also runs the order management system; in Canada the large managers are often bank-owned and the custody market is concentrated in a few custodians tied to the large banks, so the deals are fewer and larger than in the US, and each one is a multi-year program on both sides.
The lift-out: the manager’s staff move by individual offers of employment that usually recognize their past service, and in Québec the Civil Code keeps the contracts of employment in force when an enterprise is alienated (article 2097), a point the parties settle in the agreement; the staff keep their portfolios and their knowledge and usually stay in the same office for the first year; the transition converts the data, runs the old and the new books in parallel and cuts over by asset class; the agreement runs seven to ten years, priced in basis points of the assets or per trade and per portfolio, with service levels and credits, a benchmarking clause, a change process, the custodian’s liability for its errors under the standard of care, the French-language service for the Québec clients, and an exit plan that returns the people, the data and the processes to the manager or to the next provider.
The rules: the manager keeps its duties as a registrant for the outsourced work: the companion policy to NI 31-103 expects the due diligence on the provider, a written agreement, the monitoring of the service and the access of the manager, its auditors and the regulators to the records, which the instrument requires to be kept for seven years; the OSC’s compliance reviews test that oversight; the investment fund manager answers in the same way for its funds’ outsourced work; the manager’s insurer and bank-owned clients apply OSFI’s Guideline B-10 on third-party risk, in its revised form since May 1, 2024, and look through to the custodian; the custodian’s CSAE 3416 Type 2 report, with a SOC 1 for the US clients, is the common evidence for the auditors.
The night and the measures: T+1 since May 27, 2024 moved the matching deadline of NI 24-101 from noon on T+1 to 3:59 a.m. ET, before the CDSX settlement cycle starts, and the exception reports of Form 24-101F1 were repealed with it, so the trade capture runs in real time and the exceptions are worked in the evening; the IBOR is the manager’s view of the positions and the cash with the trades not yet settled, the ABOR the administrator’s official books for the NAV, and the morning reconciliation between them and the custodians is the measure of the service; the collateral work grew with the uncleared margin rules and with the move of the CAD swaps from CDOR to CORRA in June 2024; the monthly service report (the matching rate, the time of the IBOR, the breaks by age) is what the oversight team manages by.

Issuer Services›Transfer Agent

The Stock Transfer Agent and Registrar: the Register, NCI and DRS, the Dividend, the Plan Shares, the Lost Holders and Unclaimed Property

The stock transfer agent and registrar of a TSX-listed company keeps the legal register of its shareholders and acts on it. The provider here is the trust company of the Toronto custody bank of the worked example; the market is led by specialist trust companies (Computershare Trust Company of Canada, TSX Trust, Odyssey Trust, illustrative). The diagram follows the appointment and the conversion, the CDS & Co. position held as non-certificated inventory, the transfers of the registered holders and the moves between DRS and CDS, the plan shares issued from treasury, the dividend paid to CDS and to the registered holders with the DRIP and the Part XIII withholding, the lost holders and the unclaimed property programs of Quebec and New Brunswick, and the supervision of the trust company.

Worked example, illustrative:the client a TSX-listed CBCA company: 500,000,000 shares; 12,000 registered accounts with 15,000,000 shares (3%); 97% held through CDS & Co. (illustrative)the agent the custody bank’s trust company, supervised by OSFI: registrar, transfer agent, dividend paying agent, DRIP and plan agentthe register CDS & Co. for 485,000,000 shares as NCI; 13,500,000 shares in DRS; 1,500,000 in 2,500 certificatesthe dividend CAD 0.60 a share each quarter: CAD 291,000,000 to CDS on Lynx; CAD 9,000,000 by EFT, cheque and the DRIPthe rules the CBCA register; the TSX’s Form 5 and monthly report; Part XIII and the NR4; the Quebec and New Brunswick unclaimed property lawsthe fees CAD 50,000 a year plus CAD 6 a registered account, with the dividend and transfer fees: about CAD 250,000 a year

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The register is the legal record of who owns the company, and 97% of it is one line in the name of CDS’s nominee. The agent’s work is the other 3% and the boundary with CDS: the transfers, the dividend with its withholding, the plan shares, the lost holders and the provinces’ claims on what they leave behind.

The register and the holding chain: a Canadian share is held one of three ways on the issuer’s register, as a certificate, as a book-entry position in the holder’s own name in the Direct Registration System the trust companies have offered since the 2000s, or through a dealer or a custodian in the name of CDS & Co., the nominee of CDS, which holds 95% or more of a large company’s shares (DTC holds its US participants’ Canadian shares through its own account at CDS). The issue is held at CDS as non-certificated inventory, the agent keeping the CDS & Co. position electronically, or as book-entry only when CDS & Co. is the sole registered holder and no certificate is available, the usual form for bonds and many new issues. The corporate statutes require the register and allow an agent to keep it; the provinces’ Securities Transfer Acts, Ontario’s of 2006 first, set the rules on the transfer of securities and the indirect holding system that the Uniform Commercial Code’s Article 8 sets in the US.
The rules: Canada has no counterpart of the SEC’s transfer agent rules. A transfer agent is a trust company, federal under the Trust and Loan Companies Act and supervised by OSFI or provincial under its province’s trust legislation, so the safekeeping of the holders’ money is a matter of trust law and prudential supervision, and the service standards (the turnaround, the signature guarantees, the replacement of lost certificates, the lost holder searches) come from the agency agreements and the practices of the Securities Transfer Association of Canada. The securities rules reach the agent through the issuer: the TSX’s notices of dividends on Form 5 at least five trading days before the record date and its monthly report of the change in the outstanding and reserved securities, the TSX’s acceptance of the security-based compensation reserves, NI 54-101 for the meetings, and the tax law for the withholding and the T5 and NR4 slips.
Lost holders and unclaimed property: Canada has no federal unclaimed property regime for securities (the Bank Act sends only the unclaimed bank balances to the Bank of Canada, after ten years), and the provinces differ. Quebec’s law, in place since 2011, reaches the underlying securities since the amendments in force on February 24, 2022, with a three-year dormancy and the remittances to Revenu Québec from 2024, and applies to any issuer with holders in Quebec; New Brunswick’s act applies since January 1, 2022 with a three-year dormancy and remittance to the Financial and Consumer Services Commission; Alberta and British Columbia have their own programs. Elsewhere the issuer’s by-laws decide, many of them forfeiting to the company a dividend unclaimed for six years, and the plans of arrangement end the former holders’ claims to the consideration after a sunset period, so the agent’s searches are the holder’s main protection.
The economics: a few trust companies keep the registers of most Canadian listed companies (Computershare Trust Company of Canada, TSX Trust, which the TMX Group enlarged with AST Trust Company (Canada) in 2021, and Odyssey Trust, illustrative), with a base fee and a fee per registered account, transaction fees, dividend and plan issuance fees, and the corporate action work (depositary for a takeover bid or a plan of arrangement, subscription agent for a rights offering) billed per event; the interest on the cash held between the issuer’s payment and the holders’ credit and on the uncashed cheques is a large part of the revenue. The risks are operational and legal: a transfer made on a forged signature (the medallion guarantor and the surety bonds are the defenses), a wrong share count, a late dividend, a withholding error on a non-resident; the CSAE 3416 report is what the issuers and their auditors read.

Issuer Services›Bond TrusteeInstrument card: Corporate Bond

The Trustee of a Corporate Bond Under the Trust Indenture: the Global Certificate at CDS, the Coupon, the Default and the Noteholders’ Arrangement

The trustee of a Canadian corporate bond represents the holders under the trust indenture and, as registrar and paying agent, keeps the record of the notes and moves the money. The provider here is the trust company of the custody bank. The diagram follows a CAD 1,000,000,000 series of medium-term notes from the trust indenture under Part VIII of the CBCA and the global certificate deposited at CDS, through the coupons paid in on Lynx and out through CDS, the annual certificate and the notices, to a payment default years later: the notice within 30 days, the holders’ direction by extraordinary resolution, counsel and the default fees, and the plan of arrangement under the CBCA that exchanges the notes after a noteholders’ meeting and the court’s final order.

Worked example, illustrative:the issue CAD 1,000,000,000 of 4.50% senior unsecured notes due 2036, a series of MTNs under a base shelf; one global certificate at CDS (illustrative)the trustee the custody bank’s trust company: trustee under Part VIII of the CBCA, registrar and paying agent; the issue book-entry onlythe payments CAD 22,500,000 each April 15 and October 15 on Lynx to the trustee the day before and paid to CDS on the date; the principal at maturitythe covenants the annual certificate under section 89; the financial statements on SEDAR+; the notices through CDS; the Canada Yield Price callthe default a coupon missed in 2031 and the 30-day grace; the notice within 30 days; the extraordinary resolution; the arrangement at 82%the fees CAD 5,000 at acceptance and CAD 5,000 a year; hourly default fees and counsel ranking ahead of the holders

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For most of a bond’s life the trustee runs the mechanics: the global certificate at CDS, the coupon paid in on Lynx and out through CDS, the certificates and the notices, under the CBCA’s duty of a reasonably prudent trustee. A default makes it the holders’ single voice, and a court-approved arrangement lets two thirds of the votes cast bind the whole class.

The trust indenture under the corporate statutes: Part VIII of the CBCA (sections 82 to 93) and its provincial counterparts, Part V of Ontario’s Business Corporations Act among them, apply to a trust indenture when the debt issued under it is distributed to the public. The trustee must be a trust company incorporated under federal or provincial law and must eliminate a material conflict of interest within 90 days of becoming aware of it or resign; the holders may obtain the list of the registered holders; the issuer gives evidence of compliance (an officers’ certificate and, where the indenture calls for it, an opinion of counsel or an auditor’s report) before the trustee certifies notes or releases security (sections 86 to 88) and certifies its compliance at least once a year (section 89); the trustee gives notice of an event of default within 30 days (section 90). The duty is the same before and after a default: to act honestly and in good faith in the holders’ best interests and with the care, diligence and skill of a reasonably prudent trustee (section 91), and no term of the indenture can relieve the trustee of it (section 93). There is no counterpart of the SEC’s qualification of the indenture: the notes are sold under a prospectus filed on SEDAR+ (a base shelf under NI 44-102 for a frequent issuer) and the indenture is filed as a material contract.
The market and the roles: a few trust companies act as trustee for most Canadian corporate bonds (Computershare Trust Company of Canada, TSX Trust, BNY Trust Company of Canada, illustrative), as trustee, registrar, paying agent and collateral agent, and for the securitization trusts and the Maple bonds of foreign issuers in Canadian dollars. The bonds are book-entry only at CDS, so the trustee’s register shows CDS & Co. alone and the payments and notices reach the holders through the participants. The interest a Canadian issuer pays to a non-resident holder at arm’s length is exempt from withholding tax since 2008, so the coupons go out gross through CDS. The trustee is a trust company supervised by OSFI or its province, and its controls are covered by a CSAE 3416 report.
Defaults and restructurings: Canadian indentures carry the English tradition of holders’ meetings and extraordinary resolutions (two thirds of the principal voted, or a written resolution), through which the holders direct the trustee, waive a default or amend the terms; holders of 25% may require an acceleration, and the no-action clause channels their claims through the trustee. A restructuring can run as a consent solicitation under those clauses, as a plan of arrangement under section 192 of the CBCA, which needs a solvent applicant, a class vote of two thirds of the votes cast and the court’s fairness hearing and then binds every holder of the class, or under the Companies’ Creditors Arrangement Act, where the classes vote by a majority in number holding two thirds in value and the monitor oversees the process. The arrangements of the 2010s and 2020s have made the CBCA route a common way to exchange notes without an insolvency filing, and the trustee files the claim, takes direction from the ad hoc group and distributes the recovery through CDS.
The economics: a series pays a few thousand dollars at acceptance and a few thousand a year (CAD 5,000 and CAD 5,000 here, illustrative), so the business runs on volume and on the interest on the money held between the issuer’s payment and the payment to CDS; the default work is billed by the hour with counsel and ranks ahead of the holders on what the trustee collects. The risks are a payment missed or misdirected, a document signed outside the conditions of the indenture, and the litigation of a default; since the statute forbids an exculpation from the duty of care, the indemnity from the directing holders and the reliance on the issuer’s certificates (section 92) are the trustee’s protections.

Issuer Services›Annual Meeting

The Annual Meeting of a Listed Company: the Record Date, NI 54-101, Notice-and-Access, the NOBOs and OBOs, the Scrutineers and the Voting Results

The annual meeting of a listed company is run for it by a chain of agents that carry the meeting materials out to the owners and the votes back. The provider here is the company’s transfer agent, the custody bank’s trust company, acting as mailing agent for the registered holders and the non-objecting beneficial owners, tabulator and scrutineer, with Broadridge acting for the intermediaries on the street side. The diagram follows the meeting and record dates under the CBCA and NI 54-101, the notification to CDS and the intermediaries, CDS’s list and omnibus proxy, the NOBO list, the circular under notice-and-access, the forms of proxy to the registered holders, the direct delivery to the NOBOs and the delivery to the OBOs through Broadridge, the intermediaries’ votes reconciled under the CSA’s protocols, a contest under the advance notice by-law, the scrutineers’ report under majority voting and the report of voting results on SEDAR+.

Worked example, illustrative:the meeting the hybrid annual meeting of May 7, 2026; the record date March 18, 2026; 500,000,000 shares entitled to vote (illustrative)the holders 12,000 registered accounts with 3% of the shares; 320,000 beneficial accounts behind CDS & Co., NOBOs and OBOsthe delivery notice-and-access by April 7, 2026: the agent to the register and the NOBOs, Broadridge to the OBOs; the circular on SEDAR+the agenda ten directors, the auditor, the say on pay, a plan amendment and one shareholder proposal; two forms of proxy in a contestthe count 66% of the shares present; Broadridge’s totals to the agent; no uninstructed votes; the reconciliation protocols; the scrutineers’ reportthe results the report of voting results on SEDAR+ and the TSX news release; the agent’s fees about CAD 40,000, Broadridge’s about CAD 250,000

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The company sees 3% of its owners on its own register; the rest are reached through CDS’s omnibus proxy, the intermediaries and Broadridge, or directly when they do not object to being known. The vote comes back the same way, and the reconciliation with CDS’s positions and the scrutineers’ report turn it into one result filed on SEDAR+.

The chain under NI 54-101: the corporate statutes give the vote to the registered holders, so the company reaches its own register through its transfer agent and the beneficial owners through CDS, which gives its participants an omnibus proxy, and the intermediaries, which must forward the materials and collect the instructions, nearly all of them through Broadridge. The owners who object to the disclosure of their names to the issuer (the OBOs) are reached only through their intermediaries, and the company decides whether to pay for that delivery; the others (the NOBOs) appear on the list the company may obtain and may receive the materials directly from the company’s agent, their instructions returning to it. Notice-and-access, allowed since 2013, lets the company post the circular and send only a notice with the voting form at least 30 days before the meeting, after a notification of the meeting and record dates sent at least 25 days before the record date; most large issuers use it, and the meetings in hybrid or virtual form the by-laws allow have been common since 2020.
Proxy plumbing: the CSA’s consultation of 2013 (Consultation Paper 54-401) found that the vote could be lost between the intermediaries, Broadridge and the tabulator (the over-votes when the instructions exceed an intermediary’s position at the record date, the missing entitlements, the absence of a confirmation to the owner), and CSA Staff Notice 54-305 of January 2017 set the meeting vote reconciliation protocols: CDS’s positions shared with the tabulator, the entitlements built before the vote, the over-votes resolved with the intermediaries, and the confirmation that a vote was received. No intermediary may vote a share without the owner’s instructions, so the uninstructed shares are not voted and the turnout depends on the institutions; the proxy advisers follow National Policy 25-201 of 2015.
The corporate law of the vote: the CBCA, under which the record date falls 21 to 60 days before the meeting, has required since August 31, 2022 the annual and individual election of the directors of a public company and majority voting in an uncontested election (a nominee with more votes against than for is not elected and may not be appointed before the next meeting, save for the residency or independence requirements), the TSX having required a majority voting policy of its listed issuers since 2014. The shareholder proposals are submitted 90 to 150 days before the anniversary of the last annual meeting; a holder of 5% may requisition a meeting; the advance notice by-laws set the window and the information for the holders’ nominations, and Canada has no universal proxy rule, so a contest runs on two forms unless the sides agree on one. The advisory vote on executive pay most large issuers hold is voluntary in Canada, and the TSX requires the holders’ approval of the security-based compensation plans and of their amendments.
The economics and the risks: the company pays its transfer agent for the registered side, the direct delivery to the NOBOs, the tabulation and the scrutineers (about CAD 40,000 for a routine meeting here), Broadridge for the delivery to the OBOs and the intermediaries’ processing (about CAD 250,000), the printer, the meeting platform and a proxy solicitation agent (a few tens of thousands of dollars for a routine meeting, several million in a contest, illustrative). The risks are in the reconciliation of the chain: the over-votes, the missed control numbers, a late file from an intermediary, a close vote decided by the scrutineers’ rulings; the report of voting results on SEDAR+ under section 11.3 of NI 51-102 and the TSX’s news release on the director votes close the meeting in public.

Data, Ratings and Indexes›Credit RatingInstrument card: Asset-Backed Security

A Credit Rating for a New Issue of Medium-Term Notes: the Issuer-Paid Engagement, the Committee, the Publication to All and the Surveillance

Credit rating is the service through which a designated rating organization publishes its opinion on an issuer’s ability to pay a debt on time, here the medium-term notes of an Ontario utility holding company launching a CAD 1,500,000,000 offering: the engagement paid by the issuer and set apart from the analysts, the second rating the market expects and the two ratings the securitized commercial paper needs, the management meeting and the confidential data, the analysts’ model under the published methodology, the rating committee’s vote, the notice to the issuer and the appeal, the press release to all at once, the ratings read into the investors’ guidelines and OSFI’s capital rules, the surveillance with the trend and the review, and the code of conduct and the OSC’s oversight under NI 25-101.

Worked example, illustrative:issuer an Ontario utility holding company rated A (low) with a Stable trend; CAD 1,500,000,000 of MTNs in 10-year and 30-year tranches (illustrative)agency a designated rating organization in Toronto under NI 25-101; the ratings paid by the issuer and published free to allfee CAD 450,000 for the issue (3bp) and CAD 120,000 a year for the surveillance (illustrative)process the data room and the management meeting; the methodology and the model; a committee of five; the notice the day before launchpublication a press release to all at 8:00 a.m. ET on the launch day with the rating report; the rating feedoversight the code of conduct under NI 25-101; Form 25-101F1 each year; the OSC as principal regulator

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A credit rating is paid for by the issuer and published to everyone at the same moment, and the rules exist to keep the payment from shaping the opinion: the fee is set apart from the analysts, a committee votes, and the issuer sees the decision only to check the facts. The rating’s weight comes from the investors’ guidelines, the bond index and OSFI’s capital rules that cite it, so a downgrade below BBB (low) moves money by itself.

The designated rating organization regime: Canada had no rules for the rating agencies until the freeze of the non-bank asset-backed commercial paper in August 2007, rated by one agency alone, and the G20 commitments that followed. NI 25-101 Designated Rating Organizations came into force on April 20, 2012, and the securities regulators designated DBRS, Fitch, Moody’s and S&P with their affiliates the same year: a designated rating organization keeps a code of conduct that follows the IOSCO Code of Conduct Fundamentals with the provisions of the instrument’s Appendix A, appoints a compliance officer who reports to the board, keeps its records, avoids the listed conflicts and files Form 25-101F1 each year. The CSA instruments cite the designated ratings in places (the short-term debt and securitized product exemptions of NI 45-106, the money market funds of NI 81-102), and the securitized commercial paper has needed two of them since May 5, 2015.
The Canadian agency and the market: the Dominion Bond Rating Service, founded in Toronto in 1976 and owned by Morningstar since 2019 (DBRS Morningstar), rates most Canadian corporate issuers, the provinces, the banks and the securitization trusts, and the Canadian money market reads its R-1 short-term scale; the global agencies rate the larger issuers and the provinces beside it, and a Canadian issuer usually carries two or three ratings. The scale runs from AAA to D with the (high) and (low) subcategories, a trend (Positive, Stable, Negative) in place of an outlook, and Under Review with Implications in place of a watch; the issue ratings are notched for the subordination and the holding company structure.
The ratings in the rules and the guidelines: OSFI’s capital requirements map the ratings of the recognized agencies to the risk weights of the banks on the standardized approach and to the credit risk factors of the insurers under LICAT; the Bank of Canada’s collateral policy and the bond mandates refer to them; the FTSE Canada Universe Bond Index, the benchmark of most Canadian bond portfolios, admits only investment grade issues, so a downgrade below BBB (low) takes a bond out of the index and out of the mandates that follow it. The methodologies are published and changed after a request for comment, and the code of conduct requires the agency to review them.
The economics and the conflicts: an agency’s revenue comes from the new issue fees in basis points of the principal (with a minimum and a cap, and a frequent issuer program for the large borrowers such as the provinces and the banks), the yearly surveillance fees, the structured finance fees per deal and the subscriptions to the ratings data and research. The issuer-pays model is disclosed and managed under the code of conduct (the fee set by the commercial group with no analyst in the discussion, the analysts’ pay and holdings, the ancillary services kept apart), and the ABCP crisis of 2007, where the investors could not see the assets behind a single agency’s ratings, is the case the Canadian rules were written against.

Data, Ratings and Indexes›Index

A Canadian Equity Index and Its Quarterly Rebalance: the Methodology, the Data, the Licenses and the TSX Market on Close

An equity index is the service through which an index provider publishes a set of rules and a calculation that funds and contracts track, here a broad Canadian index of about 220 TSX-listed stocks (the S&P/TSX Composite, illustrative): the methodology and the index committee, a consultation on a methodology change, the licenses to the ETF managers, the index funds, the Montréal Exchange and the banks, the prices, shares, float and corporate actions that feed the calculation in real time, the quarterly rebalance decided by the committee and announced to all with the pro forma files, the dealers who facilitate it, the market-on-close orders and the TSX’s closing call where the index funds trade at the prices the index records, and the oversight under the IOSCO principles with MI 25-102 in the background.

Worked example, illustrative:index a broad Canadian equity index of about 220 TSX-listed constituents weighted by float-adjusted market capitalization (the S&P/TSX Composite, illustrative)tracking CAD 250,000,000,000 in index funds, ETFs and indexed pension mandates, CAD 80,000,000,000 of it in ETFs (illustrative)rebalance quarterly, after the close of the third Friday of March, June, September and December; announced two weeks beforedata the TSX’s trades in real time; the shares and the float from the filings and SEDI; the corporate actions from the issuers and two vendorslicenses 3bp a year on the ETF assets; CAD 0.10 to CAD 0.30 per futures or options contract; data subscriptions (illustrative)governance an index committee and an oversight committee; the IOSCO principles; a yearly assurance report; no designation under MI 25-102

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An index is published rules plus a calculation, and the money that tracks it is what makes it a business: every decision is announced to all at once and in advance, so the funds can trade it in the TSX’s market on close at the prices the index records. The licenses on those assets and on the Montréal Exchange’s contracts pay for the committee, the data and the calculation.

The Canadian index business: the S&P/TSX family (the Composite, which replaced the TSE 300 in 2002, the 60-stock large-cap index behind the Montréal Exchange’s futures, the capped and sector indexes) is run by S&P Dow Jones Indices under an agreement with the TMX Group, while FTSE Russell’s FTSE Canada indexes are the benchmarks of the Canadian bond portfolios and MSCI’s Canada indexes those of the global mandates; many Canadian ETFs track the indexes of other providers (Solactive among them, illustrative of the market) or of their own managers. The provider earns on the assets that track its indexes, on the derivatives that settle on them and on the data that the active managers and the pension funds buy to benchmark against them, and the growth of the Canadian ETFs has turned the index licenses into a recurring cost of passive investing.
The methodology and the rebalance: a float-adjusted capitalization index weights each stock by the shares the public can buy, which matters in Canada, where controlling shareholders, multiple voting shares and government stakes are common, so the float factors and the share counts are updated each quarter and on events. The eligibility rules (domicile, size, liquidity, price) are applied by a committee with judgment, the interlisted companies stay in when their main market is Canada, and the concentration of the market in the banks, energy and materials led to the capped versions after Nortel weighed more than a third of the main index in 2000. Every change is announced to all at once with notice, since the funds have to trade it, and the stocks added rise between the announcement and the effective day (the index effect), a cost the index funds bear and the arbitrageurs earn.
Governance without a Canadian index regulator: the IOSCO principles of July 2013, written after the LIBOR and the oil price reporting cases, ask the administrator for an oversight function, a published methodology, consultations on material changes, a complaints procedure, controls over the data and the conflicts, and an external review; the large providers publish a statement of compliance and an assurance report each year. MI 25-102 Designated Benchmarks and Benchmark Administrators, in force since July 13, 2021, applies only to the benchmarks the OSC and the AMF designate: CDOR until it ended on June 28, 2024, and Term CORRA since, with no equity index designated, while the amendments in force from May 5, 2026 set the assurance reports for any other benchmark that might be, a stock index given as the example. The EU and UK benchmark rules apply when European funds use the index, and the funds themselves are under NI 81-102.
The rebalance day as a market event: the quarterly third Friday is also the expiration of the Montréal Exchange’s index futures and options, and the TSX’s market on close carries several times its usual volume. Its 2021 redesign added the price movement constraint that keeps the closing price close to the last sale, the imbalance is published at 3:50 p.m. ET and the offsetting limit-on-close orders enter until 4:00 p.m. ET. The index funds take the closing price as their execution benchmark, and a calculation error or a late corporate action can move hundreds of millions, so the providers keep an error policy (the threshold above which a level is restated) and the funds check the pro forma files against their own.

Data, Ratings and Indexes›Market Data

Market Data Distribution: TMX IP and the Direct Feeds, the Ticker Plant, the Entitlements per User and the Marketplaces’ Policies

Market data distribution is the service through which a vendor takes in the marketplaces’ quotes and trades, normalizes them and delivers them to the users the marketplaces license, here a global vendor serving a Canadian investment dealer: the vendor and subscriber agreements under the marketplaces’ policies, the consolidated feed of TMX IP under NI 21-101 and the marketplaces’ direct feeds with their depth of book, the ticker plant at the colocation sites in Toronto, the terminal and the real-time feed, the entitlements checked per user, the non-display and derived data uses declared to the marketplaces, the monthly usage reports and the fees passed through on the invoice, the marketplace audits with their back-billing, and the CSA’s review of the fees and oversight of the information processor.

Worked example, illustrative:vendor a global market data vendor: 120,000 terminal users, 1,500 feed clients, 400 sources, a dozen Canadian equity marketplaces among them (illustrative)client a bank-owned investment dealer with 1,500 professional terminal users and 30 feed applications (illustrative)feeds TMX IP’s consolidated products; the marketplaces’ direct depth feeds at the colocation sites in Toronto; CIRO for the debtfees CAD 3,000 a terminal a month; the marketplace and IP fees passed through; non-display fees by category billed direct (illustrative)reporting the users by entitlement each month to each marketplace and to TMX IP; audits every two to three yearsrules NI 21-101 and the IP; the CSA’s data fees methodology since December 2016; TMX IP designated to June 30, 2029

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A market data vendor carries data the marketplaces own and price under the CSA’s review: the marketplaces write the policies and the fees, and the vendor’s work is the ticker plant that turns a fragmented market and hundreds of foreign sources into one feed and the entitlements that count every user. The monthly reports and the audits make the user count the bill, for the vendor and for its clients.

The information processor and the direct feeds: NI 21-101 makes each marketplace send its orders and trades to an information processor, and TMX IP has done it for the exchange-traded securities other than options since July 1, 2009, under undertakings to the CSA and, since June 2026, designation and recognition orders running to June 30, 2029: its six consolidated products (the consolidated data feed, the consolidated last sale, the Canadian best bid and offer with its protected-markets version, and the consolidated depth of book with its protected-markets version), a pass-through fee model, a governance committee and a yearly report on its cost recovery. The marketplaces also sell their own feeds with the full depth, the auction data and a lower latency, and the dealers use them for routing under the order protection rule; CIRO is the information processor for the corporate and government debt, with the trades published after a delay and the sizes capped.
Fragmentation and the fees: a dozen equity marketplaces compete for the Canadian order flow (the TSX and TSX Venture and TSX Alpha, Cboe Canada, Nasdaq Canada, the CSE, the dark and lit ATSs), each with its own data fees, so a dealer needs every protected market’s data to comply with the order protection rule and to show its clients the best price. The CSA review the professional real-time data fees under the data fees methodology of CSA Staff Notice 21-319 (December 2016), which ranks the marketplaces by their share of the trading and the quoting and tests each fee against a reference, and their 2020 consultation on access to real-time market data (Consultation Paper 21-403) looked at the cost of the consolidated data for the retail investors and the dealers.
The policies and the audits: each marketplace’s policies define the uses and their fees: the display use per user (professional or non-professional), the non-display use per firm by category, the derived data, the redistribution, the delayed data after 15 minutes. The vendor counts and reports the display users it permissions, the client declares its non-display uses and its internal redistribution, and the audits every few years test both; the large users keep a market data team and an inventory system (illustrative: MDSL, TRG Screen) to manage a cost that grows with every new product and user.
The vendor’s economics: the terminals are priced per user per month under multi-year contracts, the real-time feeds by application and site, with the reference data, the evaluated prices and the analytics sold beside them; the marketplace fees pass through at their rates and the vendor earns on its own service, so the client sees two bills in one. A Canadian dealer’s bill also carries the US exchanges’ and plans’ fees, since many large Canadian companies are listed in both countries and trade on both sides of the border through the day.

Data, Ratings and Indexes›Evaluated PricingInstrument card: Corporate Bond

Evaluated Pricing of the Canadian Bond Funds: CIRO’s Debt Data, the Dealers’ Quotes, the 4:00 p.m. ET File, the Challenges and NI 81-106

Evaluated pricing is the service through which a pricing service gives the funds a price for each bond that did not trade at the close, here the Canadian bonds of a fund family’s bond funds and ETFs: the appointment by the investment fund manager in its valuation policy, the trades reported to CIRO and published with a delay, the bank-owned dealers’ runs and the quotes on CanDeal, the evaluators’ curves and the comparable bonds, the file at 4:00 p.m. ET to the fund administrator, the tolerance checks before the NAV goes to Fundserv, the price challenges, the back-testing and the due diligence on the vendor, the reports to the manager’s valuation committee, and the fair value under NI 81-106 with the IFRS 13 levels in the financial statements and the audit.

Worked example, illustrative:service evaluates 25,000 Canadian fixed income securities daily: Government of Canada, provinces, municipalities, corporates, Canada Mortgage Bonds (illustrative)client a fund manager: 40 bond funds and ETFs, CAD 120,000,000,000, 9,000 positions; its pricing team and valuation committee (illustrative)inputs the dealers’ runs and quotes, CanDeal; CIRO’s published trades with a delay; the Government of Canada curve; the comparablesdelivery the bid-side evaluation at 4:00 p.m. ET; the file by 4:45 p.m. ET; the NAVs by about 6:30 p.m. ET to Fundservchallenges 120 a day across the clients, a third leading to a change; one price for all clients (illustrative)oversight NI 81-106 at fair value; the valuation committee; back-testing; level 2 under IFRS 13; the year-end audit

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Most Canadian bonds do not trade on a given day and the trades that do are published with a delay, while a fund strikes its NAV every day: the pricing service fills the gap with one evaluation per bond built from the dealers’ quotes, the trades and the comparables. The manager keeps the responsibility for the value, so the challenges, the back-testing and the valuation committee are part of the service.

Why Canadian bonds need evaluations: a mutual fund or an ETF strikes its NAV each business day at 4:00 p.m. ET, and the orders received through Fundserv before the cut-off are filled at that NAV (forward pricing under NI 81-102), so every holding needs a current value. The Canadian bond market is a dealer market led by the bank-owned dealers, with CanDeal and the other platforms for the institutional trades and the interdealer brokers between them; outside the Government of Canada benchmarks and the large provincial issues most bonds do not trade on a given day, and the post-trade data CIRO publishes as the information processor comes with a delay and the sizes capped. The pricing services fill the gap with evaluations built from the dealers’ quotes, the trades and the comparables, on the bid side for most funds, a convention each manager sets in its valuation policy; the same evaluations go to the custodians, the pension plans and the insurers.
The rules: a Canadian fund has no board of directors overseeing the prices; its manager, usually its trustee, is registered as an investment fund manager under NI 31-103 and owes the funds the statutory duty to act honestly, in good faith and in their best interests with the care, diligence and skill of a reasonably prudent person (section 116 of Ontario’s Securities Act and its counterparts). Part 14 of NI 81-106 requires the NAV for the purchases and the redemptions at fair value, and the manager’s valuation policy, its valuation committee and its oversight of the pricing services carry that duty into practice; the independent review committee under NI 81-107 reviews the conflicts of interest and leaves the prices to the manager. No rule addresses the pricing services themselves, and the OSC’s compliance reviews of the managers test the valuation controls and the NAV error handling.
The fair value levels: the Canadian investment funds have reported under IFRS since 2014, and IFRS 13 defines fair value as the exit price between market participants and ranks the inputs in three levels. A listed share at its closing price is level 1, an evaluated Government of Canada, provincial or corporate bond is level 2 when the service’s inputs are observable, and a distressed bond priced on a single dealer quote or a model is level 3, disclosed with a reconciliation of the movements and the unobservable inputs. The auditors test the prices against a second source and the subsequent trades at the year-end.
The market and its risks: a few services price most of the Canadian fixed income the funds hold (illustrative of the market: FTSE Russell’s Canadian bond prices from its index process, the long-standing reference for Canadian bond valuations, CanDeal DNA’s evaluated prices, ICE Data Services, Bloomberg BVAL, LSEG), and the managers take a primary and a secondary source. The risks are the stale price in a fast market (in March 2020 the Canadian bond ETFs traded at wide discounts to the NAVs struck on the evaluations until the Bank of Canada began buying provincial and corporate bonds), the dependence on a single vendor and the conflict of a service paid by the clients whose holdings it prices.

Network, Controls and Billing›Network

Network Management: the Sub-Custodians of 100 Markets, From the Agent RFP to the Section 6.7 Report and the Switch of an Agent

Network management is the custodian’s selection and supervision of the sub-custodians and depositories that hold its clients’ assets outside Canada, the US first among them. The diagram follows a market from the request for proposal to three banks and the due diligence visit, through the sub-custody agreement with the provisions NI 81-102 requires and local counsel’s opinion, to the custodian’s yearly review and report under section 6.7 and its depository assessments for the fund managers, the monthly KPIs and the risk ratings, the market advisories to the clients, a market closed by sanctions, and the switch of an agent with the assets realigned at the depository over a weekend.

Worked example, illustrative:network 100 markets: Canada direct, the US through a New York sub-custodian, 98 through 55 agent banks; CAD 1,000,000,000,000 held abroad (illustrative)selection an RFP to three banks per market every 5 to 7 years; section 6.3 of NI 81-102; the AFME questionnaire; a visit every 1 to 3 yearsagreement reasonable care; a segregated account for the clients; no lien beyond the fees; the SLA; the agent paid 1.5bp a year plus CAD 12 a tradethe funds the yearly review and report under section 6.7 of NI 81-102; the depository assessments for the managersmonitoring 99.5% settled on time, 98% of income on pay date; agents rated 1 to 5; the yearly credit and service reviewchange 800 advisories a year; the sanctions under SEMA; an agent switch with 90 days’ notice and one conversion weekend

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A Canadian custodian present in 100 markets is a member of the depository at home and relies on sub-custodians everywhere else, so its network is a supply chain it chooses, contracts, monitors and sometimes replaces. The fund managers rely on that work through the qualifications and the yearly report of NI 81-102, the clients see it through the advisories, and the assets move only when an agent is switched.

NI 81-102 and the foreign assets: Part 6 of NI 81-102 lets an investment fund hold its assets outside Canada with sub-custodians appointed by its custodian, provided each is a bank or trust company regulated as such in its country with shareholders’ equity of at least the equivalent of CAD 100,000,000, an affiliate meeting the same test, or an entity qualified as a custodian in Canada (section 6.3); the sub-custodian arrangement carries the same provisions as the custodian’s own (the location, the depositories, the method of holding, the standard of care), and the custodian reviews the whole chain and reports on its compliance within 60 days after each financial year (section 6.7). The rule sets no fund board, no foreign custody manager and no depository analysis as the US Rules 17f-5 and 17f-7 do: the manager appoints the custodian, the custodian answers for its sub-custodians under the agreement, and the country risk (the expropriation, the capital controls, the sanctions) stays with the manager, the custodian supplying the information. The pension plans and the insurers set the standard in their own agreements, and the portfolio managers’ client assets follow the qualified custodian rules of NI 31-103.
Direct markets and agent markets: a custodian that is a member of the local depository controls the cut-offs, the data and the client service, and keeps the agent’s margin, at the price of a banking license, a local team, the depository membership and the capital; an agent bank brings the local expertise and spreads its fixed cost over the other custodians it serves. The Canadian custodians run their home market directly and reach most of the others through a global partner’s network, the regional networks that cover a dozen markets under one contract, or the ICSDs for the Eurobonds; the US, a third of the foreign assets, is the one market where the choice of the sub-custodian matters most. The same custodians sell their Canadian market to the foreign global custodians as sub-custodians, and then answer the others’ due diligence questionnaires and the US funds’ Rule 17f-5 requirements as the eligible foreign custodian; the liability clause is the one most negotiated with the clients: the custodian answers for its sub-custodians’ negligence as for its own, usually not for the depositories nor for the country risk events.
The due diligence and the monitoring: the AFME due diligence questionnaire, revised several times since 2016, standardizes the questions to the agent banks, and the Association of Global Custodians’ depository questionnaire has fed the custodians’ depository assessments since 2001; the visits, the risk ratings, the credit limits on the agents and the monthly scorecards are the custodian’s own, and OSFI expects a bank to manage these relationships as third-party arrangements under its Guideline B-10. Where the custodian serves a foreign global custodian as its Canadian sub-custodian, the relationship is a correspondent banking relationship under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, with its own due diligence; the concentration of the industry’s emerging market assets in a few regional networks is a risk the network committees watch.
The market changes and the switches: the advisories carry the market structure changes to the clients (the Canadian move to T+1 on May 27, 2024 and the US move the next day; India’s T+1 completed in January 2023; the CSDR cash penalties on settlement fails in the EU since February 1, 2022; the EU, the UK and Switzerland at T+1 on October 11, 2027), the holidays, the tax and registration rules and the sanctions, of which the Russian market since 2022 is the reference, with the Canadian measures under the Special Economic Measures Act beside the US and EU ones. A switch of agent is a project of six to nine months: the accounts opened, the powers of attorney and the beneficial owner registrations moved, the new instructions sent through ALERT, the realignment free of payment on a weekend, the parallel running of the reclaims and the income; the custodian bears the cost, since the margin by market (what it bills by tier less what it pays the agent, see Billing) is its own.

Network, Controls and Billing›CSAE 3416

The CSAE 3416 Report: the Yearly Test of the Custodian’s Controls, Aligned With ISAE 3402 and SOC 1, the Bridge Letter and the Clients’ Reliance

The CSAE 3416 report is the independent service auditor’s yearly report on the custodian’s controls over the processes that affect its clients’ financial statements, the Canadian standard aligned with ISAE 3402 and the US SOC 1. The diagram follows the custody report through a year: the 11 control objectives and the 160 controls, the engagement under CSAE 3416 with ISAE 3402 and SSAE 18 in one report, twelve months of testing by samples, the subservice organizations carved out and monitored, the exceptions and the management responses, the Type 2 report issued in November, the distribution to the clients under the use restrictions, the user auditors’ reliance under CAS 402 and the year-end confirmations, the complementary controls the clients run themselves, the bridge letter for the last quarter of the year, and the use OSFI and the fund managers make of it.

Worked example, illustrative:reports five CSAE 3416 Type 2 reports a year: custody, fund accounting, record keeping, lending, pension services (illustrative)custody report 11 control objectives and 160 controls: settlement, income, corporate actions, reconciliation, access, change managementperiod October 1, 2025 to September 30, 2026; issued November 13, 2026; the bridge letter to December 31 in January 2027standards CSAE 3416 with ISAE 3402 and SSAE 18 in one report; the sub-custodians, CDS and the pricing vendors carved outresult an unqualified opinion; deviations on 3 of the 160 controls, with the management responsesusers 1,200 clients and their auditors (CAS 402); the fund managers under NI 31-103; OSFI and Guideline B-10

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One independent test of the custodian’s controls stands in for the audits its clients would otherwise run, and the clients’ auditors plan their own work on it. The coverage has edges: the period ends on September 30, the subservice organizations are carved out, and the controls on the clients’ side are theirs to run.

The standards: the CSAE 3416 report is issued under the Canadian Standard on Assurance Engagements 3416, Reporting on Controls at a Service Organization, of the Auditing and Assurance Standards Board, in force for the periods ending after December 15, 2011, which succeeded Section 5970 of the CICA Handbook and follows the IAASB’s ISAE 3402. A Type 1 report covers the description and the design at one date, a Type 2 report adds the operating effectiveness over a period, usually twelve months, and the clients ask for the Type 2; management gives a written assertion on the description and the controls. A Canadian custodian with US and international clients issues one report meeting CSAE 3416, ISAE 3402 and the AICPA’s SSAE 18, so the same report serves as the SOC 1 report of its US clients. The subservice organizations are carved out (their controls left out and the complementary subservice organization controls listed) or included with their own assertion; a separate SOC 2 report, or its Canadian counterpart under the trust services criteria, covers the security and the availability of the systems.
The users: the auditor of a fund, a pension plan or an insurer applies CAS 402, the Canadian counterpart of ISA 402: it identifies the services that affect the client’s financial statements, checks that the report covers them, the right period and the relevant assertions, weighs the exceptions, tests the complementary user entity controls at the client, and uses the Type 2 as evidence of the operating effectiveness. For a fund with a December 31 year-end the months after September 30 are covered by the bridge letter, inquiries and the year-end confirmation of the holdings and the cash under CAS 505. The investment funds that are reporting issuers file audited annual financial statements under NI 81-106 within 90 days of the year-end, audited by a participating firm of the Canadian Public Accountability Board; the fund managers read the report in their yearly oversight of the custodian, and the consultants read the count of exceptions year on year as a quality signal.
The exceptions and the opinion: every deviation found in the samples is described in the tests and results section with the auditor’s conclusion; a few deviations with the control objective still achieved leave the opinion unqualified, while a control objective not achieved (an access control on the settlement system failing for months, a reconciliation not performed) brings an opinion qualified for that objective, which the clients’ auditors must then address with their own work. The management responses sit in the other information, outside the opinion. Behind the report stand hundreds of control owners, a program office, the second line’s testing and internal audit; the program costs a few million dollars a year in fees and staff, and saves the custodian the separate audits and questionnaires of its clients.
The regulators: OSFI supervises the custody bank and its federally regulated trust company directly and reads the controls reports and their exceptions among the evidence of its operations and its operational resilience. The banks and insurers that are the custodian’s clients treat it as a third party under OSFI’s Guideline B-10 on third-party risk management, in force since May 1, 2024, with the CSAE 3416 report as the main evidence of the controls; the investment fund managers remain responsible under NI 31-103 for the functions they outsource, and the CSA’s compliance reviews test their oversight of the custodian, the fund administrator and the record keeper; the pension plan administrators answer to the pension regulators for the same oversight. Abroad, the European depositaries and the US funds’ boards use the same report through its ISAE 3402 and SSAE 18 versions.

Network, Controls and Billing›Billing

Billing: How the Custodian Is Paid, From the Fee Schedule by Market Tier to the Monthly Invoice, the Deposits and the Repricing at Renewal

Custody billing is how the custodian is paid for holding and servicing its clients’ assets: an asset-based fee in basis points by market tier, transaction fees per settlement, the revenue on the clients’ cash and FX, the out-of-pocket expenses at cost and the minimums, all set in a fee schedule negotiated for five years. The diagram follows a large fund manager’s 500 funds through the schedule and the relationship pricing behind it, the clients’ cash held as deposits and invested at the Bank of Canada and in Government of Canada securities, the monthly calculation from the books of record, the invoice and the direct debit or the manager’s payment under a fixed administration fee, the fee review and the disputes, the revenue mix of the bank, the consultant’s search and the repricing at renewal, and the governance of the fees under NI 81-107 and Part 5 of NI 81-102.

Worked example, illustrative:client a large fund manager: CAD 300,000,000,000 in 500 funds, 55% in Canada, 30% in the US, 15% in 60 markets abroad (illustrative)schedule 0.30bp on the Canadian assets, 0.40bp on the US, 1.5bp, 4bp and 12bp by tier abroad; CAD 6 per CDSX settlement; CAD 15,000 minimum per fundthe month CAD 1,787,500 asset-based, CAD 960,000 of transactions, CAD 90,000 out-of-pocket: CAD 2,837,500payment the invoices by the 10th business day; the direct debit from each fund’s account 30 days later, disputed amounts heldthe bank CAD 1,200,000,000 of revenue: 75% fees, 25% net interest income on CAD 25,000,000,000 of client deposits (illustrative)renewal five-year terms; the consultant’s search; a 15% repricing with fund administration bundled; the IRC where the custodian is an affiliate

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The custodian’s fees are set once every five years and computed every month from the same books of record that hold the assets, so the market values drive the invoice. Beside the fees, the clients’ cash funds the bank’s balance sheet, and the net interest income on it is a quarter of the revenue in the example.

The fee schedule: the asset-based fee by market tier is the core (the tiers group the markets by cost and risk, Canada and the US lowest, the frontier markets highest, where the agents’ fees and the operations cost most), sometimes replaced or completed by a holdings fee per position; the transaction fees by type (a settlement against payment or free, a cash payment, a corporate action election, a tax reclaim filed) and by market; the cash and the FX terms; the out-of-pocket expenses at cost; the minimums per account; the fund accounting in basis points of the net assets and the record keeping per unitholder account under their own schedules, usually bundled with the custody. The terms fix the fees for three to five years, sometimes with an inflation escalator, and set the notice periods and the deconversion costs of a departure. The cost side is mostly the network: the custodian pays its agents by market and bills its clients by tier (see Network).
The cash and the FX: the clients’ cash balances earn a rate the bank sets or negotiates against the Bank of Canada’s rate or CORRA less a spread, with the sweep to a money market fund as the alternative; the policy rate at 0.25% in 2020 and 2021, raised to 5% in 2022 and 2023 and cut from June 2024 to 2.25%, moved the net interest income of the custody banks with it. Standing instruction FX is priced at a published methodology and spread with a trade-by-trade report since the US custody FX settlements of 2015 and 2016, and the managers compare it with their own dealing. The out-of-pocket line is the one the fee reviews test first, since a markup on a third-party cost billed as at cost was the subject of the US overbilling cases of 2019 to 2021.
The revenue mix and the price pressure: at a custody bank the fees are typically about three quarters of the revenue and the net interest income about a quarter. The Canadian market is concentrated: a handful of custodians, most owned by or tied to the large banks, the bank-owned fund managers keeping their custody in their group, and the independent managers, the pension plans and the insurers as the contested clients. The fees face a steady compression: the growth of the ETFs with thin fee budgets, the consolidation of the managers into fewer and larger clients, the consultants’ searches at every renewal. The custodians answer with scale and automation, with the bundling of the fund administration, the record keeping through Fundserv and the data services, and with the minimums that keep the small accounts priced at their cost.
The governance of the fees: a Canadian fund has no board of its own; the manager’s board decides, the independent review committee under NI 81-107 reviews the conflicts of interest the manager refers to it (the use of an affiliated custodian and its fees among them), and Part 5 of NI 81-102 requires the unitholders’ approval of a change in the basis of a fee charged to a mutual fund that could increase it, unless the party charging it is at arm’s length and the unitholders receive 60 days’ written notice. The custody fees are operating expenses of the fund, in its management expense ratio disclosed in the fund facts and the management report of fund performance under NI 81-106, or paid by the manager out of a fixed administration fee. The pension plan administrators must pay only reasonable expenses from the pension fund under the pension standards legislation, and review the custody fees in their yearly governance.