DTCC Expands Canadian Settlement with New Corporate Action Services
DTCC has enhanced its settlement link with CDS Clearing and Depository Services Inc. (CDS) to offer new corporate action benefits including dividend, redemption and reorganization services.
The Canadian-Link Services, which went into operation in 2005, supports the processing and settlement of transactions in Canadian dollars at The Depository Trust Company (DTC), a DTCC subsidiary. This helps eliminate problems associated with maintaining split inventories in Canadian and U.S. securities and enables customers to concentrate all U.S. and Canadian security positions in their DTC accounts.
Settlement options
"The new services significantly expand the Canadian-Link Services program by offering our customers new processing capabilities for income, redemption and corporate actions payments, and it gives them the option of settling in either U.S. or Canadian dollars," said Patrick Kirby, DTCC managing director for Asset Services. The services were launched in July 2008.
"Many of the banks and broker/dealers participating in Canadian-Link Services requested that we expand our custodial duties to bring further efficiencies to their work processes," Kirby added. Under the original program, DTC customers could clear and settle Canadian dollars at DTC, but they had to turn to CDS or other custodians for corporate actions.
The expansion enables DTC customers to receive and make payments on all corporate actions events for eligible Canadian issues – approximately 1,000 are now eligible – including tender offers and rights issues in Canadian dollars or a mix of U.S. and Canadian dollars.
Tax benefits
For interest and dividend payments, DTC customers also can take advantage of DTC’s Elective Dividend Service (EDS). With EDS, DTC customers will be able to obtain "at-source" tax relief for Canadian issues. At-source relief allows DTC customers to pay the lower tax rate at the time of a dividend payment, rather than a higher or maximum rate, which would require a tax reclaim to recover the over-withheld amount. This allows investors to eliminate the expensive and time-consuming processing associated with cross-border, hard-copy tax reclamation.
"In addition to the tax advantages that the new settlement system offers, the expanded settlement process that DTC has initiated will make for one-stop shopping for many participants," said Kirby. "It limits the interfaces and the repositioning that they will have to do, streamlining cross-border trading and making clearance and settlement and corporate actions processing more efficient." @