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Canadian Derivatives Clearing Corp. – ‘POS AM’ on 3/30/21

On:  Tuesday, 3/30/21, at 12:21pm ET   ·   Accession #:  1104659-21-43798   ·   File #:  333-184288

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/30/21  Canadian Derivatives Cleari… Corp POS AM                 3:820K                                   Toppan Merrill/FA

Document/Exhibit                   Description                      Pages   Size 

 1: POS AM      Post-Effective Amendment of a Registration          HTML    368K 
                Statement                                                        
 2: EX-5        Opinion of Counsel re: Legality                     HTML      8K 
 3: EX-23       Consent of Expert or Counsel                        HTML      6K 

As filed with the Securities and Exchange Commission on March 30, 2021

Registration No. 333-184288

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

POST-EFFECTIVE AMENDMENT NO. 9

to

FORM S-20

REGISTRATION STATEMENT UNDER THE

SECURITIES ACT OF 1933

________________

CANADIAN DERIVATIVES CLEARING CORPORATION

(Exact name of registrant as specified in its charter)

________________

This Post-Effective Amendment No. 9 shall become effective on such date as the Securities and Exchange Commission shall determine in accordance with the provisions of Section 8(c) of the Securities Act of 1933, as amended.

PART I

CANADIAN DERIVATIVES CLEARING CORPORATION

Exchange Traded Put and Call Options

This prospectus pertains to put and call options (“Puts” and “Calls,” and, collectively, “Options”) that may be purchased or sold in transactions on Bourse de Montréal Inc. (the “Bourse”).

The Options covered by this prospectus are issued by Canadian Derivatives Clearing Corporation (the “Corporation”). Each Option relates to a particular Underlying Interest (a security listed on a recognized Canadian securities exchange, a Canadian government bond or a Canadian stock index or sub-index). These Options are not listed or traded on any securities exchanges in the United States, although certain of the Underlying Interests are traded on one or more U.S. exchanges. Several U.S. exchanges are currently trading standardized options (“U.S. Options”) relating to foreign securities that are listed on U.S. exchanges, including certain securities of Canadian issuers who have securities listed on U.S. exchanges. Certain U.S. Options relate to securities of Canadian issuers that are also Underlying Interests of the Options offered hereby. Investors may consult their U.S. brokers to determine whether such U.S. Options are available. The Options offered hereby and U.S. Options are not interchangeable and, although the terms and procedures applicable to the Options and to U.S. Options are similar, they are not identical in all respects. There may be additional risks for U.S. investors that buy or sell Options as the result of trading in a foreign market in a foreign currency.

An options disclosure document entitled “The Characteristics and Risks of Listed Canadian Options” containing a description of the risks of options transactions is required to be furnished to option investors by their brokers. Copies of the options disclosure document can also be obtained without charge from the Corporation upon request or via the Corporation’s internet web site at the address: http://www.cdcc.ca. The financial statements and certain additional information included in Part II of the registration statement filed by the Corporation registering the offer and sale of Options under the U.S. Securities Act of 1933, as amended, and the exhibits filed with the registration statement can be obtained without charge (i) from the Corporation upon request or (ii) from the Securities and Exchange Commission’s internet website at the address: http://www.sec.gov.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

BOTH THE PURCHASE AND WRITING OF OPTIONS MAY INVOLVE SPECULATIVE RISKS, WHICH ARE NOT SUITABLE FOR MANY INVESTORS.

The date of this Prospectus is ___ , 2021.

Both the purchase and writing of Options involve a high degree of risk and are not suitable for many investors. Such transactions should be entered into only by investors who have read and understand the options disclosure document, “The Characteristics and Risks of Listed Canadian Options”, and who understand the nature and extent of their rights and obligations and are aware of the risks involved. In addition, U.S. investors may face certain difficulties in seeking to avail themselves of various remedies under United States or Canadian securities laws (see “Risks of Trading in Canadian Securities”).

No person has been authorized to give any information or to make any representations, other than those contained in this prospectus, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Corporation or the Bourse. This prospectus does not constitute an offer to sell Options in any jurisdiction in which, or to any person to whom, it is unlawful to make such offer. The delivery of this prospectus does not imply that the information herein is correct as of any time subsequent to its date.

Notice to Nebraska Residents: Options will only be sold in Nebraska by broker-dealers registered with the Nebraska Department of Banking and Finance. In addition, as a condition to the Nebraska securities registration covering the Options, only the following Options may be sold to Nebraska residents pursuant to such registration:

(iii)       Index Options.

TABLE OF CONTENTS

Page

RISKS OF TRADING IN CANADIAN SECURITIES

The Corporation is incorporated under the laws of Canada and all of the Corporation’s assets are outside of the United States. In addition, all of the Corporation’s directors and officers and the persons named as experts in this prospectus are residents of Canada. Consequently, it may be difficult for investors to effect service of process within the United States upon such persons or to realize against them or the Corporation judgments of courts of the United States predicated upon civil liabilities under the United States securities laws. There is substantial doubt as to the enforceability in Canada in original actions or in actions for enforcement of judgments of the United States courts for liabilities predicated solely upon such laws.

Although the Corporation and its members, and the Bourse and its participants are subject to regulation by governmental authorities of various provinces of Canada, they are not subject to the regulatory jurisdiction of the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “1934 Act”), except for certain members or participants that may be subject to regulation under the 1934 Act by virtue of their activities conducted in the United States. Therefore, although U.S. investors may be able to avail themselves of remedies under the 1934 Act as against their U.S. brokers, these remedies will generally not be available to U.S. investors as against the Corporation, the Bourse and most brokers in Canada. Although certain remedies may be available to U.S. investors and U.S. brokers as against Canadian persons under applicable provisions of certain Canadian securities laws, including the Securities Act (Ontario), the Derivatives Act (Quebec) and the Securities Act (Quebec), it may be necessary to commence legal actions in Canadian courts in order to seek relief under these laws. Further, where a Canadian broker has no direct relationship with a U.S. customer but simply acts as a correspondent of the customer’s U.S. broker, the U.S. customer may be unable to assert any rights directly against the Canadian broker. However, U.S. brokers which do have a direct relationship with Canadian brokers may not suffer the same disability. As a practical and legal matter, it may be difficult or impossible for U.S. investors or U.S. brokers to assert any rights under either U.S. or Canadian law as against Canadian persons involved in the handling of Options transactions.

Although the constitutions and rules of the Bourse are similar to the constitutions and rules of U.S. exchanges, there are differences.

THE CORPORATION

The Corporation serves as the issuer of every outstanding Option traded on the Bourse and bears the primary obligation to perform upon the exercise of an Option. In addition, the Corporation acts as the clearing facility through which the settlement of Options transactions effected on the Bourse is made.

In addition to its role as a clearinghouse for exchange traded options on equities, stock indices and futures, the Corporation acts as a clearinghouse for exchange-traded futures listed on the Bourse and provides central counterparty clearing services for over-the-counter financial instruments in Canada. In December 2009, the Investment Industry Association of Canada chose the Corporation to develop the infrastructure for central counterparty services to the Canadian fixed income market. The Corporation has adopted rules and manuals for this purpose and has been offering, since February 2012, central counterparty clearing for repurchase transactions to the Canadian financial market participants.

Only persons that meet the eligibility and capital requirements established by the Corporation’s By-laws and Rules may apply to become a member of the Corporation. See “Additional Information” regarding the By-laws and Rules. The acceptance by the Corporation of the application of membership, together with the By-laws and Rules, form the agreement governing all transactions in options submitted for clearing to the Corporation by a member (a “Clearing Member”). All of the Corporation’s clearing activities are ultimately supported by the Clearing Fund to which all Clearing Members contribute.

The Corporation was incorporated under the laws of Canada on September 29, 1974 as “The Canadian Clearing Corporation For Options Limited”. The Corporation was also known as “Trans Canada Options Inc.” before changing its name to its present name, Canadian Derivatives Clearing Corporation, in 1996.

The Corporation was formed for the purpose of acting as the issuer and primary obligor of, and as the clearing facility for transactions in, options traded on the Toronto Stock Exchange (“TSX”). After acquiring The Montréal Options Clearing Corporation in 1977, the Corporation served as the issuer and primary obligor of, and as the clearing facility for, transactions in options traded on the Bourse, the TSX and the Vancouver Stock Exchange (“VSE”).

In 1999, the Alberta Stock Exchange (“ASE”), the Bourse, the TSX and the VSE agreed to a restructuring of the Canadian equities and derivatives markets in which the ASE and the VSE were combined to create a single junior equities market, all senior equities were transferred to the TSX and the Bourse became the exclusive Canadian exchange for exchange-traded derivative products, comprising any type of option and futures contracts, including options and futures on index participation units. As part of this restructuring program, the shares in the Corporation held by the TSX were transferred to the Bourse, effective March 31, 2000. The Bourse has been sole shareholder of the Corporation since the restructuring.

In 2008, the Bourse became, through a series of amalgamations, a direct subsidiary of TMX Group Inc. TMX Group Inc. also controls the TSX, which is the marketplace for senior equities in Canada, and the TSX Venture Exchange, which is the marketplace for junior equities in Canada.

In 2012, TMX Group Limited (formerly Maple Group Acquisition Corporation) acquired TMX Group Inc., The Canadian Depository for Securities Limited (“CDS”), Alpha Trading Systems Inc. and Alpha Trading Systems Limited Partnership, resulting in the Bourse being an indirect subsidiary of TMX Group Limited. In 2017, TMX Group Inc. amalgamated with TMX Group Limited and certain other affiliated entities, and as a result, the Bourse is a direct subsidiary of TMX Group Limited.

The Board of Directors of the Corporation is comprised of twelve members, of which six are independent directors. An “independent director” is a director who is not: (i) a partner, director, officer or employee of a significant shareholder of TMX Group Limited; (ii) a partner, director, officer or employee of a member of the Corporation or of an affiliate of such member or an associate of such partner, director, officer or employee; (iii) a partner, director, officer or employee of a marketplace that clears through the Corporation or of an affiliate of such marketplace or an associate of such partner, director, officer or employee; or (iv) an officer or employee of the Corporation or of an affiliate of the Corporation or an associate of such officer or employee. Notwithstanding subclauses (ii), (iii) and (iv) of the preceding sentence, a director of either CDS or CDS Clearing and Depository Services Inc. (“CDS Clearing”), each of which is an affiliate of the Corporation, is not considered to be non-independent solely on the ground that he or she is a director, or in the case of the chair of the board of directors only, an officer, of CDS or CDS Clearing and the Chairperson of the Board of Directors is not considered non-independent solely on the ground that he or she is an officer of the Corporation.

The non-independent directors are the President and Chief Executive Officer of the Bourse, the Chief Executive Officer of TMX Group Limited, the Chief Operating Officer of TMX Group Limited and three directors who are officers or employees of a member of the Corporation.

The principal office of the Corporation is located at 1800 - 1190 Avenue des Canadiens-de-Montréal, P.O. Box 37, Montréal, Quebec, H3B 0G7. The Corporation also has an office located at 100 Adelaide Street West, Suite 300, Toronto, Ontario M5H 1S3.

DESCRIPTION OF OPTIONS

General

The securities covered by this prospectus are Put and Call Option contracts that may be purchased and sold in transactions on the Bourse. The Options are issued by the Corporation and each Option relates to a particular Underlying Interest. A Call Option gives the holder the right to purchase a specified amount or value of the Underlying Interest (in accordance with the rules of the Bourse and the Corporation) at the exercise price prior to or at a fixed expiration time. A Put Option gives the holder the right to sell a specified amount or value of the Underlying Interest (in accordance with the rules of the Bourse and the Corporation) at the exercise price prior to or at a fixed expiration time. The Underlying Interests are either (i) in the case of “Equity Options”, equity securities listed on a recognized Canadian securities exchange, (ii) in the case of “Bond Options”, Canadian government bonds or (iii) in the case of “Index Options”, various Canadian stock indices and sub-indices. A list of the Underlying Interests and details of the terms of Options that are traded on the Bourse may be obtained from the Corporation, from the Bourse or from a Clearing Member of the Corporation.

In the case of Equity Options and Bond Options, subject to certain limitations, the Clearing Member acting on behalf of a holder of a Call Option has the right to purchase from the Corporation, and the Clearing Member acting on behalf of a holder of a Put Option has the right to sell to the Corporation, the Underlying Interest covered by the Option at the exercise price at any time prior to the expiration of the Option. In the case of Index Options, subject to certain limitations, Options give the Clearing Member acting on behalf of a holder the right to receive a cash Exercise Settlement Amount. In the case of an Index Call Option, the cash Exercise Settlement Amount equals the amount by which the fixed exercise price of the Index Call Option is less than the settlement value of the underlying index on the expiration date, multiplied by the applicable multiplier. In the case of an Index Put Option, the cash Exercise Settlement Amount equals the amount by which the fixed exercise price of the Index Put Option exceeds the settlement value of the underlying index on the expiration date, multiplied by the applicable multiplier.

Detailed information concerning the rights and obligations of holders and writers of Options and the risks associated with Options transactions is contained in an options disclosure document entitled “The Characteristics and Risks of Listed Canadian Options” prepared by the Corporation and filed with the Securities and Exchange Commission. Brokers are required to furnish the options disclosure document to their Options customers. Copies of the options disclosure document can also be obtained without charge from the Corporation upon request or via the Corporation’s internet web site at the address: http://www.cdcc.ca.

Styles of Options

The Options issued by the Corporation are classified as either American-style Options or European-style Options. The difference between the two styles of Options is their applicable exercise periods. American-style Options may be exercised at any time between their purchase and expiration. European-style Options may generally be exercised only during a specified period immediately prior to their expiration. At this time, all Equity Options and Bond Options are American-style Options and all Index Options are European-style Options. Index Options are currently exercisable only at expiration.

Certificateless Trading

Certificates for Options will not be issued by the Corporation to evidence the issuance of Options. The ownership of Options is evidenced by the confirmations and periodic statements which customers receive from their brokers and which show each Put or Call held or written, the Underlying Interest and the number of shares of other units thereof subject to the Option, the exercise price and the expiration month.

OBLIGATIONS OF THE CORPORATION

The obligations of the Corporation to its Clearing Members, acting on behalf of holders and writers of Options, are addressed in the Corporation’s by-laws and rules, copies of which may be obtained in the manner described below under “Additional Information.” The following is a brief summary of some, but not all, of those obligations and is qualified in its entirety by the provisions of the by-laws and rules themselves.

Acceptance and Rejection of Transactions by the Corporation

An Option transaction is automatically accepted by the Corporation if it is included in the Corporation’s summary of completed trades and if the premium has been paid. From the point of view of the Corporation, the premium for an Option purchased in a customer account is deemed to be paid only when the buyer’s Clearing Member has paid its total net premium obligations to the Corporation for all Options purchased through that Clearing Member’s account with the Corporation. If the Clearing Member does not make this payment, the Corporation may reject the transaction, notwithstanding that the customer may have paid the premium to his broker. The Corporation intends to reject all opening purchase transactions in which the premium is not paid, except when it determines that it has available adequate liquid assets of the defaulting Clearing Member to meet that Clearing Member’s obligations to the Corporation. The Corporation also intends to reject closing purchase transactions in which the premium is not paid if the position being closed out is margined at the Corporation by the deposit of the Underlying Interest or an escrow receipt in respect thereof, and the Corporation intends to accept all closing purchase transactions where cash margin may be utilized to pay the premium.

If a transaction is rejected for nonpayment of the premium, the Corporation will promptly notify the writer’s Clearing Member. The writer will then have the remedies available under the Rules of the Corporation as well as the Rules of the Bourse.

Exercise of Options

The exercise of an Option – whether a Put or a Call – takes place only through the Corporation by the timely submission of an exercise notice to the Corporation by the Clearing Member acting on behalf of the exercising holder. This means that a holder of an Option may only exercise it through the broker handling the account in which the Option is held who, if not itself the Clearing Member, must forward the exercise notice to the Clearing Member. If an Option is not properly exercised prior to its expiration, it will become worthless.

In order to exercise an outstanding Option, the Clearing Member must submit an exercise notice in acceptable form to the Corporation not later than the expiration time of the Option. The expiration time should not be confused with the broker’s cut-off time for exercising Options. Generally, in order to exercise an Option, a customer must so instruct his or her broker to exercise an Option prior to the broker’s cut-off time for accepting exercise instructions (which will be earlier than the expiration time). Different brokers may have different cut-off times for accepting exercise instructions from customers and those cut-off times may be different for different types of Options. Customers must consult with their brokers to determine the applicable cut-off times for accepting exercise instructions.

The Corporation assumes no responsibility for the timely or proper tender to it of exercise notices by Clearing Members. The failure of a Clearing Member (or of any broker) to transmit an exercise notice within the required time or in proper form will not result in any obligation on the part of the Corporation, although, depending on the circumstances, the Clearing Member or broker responsible for the failure may be liable.

Every tender of an exercise notice to the Corporation is irrevocable. Upon the proper and timely tender of an exercise notice, the exercising Clearing Member acting on behalf of a holder will be under a contractual obligation to pay the aggregate exercise price for the Underlying Interest (in the case of a Call) or to deliver the Underlying Interest (in the case of a Put) on the exercise settlement date, even though the Underlying Interest may change in value after the exercise notice has been tendered. When a Call is exercised, the exercising Clearing Member acting on behalf of a holder becomes subject to all of the risks of a holder of the Underlying Interest and to the applicable margin requirements.

Assignment of Exercise Notices

The Corporation assigns each effective exercise notice that it receives to a Clearing Member acting on behalf of a writer of an Option having the same terms as the exercised Option. This Clearing Member is then obligated to sell (in the case of a Call) or purchase (in the case of a Put) the Underlying Interest represented by the Option against payment of the exercise price, or, in the case of an Index Option, to pay the Exercise Settlement Amount.

The Corporation assigns any exercise notice properly received by it before 5:30 p.m. on any business day prior to the expiration date, or before the expiration time on the expiration date, as of the day of receipt. The Corporation randomly assigns each exercise notice to a Clearing Member whose account with the Corporation reflects the writing of an Option of the same series as the exercised Option.

If the Corporation assigns an exercise notice to a Clearing Member, that Member is required to reassign the exercise notice to a customer maintaining a position as a writer in its account with the Clearing Member, or to a broker who has cleared a writing transaction through the Clearing Member.

Delivery of Underlying Interests

In the case of Equity Options and Bond Options, the Clearing Member to whom an exercise notice with respect to a Call Option is assigned or the Clearing Member who is exercising the Put is required to deliver the Underlying Interest in good deliverable form (as defined in the rules of the Corporation and the rules of the Bourse) against the payment of the exercise price. Transactions in Underlying Interests arising from exercise notices will be cleared through the systems used for settlement of transactions in such Underlying Interests.

Upon the exercise of an Index Option, the Exercise Settlement Amount is credited to the exercising Clearing Member’s account with the Corporation and charged to the account of the assigned Clearing Member. In the unlikely event that an out-of-the-money Option were to be exercised, the Exercise Settlement Amount would be negative and the flow of funds would be reversed.

For Equity Options and Bond Options, the obligations of the Corporation are discharged upon delivery of the Underlying Interest to the Clearing Member representing the exercising holder (in the case of a Call) or the assigned writer (in the case of a Put). For Index Options, the Corporation’s obligations are discharged when the Exercise Settlement Amount is credited to the account of the exercising Clearing Member. The Corporation will have no responsibility if the Clearing Member should subsequently fail to deliver the Underlying Interest or Exercise Settlement Amount to the exercising holder, or the assigned writer, as the case may be.

Remedies

If, following the exercise and assignment of an Option, the Clearing Member required to make delivery fails to complete such delivery by the settlement date, such Clearing Member will be in default of its obligations. The Corporation may take or cause, authorize or require to be taken whatever steps it may deem necessary to effect delivery or otherwise settle with the receiving Clearing Member. Without limiting the generality of the foregoing, the Corporation may acquire and deliver the Underlying Interest on the open market, enter into an agreement with the receiving Clearing Member and the delivering Clearing Member relating to the failed delivery and/or take such other action as the Corporation may, in its absolute discretion, deem appropriate or necessary in order to ensure that Clearing Members’ obligations are fulfilled and any such action shall constitute an obligation of the delivering Clearing Member. In the event that the purchase of the undelivered Underlying Interest at the best available market for the account of the receiving Clearing Member exceeds the exercise price, the defaulting delivering Clearing Member shall be liable for and shall promptly pay to the Corporation or the receiving Clearing Member, as the case may be, the amount of such difference.

If the receiving Clearing Member required to receive the Underlying Interest fails to receive, or fails to pay the exercise price for, all the Underlying Interest delivered to it in good deliverable form in fulfillment of an exercised Option, and such failure shall continue beyond 4:00 p.m. on the settlement date, the receiving Clearing Member will be in default of its obligations. The Corporation may take or cause, authorize or require to be taken whatever steps it may deem necessary to effect payment to, or otherwise settle with, the delivering Clearing Member. Without limiting the generality of the foregoing, the Corporation or the delivering Clearing Member may, upon notice to the defaulting receiving Clearing Member and, if such action is taken by the delivering Clearing Member, to the Corporation, sell out in the best available market, for the account and liability of the defaulting receiving Clearing Member, all or any part of the undelivered Underlying Interest and/or take such other action as the Corporation may, in its absolute discretion, deem appropriate or necessary in order to ensure that the Clearing Members’ obligations are fulfilled and any such action shall constitute an obligation of the receiving Clearing Member. Notice of any deficiency arising from such sell-out shall be submitted immediately to the Corporation and the defaulting receiving Clearing Member. The defaulting receiving Clearing Member shall pay promptly, and in any event prior to 10:00 a.m. on the business day following the day on which the sell-out is executed, to the delivering Clearing Member the difference, if any, between the exercise price and the price at which such Underlying Interest was sold out.

If a party to an Index Option exercise is suspended or fails to pay the Exercise Settlement Amount, there is no underlying security to be bought in or sold out by the other party. Accordingly, the Corporation is substituted for the defaulting Clearing Member and is obligated to pay or receive the Exercise Settlement Amount in due course on its behalf.

THE BACK-UP SYSTEM

The settlement procedures of the Corporation are designed so that for every outstanding Option there will be a writer, and a Clearing Member representing the writer (unless the Clearing Member is also the writer), of an Option of the same series who has undertaken to perform the obligations of the Corporation in the event an exercise notice for the Option is assigned to it. As a result, no matter how many Options of a particular series may be outstanding at any time, there will always be a group of writers of options of the same series who, in the aggregate, have undertaken to perform the Corporation’s obligations with respect to such Options.

Once an exercise notice for an Option is assigned to a particular Clearing Member representing a writer, that Clearing Member is contractually obligated to deliver the Underlying Interest (in the case of a Call), to pay the exercise price (in the case of a Put) or to pay the Exercise Settlement Amount (in the case of an Index Option) in accordance with the terms of the Option. This contractual obligation of the Clearing Member representing the writer is secured by the securities or other margin which the Clearing Member representing the writer is required to deposit with the Corporation.

The Clearing Member representing the writer is also obligated, whether or not its customer performs, to perform the writer’s obligations on an assigned Option. As described below, standing behind a Clearing Member’s obligations are the Clearing Member’s minimum capital requirements, the Clearing Member’s margin deposits with the Corporation, the Corporation’s lien or pledge on certain of the Clearing Member’s assets and the clearing fund. Neither the Bourse nor any approved participant of the Bourse (except as such approved participant may be the writer or a Clearing Member or a broker representing the writer to whom an exercise notice has been assigned) has an obligation for the performance of any Option upon the exercise thereof.

The Clearing Member’s Minimum Capital Requirements.

In order to be admitted to clear Options, a Clearing Member must be either (i) a member of, or approved participant in good standing with, an exchange recognized by a Canadian province or a dealer member in good standing with the Investment Industry Regulatory Organization of Canada, (ii) a bank or an authorized foreign bank to which the Bank Act (Canada), as amended from time to time, applies, or (iii) a Financial Institution that is either (a) a financial services cooperative regulated pursuant to an Act respecting financial services cooperatives (Québec), or (b) a credit union central or a central cooperative credit society, which is incorporated and regulated under the laws of Canada or under the legislature of a province, and one of whose principal purposes is to provide liquidity support to local credit unions or financial services cooperatives. Clearing Members that are members of, or approved participants in good standing with, a recognized Canadian exchange or a dealer in good standing with the Investment Industry Regulatory Organization of Canada must maintain the minimum capital requirements pursuant to the regulations of the Investment Industry Regulatory Organization of Canada or of the exchange of which it is a member and the minimum capital requirements set by the regulations under applicable securities legislation. Clearing Members that are banks subject to the Bank Act (Canada) must meet the minimum capital adequacy requirements that may be set from time to time by the Canadian Office of the Superintendent of Financial Institutions. Clearing Members that are Financial Institutions must maintain the minimum capital adequacy requirement adopted from time to time by the Regulatory Body having jurisdiction over the Clearing Member, and that is judged by the Corporation to be comparable to such capital adequacy requirement applicable to a Bank Clearing Member, for a Financial Institution Clearing Member. Under the rules of the Corporation, Clearing Members using the services of the Corporation as central counterparty clearing for repurchase transactions are subject to more stringent capital requirements and, depending on the category of membership they apply for, to different eligibility criteria than those above.

Although the Corporation and the Bourse seek to achieve compliance with the minimum capital requirements by their respective members and participants, including Clearing Members, neither the Corporation nor the Bourse is liable for any damages suffered as a result of any Clearing Member’s failure to comply with its minimum capital requirements.

The Clearing Member’s Margin Deposits.

Except as provided below, each Clearing Member is required, with respect to each Option for which it represents the writer to deposit and maintain specified margin with the Corporation. In the case of a Call, the Clearing Member will not be subject to margin requirements if it deposits the Underlying Interest of the Option (or, in certain cases, a security exchangeable for or convertible into the Underlying Interest, herein referred to as the “other security”) with the Corporation. The deposit of the Underlying Interest (or other security) is made electronically within a central securities depository to the Corporation. For this purpose, the Corporation has pledging arrangements with the CDS Clearing and The Depository Trust and Clearing Corporation. In the case of a Put, the Clearing Member will not be subject to margin if it provides to the Corporation a put escrow receipt issued by an approved depository. A put escrow receipt is a formal representation by the issuing depository to the Corporation that a customer has deposited cash in an amount equal to the aggregate exercise price of a specific Put, which amount is held in trust for the Corporation.

The Clearing Member that clears Options must maintain with the Corporation a margin deposit in an amount prescribed by the Corporation. On a daily basis, each Clearing Member’s margin requirements are compared to its risk adjusted capital. In cases where margin requirements exceed the Clearing Member’s risk adjusted capital, the Clearing Member must provide an additional margin deposit in an amount equal to the excess. The Clearing Member may maintain such margin in the form of cash, securities issued or guaranteed by the government of Canada or certain securities traded on The Toronto Stock Exchange or the TSX Venture Exchange. The Corporation may from time to time accept other forms of margin deposit in accordance with its rules and manuals then in effect.

If an exercise notice has been assigned to a Clearing Member in respect of an Option held in a short position, it is required (in the event that the Underlying Interest represented by the Option has not been deposited) to maintain margin with the Corporation with respect to the assigned Option in an amount prescribed by the Corporation.

The Corporation is authorized to require any Clearing Member to deposit higher margins at any time in the event it deems such action necessary and appropriate in the circumstances to protect the interests of the other Clearing Members, the Corporation or the public.

The Corporation’s Lien.

In the event that a Clearing Member defaults in its obligations under the Corporation’s rules respecting the fulfillment of any Options contract, the securities (including customers’ securities), margin, clearing funds and other funds deposited by such Clearing Member (and, where required, clearing funds deposited by other Clearing Members) with or to the order of the Corporation may be applied by the Corporation to fulfill such Clearing Member’s obligations. The proceeds from the securities of a customer of a Clearing Member may be used only to satisfy the obligations of such Clearing Member relating to its customer accounts.

The Clearing Fund.

Upon acceptance as a Clearing Member of the Corporation for the clearing of Options, each Clearing Member must maintain a minimum amount of assets at all times in a clearing fund maintained by the Corporation. For those Clearing Members admitted to clear Options only, the minimum deposit is $25,000. Thereafter, the amount of each member’s Clearing Fund deposit will vary depending upon the member’s level of uncovered residual risk, but in no event will decline below the minimum deposit. All Clearing Fund deposits must be made in cash.

If a Clearing Member fails to discharge any obligation to the Corporation, that Clearing Member’s clearing fund deposit may be applied to the discharge of that obligation. If there is a deficiency in its clearing fund deposit, the Clearing Member is liable to the Corporation for the full amount of that deficiency. If a Clearing Member’s obligation to the Corporation exceeds its total clearing fund deposit, the amount of the deficiency will be charged pro rata by the Corporation against all other Clearing Members’ deposits to the clearing fund. Whenever any amount is paid out of the clearing fund as a result of any such pro rata charge, every other Clearing Member is required promptly to make good any deficiency in its own deposit resulting from such payment. However, no Clearing Member is required to pay more than an additional 100% of the amount of its prescribed clearing fund deposit.

Clearing Members’ deposits to the clearing fund may be applied to the discharge of any of their obligations to the Corporation, including obligations arising from transactions on an exchange accepted for clearance by the Corporation, or the assignment of Option exercise notices. The Clearing Fund is not a general indemnity fund available to other persons (whether or not they are customers of a Clearing Member) for the payment of any other obligation.

The Corporation will also have available its own assets in the event that the clearing fund is deficient. However, the assets of the Corporation are limited.

ADDITIONAL INFORMATION

Important information regarding the risks and uses of Options is contained in the options disclosure document prepared by the Corporation entitled “The Characteristics and Risks of Listed Canadian Options” referred to above under the caption “Description of Options — General.” Brokers are required to furnish the options disclosure document to their customers. Copies of the options disclosure document can also be obtained without charge from the Corporation via the Corporation’s internet web site at the address: http://www.cdcc.ca.

This prospectus contains a brief description of the rights and obligations of holders and writers of Options summarized from provisions of the by-laws and rules of the Corporation and the rules of the Bourse as in effect on the date of this prospectus. These documents may be inspected at the Montréal and Toronto offices of the Corporation, and at the offices of the Bourse. In addition, the rules and bylaws of the Corporation are available electronically at the Corporation’s internet web site at the address: http://www.cdcc.ca. The rules of the Bourse are available electronically at the Bourse’s internet website at the address: http://www.m-x.ca.

This prospectus forms part of a registration statement filed with the Securities and Exchange Commission by the Corporation registering the offer and sale of Options under the U.S. Securities Act of 1933, as amended. Information regarding the Corporation not included in this prospectus but filed with the Securities and Exchange Commission as Part II of the Corporation’s registration statement and the exhibits filed with the registration statement can be obtained without charge (i) from the Corporation upon request or (ii) from the Securities and Exchange Commission’s internet website at the address: http://www.sec.gov.

FINANCIAL STATEMENTS

Set forth in Part II of the Corporation’s registration statement are audited balance sheets of the Corporation as of December 31, 2020 and December 31, 2019 and audited income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018 and related notes.

All dollar amounts in the financial statements are expressed in Canadian dollars. A floating exchange rate determines the value of the Canadian dollar against the U.S. dollar. That exchange rate is published daily in the financial section of most major newspapers.

A purchaser of an Option acquires no ownership interest in the Corporation itself and holders of Options rely primarily on the Corporation’s back-up system rather than its assets to stand behind the Corporation’s obligations in respect of the Options that it issues.

Although the Bourse is not an issuer of or obligor on the Options, the financial statements of the Bourse may be relevant to the continued operations of the Corporation and are available for inspection at the Montréal and Toronto offices of the Corporation and at the offices of the Bourse without charge.

LEGAL OPINIONS

In-house legal counsel to the Corporation has given its opinion that the Options covered by this prospectus have been duly authorized and, when duly issued in accordance with the by-laws and rules of the Corporation, will be valid and legally binding obligations of the Corporation in accordance with and subject to such by-laws and rules.

EXPERTS

The balance sheets of the Corporation as of December 31, 2020 and December 31, 2019 and the related income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the years ended December 31, 2020, December 31, 2019 and December 31, 2018 have been audited by KPMG LLP and are included in Part II of the Corporation’s registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing in Part II of the Corporation’s registration statement, and upon the authority of said firm as experts in accounting and auditing.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 4.      Directors and Executive Officers.

As of the date of this Post-Effective Amendment, the Board of Directors of Canadian Derivatives Clearing Corporation (the “Corporation”) consists of twelve Directors.

As of the date of this Post-Effective Amendment, the Directors of the Corporation are as follows:

As of the date of this Post-Effective Amendment, the Executive Officers of the Corporation are as follows:

The principal occupations of the Directors and Executive Officers of the Corporation are now and during the past five years have been as follows:

Mr. Jean-Paul Bachellerie has been Chief Executive Officer of PI Financial Corp., a full service, independent, self-clearing Canadian investment dealer since December 2018 and served as President and Chief Operating Officer of PI Financial Corp. from 2001 until his appointment as Chief Executive Officer. Mr. Bachellerie was selected to serve on the Corporation’s Board of Directors based on his many years of operating experience in the securities industry.

Dr. Marie-Claude Beaulieu is full professor of finance and RBC Chair in Financial Innovations at the Université Laval. She obtained her Ph.D. from Queen’s University in 1994 and has been associated with Laval ever since, being promoted to full professor in 2002. Dr. Beaulieu is a fellow of a public policy research centre (Centre de recherche sur le risques, les enjeux économiques, et les politiques publiques), and has published numerous academic papers in finance. Dr. Beaulieu was selected to serve on the Corporation’s Board of Directors due to her extensive knowledge in derivatives products and empirical finance evidenced by important research contributions and publications in the field.

Mr. Jean-François Bertrand has been Interim President of the Corporation since February 2021 and Chief Operating Officer of the Corporation since March 2019. Prior to that, Mr. Bertrand was Vice-President, Post-Trade Systems, for the Corporation and CDS from August 2018 to March 2019. From August 2016 to August 2018, Mr. Bertrand served as Vice-President, Trading Systems at the Bourse and Toronto Stock Exchange and from April 2014 to August 2016, he was Vice-President, Market Operations, Services and Connectivity at the Bourse.

Mr. Lloyd Costley joined Raymond James Ltd. in October 2001 and has served as its Chief Operating Officer since May 2012 and as its Chief Risk Officer since December 2019. Raymond James Ltd. is the Canadian subsidiary of Raymond James Financial Inc., a leading North American independent full-service investment dealer. Mr. Costley was selected to serve on the Corporation’s Board of Directors based on his considerable knowledge of Canadian securities markets from his both his current role as a senior executive of a large independent Canadian securities dealer and his previous experience as a senior executive of a Canadian securities exchange.

Mr. Patrick Cronin has been Chief Risk Officer of BMO Financial Group, a North American diversified financial services provider, since November 2018. From November 2016 to November 2018, Mr. Cronin served as CEO and Group Head of BMO Capital Markets, a Canadian investment bank. From November 2014 to November 2016, Mr. Cronin was President and Chief Operating Officer of BMO Capital Markets. Prior to that, from April 2011 to October 2014 he served as Head of Trading Products. Mr. Cronin was selected to serve on the Corporation’s Board of Directors due to his extensive experience within the derivatives markets as a senior officer with a major international bank.

Mr. Frank Di Liso has been Treasurer of the Corporation since May 2018. Mr. Di Liso was named Interim Chief Financial Officer of TMX Group Limited, the ultimate parent of the Corporation, in August 2020 and served as Vice President, Corporate Finance & Administration for TMX Group Limited from January 2014 until being named Interim Chief Financial Officer. Mr. Di Liso previously served as Treasurer of the Corporation from November 2014 to November 2016.

Mr. Joseph Ernst has been Chief Compliance Officer of the Corporation since December 2017. Mr. Ernst has also served as Chief Compliance Officer of CDS since December 2017 and as Vice President, Legal and Business Affairs, for TMX Group Limited since August 2015. Mr. Ernst previously served as Vice President, Commercial & Compliance, for TMX Group Limited from January 2013 to August 2015 and has served in various roles in the legal department of TMX Group Limited since 2001.

Mr. Luc Fortin has been President and Chief Executive Officer of the Bourse since July 2016. The Bourse is the Corporation’s direct parent company. In addition to his role with the Bourse, Mr. Fortin oversees all of the trading activities of TMX Group Limited (including TSX, TSXV, and TSX Private Markets), as well as Shorcan Brokers Limited, a TMX fixed income interdealer broker. All are affiliates of the Corporation. Mr. Fortin served as the Bourse’s Managing Director, Derivatives Trading from June 2016 to July 2016. Prior to joining the Bourse, he served as Managing Director, Canadian Head of the Institutional Client Group at HSBC Bank Canada, a Canadian bank, from April 2011 to May 2016. Mr. Fortin brings to the Corporation’s Board of Directors significant management experience and an extensive knowledge of the Bourse as President and Chief Executive Officer and due to his extensive experience within the derivatives markets with a major international bank.

Ms. Cheryl Graden has been the Secretary of the Corporation since February 2015. Ms. Graden is Chief Legal & Enterprise Affairs Officer and Corporate Secretary of TMX Group Limited, positions she has held since February 2021. Ms. Graden served as Senior Vice President, Group Head of Legal and Business Affairs, Enterprise Risk Management and Government Relations and Corporate Secretary of TMX Group Limited from August 2017 until being named to her current role. Previously, Ms. Graden was Senior Vice-President and Group Head of Legal and Business Affairs and Corporate Secretary of TMX Group Limited from March 2015 to August 2017. Ms. Graden was the Vice President, Cash Clearing & Energy, an affiliate of the Corporation, from January 2013 to March 2015.

Mr. George Kormas has been Vice President, Chief Risk Officer of the Corporation since February 2012.

Mr. Peter Krenkel is retired after serving as the President and Chief Executive Officer of Natural Gas Exchange Inc. (NGX) from 1994 until 2013. During this time, NGX, which has since been sold to Intercontinental Exchange, Inc., was a wholly owned subsidiary of the TMX Group and regulated exchange and clearing facility which provided energy commodity trading, clearing, settlement and delivery services to all major energy market participants in North America. Mr. Krenkel was selected to serve on the Corporation’s Board of Directors due to his extensive experience with governance, regulatory, clearing, operations, technology and risk management matters with a regulated commodity marketplace.

Ms. Lara Krivokucha has been Head, CCP Services, of the Corporation since February 2019. Prior to that, she served as the Corporation’s Director, Strategic Initiatives, from January 2011 to February 2019.

Mr. Paul Langill has been Chief Financial Officer of AIMCo since November 2020. AIMCo is a Canadian crown corporation headquartered in Edmonton, Alberta and manages assets on behalf of 375,000 members of provincial public retirement programs, endowments, government funds, and other public accounts. From September 2019 to October 2020, Mr. Langill was a special advisor to the Chief Executive Officer of of TD Securities, a Canadian investment bank and provider of capital markets products and services. From March 2012 to August 2019, Mr. Langill was the Chief Operating Officer of TD Securities and Executive Vice President of TD Bank Group, a global financial services firm. Mr. Langill was selected to serve on the Corporation’s Board of Directors due to his extensive experience with governance, operations, technology and risk management.

Mr. Bruce Macdonald is Chairperson of the Corporation’s Board of Directors. He was Head, Commodities & Discretionary Capital Group of RBC Bahamas, a division of RBC Capital Markets, a Canadian investment bank, from 2015 to 2017. Previously, Mr. Macdonald was Head of Commodities for RBC Capital Markets from 2008 to 2015. Mr. Macdonald has served on the board of directors of C21 Investments Inc. since 2018 and was named chairman of the board of directors in August 2020. Mr. Macdonald was selected to serve on the Corporation’s Board of Directors due to his extensive experience within the financial service industry, with specific expertise in the capital markets sector.

Mr. John McKenzie has been Chief Executive Officer of TMX Group Limited since August 2020 and served as Chief Financial Officer of TMX Group Limited from July 2016 until his appointment as Chief Executive Officer. Prior to that, Mr. McKenzie served as President of CDS from July 2015 to August 2016, as Chief Financial Officer from March 2013 to July 2015 and as Chief Operating Officer from July 2013 to July 2015. Mr. McKenzie was selected to serve on the Corporation’s Board of Directors due to his extensive corporate strategy and development and corporate finance experience with TMX Group Limited and administrative oversight of TMX Group Limited’s equities, fixed income and derivatives clearing businesses.

Mr. Bryan Osmar has been retired since 2015 following a 35-year career with Royal Bank of Canada (RBC), a Canadian bank and North American diversified financial services company. At the time of his retirement, Mr. Osmar served as a Managing Director of RBC and as RBC’s Head, Market Infrastructures. Mr. Osmar also serves on the board of directors of CDS. Mr. Osmar was selected to serve on the Corporation’s Board of Directors due to his extensive capital markets experience with specific expertise in trading and credit risk management and market infrastructures.

Mr. Jay Rajarathinam joined TMX Group Limited as Chief Information Officer in July 2016 and has been Chief Operations Officer of TMX Group Limited since February 2021. Mr. Rajarathinam served as President of the Corporation and President of CDS from February 2019 to February 2021. Prior to joining TMX Group Limited, Mr. Rajarathinam served as Senior Vice President, Global Head of Infrastructure of NYSE/Intercontinental Exchange, a securities exchange, from December 2012 to July 2016. Mr. Rajarathinam brings to the Corporation's Board of Directors in-depth knowledge of the Corporation given his past service as the Corporation’s President and expertise in the securities clearing, settlement and depositary services industry.

Mr. James Waddell has been Chief Internal Auditor of the Corporation and CDS since January 2013. He has also been Chief Internal Auditor of TMX Group Limited and its predecessors since July 2003.

Ms. Carol Wilding has been President and Chief Executive Officer of the Chartered Professional Accountants of Ontario since October 2014. Chartered Professional Accountants of Ontario is the qualifying and regulatory body of Ontario’s Chartered Professional Accountants, member firms, students in the CPA program. Previously, Ms. Wilding was President and Chief Executive Officer of the Toronto Region Board of Trade, a chamber of commerce organization, from January 2007 to September 2014. Ms. Wilding brings to the Corporation’s Board of Directors financial and accounting expertise as a Charter Professional Accountant, as well as expertise in complex technology projects and transformational initiatives.

Item 5.      Legal Proceedings.

None.

Item 6.      Legal Opinions and Experts.

LEGAL OPINIONS

In-house legal counsel to Corporation has given its opinion that the Options covered by this Post-Effective Amendment have been duly authorized and, when duly issued in accordance with the by-laws and rules of the Corporation, will be valid and legally binding obligations of the Corporation in accordance with and subject to such by-laws and rules.

EXPERTS

The balance sheets of the Corporation as of December 31, 2020 and December 31, 2019 and the related income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the years ended December 31, 2020, December 31, 2019 and December 31, 2018 have been included in this Post-Effective Amendment in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

Item 7.      Financial Statements.

Set forth below are audited balance sheets of the Corporation as of December 31, 2020 and December 31, 2019 and audited income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018.

A purchaser of an Option acquires no ownership interest in the Corporation itself and holders of Options rely primarily on the Corporation’s back-up system rather than its assets to stand behind the Corporation’s obligations in respect of the Options that it issues.

Although the Bourse is not an issuer of or obligor on the Options, the financial statements of the Bourse may be relevant to the continued operations of the Corporation and are available for inspection at the Montréal and Toronto offices of the Corporation and at the Bourse without charge.

Item 8.      Undertakings.

The undersigned registrant hereby undertakes to file a post-effective amendment, not later than 120 days after the end of each fiscal year subsequent to that covered by the financial statements presented herein, containing financial statements meeting the requirements of Regulation S-X and the supplementary financial information specified by Item 12 of Regulation S-K.

The undersigned registrant hereby undertakes not to issue, clear, guarantee or accept any security registered herein until there is a definitive options disclosure document meeting the requirements of Rule 9b-1 of the Securities Exchange Act of 1934 with respect to the class options.

FINANCIAL STATEMENTS

Financial Statements of

CANADIAN DERIVATIVES CLEARING CORPORATION

Years ended December 31, 2020, 2019 and 2018

(In thousands of Canadian dollars, unless otherwise stated)

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Canadian Derivatives Clearing Corporation:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Canadian Derivatives Clearing Corporation (the Company) as of December 31, 2020 and 2019, the related income statements, statements of comprehensive income, statements of changes in equity, and statements of cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the financial performance and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Determination of Shared Service Expense

As discussed in note 1(c) and 20(c) to the financial statements, the Company recorded expenses of $12,419 thousand for the year ended December 31, 2020. Any transactions entered into between the Company and related parties are recorded at the exchange amount and are on terms and conditions that are at least as favourable to the Company as market terms and conditions. Key assumptions in the shared service expense are the model used, the determination of costs to be allocated, and the drivers used to determine the allocation of costs.

We identified the determination of shared services expense as a critical audit matter. Significant auditor judgement and the use of specialized skills and knowledge was required in evaluating the result of our audit procedures due to the high degree of judgment in determining the model to be used, the costs to be allocated and drivers used to determine the allocation of costs in order to determine shared service expense.

The primary procedures we performed to address this critical audit matter included the following:

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We have served as the Company's auditor since 2002.

Toronto, Ontario
January 29, 2021 

CANADIAN DERIVATIVES CLEARING CORPORATION

Balance Sheets

(In thousands of Canadian dollars)

See accompanying notes which form an integral part of these financial statements.

Approved on behalf of the Board of Directors on January 29, 2021:

CANADIAN DERIVATIVES CLEARING CORPORATION

Income Statements

(In thousands of Canadian dollars)

Years ended December 31, 2020, 2019 and 2018 

See accompanying notes which form an integral part of these financial statements.

CANADIAN DERIVATIVES CLEARING CORPORATION

Statements of Comprehensive Income

(In thousands of Canadian dollars)

Years ended December 31, 2020, 2019 and 2018

See accompanying notes which form an integral part of these financial statements.

CANADIAN DERIVATIVES CLEARING CORPORATION

Statements of Changes in Equity

(In thousands of Canadian dollars)

Years ended December 31, 2020, 2019 and 2018

See accompanying notes which form an integral part of these financial statements.

CANADIAN DERIVATIVES CLEARING CORPORATION

Statements of Cash Flows

(In thousands of Canadian dollars)

Years ended December 31, 2020, 2019 and 2018

See accompanying notes which form an integral part of these financial statements.

CANADIAN DERIVATIVES CLEARING CORPORATION

Notes to the Financial Statements

(In thousands of Canadian dollars)

Years ended December 31, 2020, 2019 and 2018

General information

Canadian Derivatives Clearing Corporation (the “Company”) is a company domiciled in Canada and incorporated under the Canada Business Corporations Act. The registered office is located at 1800-1190 Avenue des Canadiens-de-Montréal, Montréal, Quebec, Canada.

The Company is the clearinghouse of equity, index and interest rate financial derivative contracts traded on the Montréal Exchange and on the over-the-counter (“OTC”) market. In addition, the Company is the clearinghouse for all OTC bilateral fixed income repurchase (“REPO”) agreements in Canada. The Company is wholly-owned by Bourse de Montréal Inc. (“MX”) which is a wholly-owned subsidiary of TMX Group Limited, the ultimate controlling party.

The financial statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) and IFRS Interpretations Committee (“IFRIC”) interpretations, as issued by the International Accounting Standards Board (“IASB”).

The financial statements were approved by the Company’s Board of Directors on January 29, 2021.

The Company's significant accounting policies have been applied consistently to all periods presented in the financial statements, unless otherwise indicated. The Company has applied its judgement in presenting its significant accounting policies together with related information in the notes to the financial statements.

The financial statements have been prepared on the historical cost basis except for the following items which are measured at fair value:

•   Liabilities arising from share-based payment plans (note 15); and

•   Certain financial instruments (note 17)

The Company uses a fair value hierarchy to categorize the inputs used in its valuation of assets and liabilities carried at fair value. Fair values are categorized into: Level 1 – to the extent of the Company’s use of unadjusted quoted market prices; Level 2 – using observable market information as inputs; and Level 3 – using unobservable market information.

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that management considers to be relevant. Actual results could differ from these estimates and assumptions.

Judgements, estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimates and assumptions that have a significant risk of resulting in a material adjustment in these financial statements have been made in the following areas in the preparation of the financial statements:

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (“the functional currency”). The financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency.

Revenues earned, expenses incurred and assets purchased in foreign currencies are translated into the functional currency at the prevailing exchange rate on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the period end rate or at the transaction rate when settled. Resulting unrealized and realized foreign exchange gains and losses are recognized within other revenue in the income statement for the period.

Revenue is recognized when performance obligations have been satisfied. The identification of performance obligations and the determination of the timing of when performance obligations are satisfied, either at a point in time or over time, requires judgement.

Revenue related to derivatives clearing relates to the novation and execution of the trades. Revenue is recognized as performance obligations are satisfied, this occurs within a short period of time. Revenue related to the trades that clear within a short period of time, but remain open at period end are recorded as deferred revenue to reflect the open performance obligation.

Rebates are allocated and recorded as a reduction in revenue in the income statement in the period to which they relate, which are generally satisfied at a point in time.

As part of its clearing service, the Company earns interest income and incurs interest expense on cash collateral balances and all REPO transactions that clear through the Company . The interest income and interest expense are equal; however as the Company does not have a legal right to offset these amounts, they are recognized separately on the income statement. On cash collateral balances, the interest income is paid to Clearing members and recorded as an expense and on REPO agreements, the interest income is earned and the interest expense incurred over the term of the REPO agreements.

Items of premises and equipment are recognized at cost less accumulated depreciation and any impairment losses.

Assets are depreciated from the date of acquisition. Depreciation is recognized in the income statements on a straight-line basis over the estimated useful life of the asset, or a major component thereof. The residual values and useful lives of the assets are reviewed annually, and revised as necessary.

Depreciation is provided over the following useful lives of the assets:

Intangible assets are recognized at cost less accumulated amortization, where applicable, and any impairment in value. The cost of acquired intangibles includes any expenditure that is directly attributable to the acquisition of the asset. The cost of internally developed assets includes the cost of materials and direct labour, and any other costs directly attributable to bringing the assets to a working condition for their intended use.

Intangible assets are amortized from the time the asset is available for use. Amortization is recognized in the income statement on a straight-line basis over the estimated useful life of the asset. Residual values and the useful lives of the assets are reviewed at each year end, and revised as necessary.

Amortization is provided over the following useful lives of intangible assets:

Balances of Clearing Members on the Company’s balance sheet includes Balances of Clearing Members of the Company (“Clearing Members”) as follows:

These balances represent outstanding balances on open REPO agreements. Receivable and payable balances outstanding with the same Clearing Member are offset when they are in the same currency and are to be settled on the same day, as the Company has a legally enforceable right to offset and the intention to net settle. The balances include both the original principal amount of the REPO and the accrued interest, both of which are carried at amortized cost. As the Company is the central counterparty, an equivalent amount is recognized in both the Company’s assets and liabilities.

The Company has a registered defined contribution pension plan which covers all employees of the Company. The expense for the Company is charged to the income statement as it is incurred.

The Company provides other post-retirement benefits, such as supplementary medical and dental coverage, which are funded by the Company. The Company’s obligation in respect of these plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounted to determine its present value. The discount rates used are based on Canadian AA-rated corporate bond yields. The calculation is performed annually by an actuary based on management’s best estimates and it is performed using the projected benefit method pro-rated on service. Any actuarial gains and losses are recognized immediately in other comprehensive income in the period in which they arise.

When the benefits of a plan are amended, the portion of the change in benefit relating to past service by employees is recognized immediately in the income statement.

Termination benefits are recognized as an expense at the earlier of: (1) when the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before retirement and (2) when the Company recognizes other costs related to a strategic re-alignment plan.

Short-term employee benefit obligations, such as wages, salaries and annual vacation entitlements, are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the Company’s annual short-term incentive plan if a present legal or constructive obligation to pay this amount exists as a result of past service provided by the employee, and the obligation can be estimated reliably.

The Company has both equity-settled and cash-settled share-based compensation plans based on the equity of TMX Group Limited.

The Company accounts for all share-based plans to eligible employees that call for settlement by the issuance of equity instruments of TMX Group Limited using the fair value based method. Under the fair value based method, compensation cost attributable to options to employees is measured at fair value at the grant date, using a recognized option pricing model, and amortized over the vesting period. The amount recognized as an expense is adjusted to reflect the actual number of options expected to vest. Compensation cost resulting from these options is recorded through intercompany accounts, which is settled in cash.

Compensation cost attributable to employee awards that call for settlement in cash is measured at fair value at each reporting date. Changes in fair value between the grant date and the measurement date are recognized in the income statement over the vesting period, with a corresponding increase in intercompany accounts, depending on the period in which the award is expected to be paid.

Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the income statement except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

Current income tax is the expected income tax payable or receivable on the taxable income or loss for the period using income tax rates enacted or substantively enacted at the reporting date, and any adjustments to income tax payable in respect of previous years.

Deferred income tax is recognized in respect of certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is measured at the income tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date.

A deferred income tax asset is recognized only to the extent that it is probable that future taxable income will be available against which it can be utilized. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Income tax assets and liabilities are offset in the financial statements if there is a legally enforceable right to offset them, and the Company intends to settle them on a net basis or where the income tax assets and liabilities will be realized simultaneously.

The Company maintains provisions for uncertain tax positions that it believes appropriately reflect the risk of the tax positions and the probability of acceptance of the tax treatment by the relevant authorities. Uncertain income tax positions are recognized in the financial statements using management’s best estimate of the amount expected to be paid.

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost.

Financial assets are recognized on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Financial assets are generally derecognized when the contractual rights to the cash flows from the assets expire, or when the Company transfers the rights to receive the contractual cash flows on the financial assets to another party while transferring substantially all the risks and rewards of ownership of the financial assets.

Financial liabilities are initially recognized on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Financial assets and liabilities are offset and the net amount presented in the balance sheets only when the Company has a current legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Financial assets and liabilities are classified as fair value through profit and loss ("FVTPL") and amortized cost. The Company classifies its non-derivative financial assets in the following categories, depending on the purpose for which they were acquired:

Cash and cash equivalents consist of cash and liquid investments having an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Marketable securities may consist of bankers' acceptance, provincial notes, overnight investments and treasury bills. They are carried at their estimated fair values, with changes in fair value being recorded within finance income in the income statement in the period in which they occur. Estimated fair values are determined based on quoted market values.

Trade receivables generally have terms of net 5 days and trade receivables that are more than three months past due are considered to be impaired. Loss allowances for trade and other receivables are measured at an amount equal to lifetime expected credit losses. The expected credit losses on trade and other receivables are calculated using historical credit loss experience taking into account current observable data at the reporting date to reflect the effects of any relevant current and forecasts of future conditions. Any change in the allowance is recognized within general and administration costs in the income statement.

Finance income comprises interest income on funds invested and on related party loans, and changes in the fair value of marketable securities.

The following new standards and amendments to standards and interpretations are not yet effective for the year ending December 31, 2020, and have not been applied in the preparation of the financial statements. These new and amended standards and interpretations are required to be implemented for financial years beginning on or after January 1, 2021, unless otherwise noted:

Finance income is as follows: 

Cash and cash equivalents and marketable securities are comprised of:

The Company’s exposure to interest rate risk and a sensitivity analysis for marketable securities is discussed in note 18(c)(ii).

Trade and other receivables are comprised of:

The aging of the trade receivables was as follows:

No allowance for impairment is considered necessary.

The gross amount of open REPO contracts as of December 31, 2020 was $66,217,235 (2019 – $67,791,449). Those contracts when broken down by customers give rise to total assets and total liabilities positions. As allowed per the CDCC rules, these positions get netted further with assets or liabilities pertaining to the same customer and due the same day coming to a net asset or net liability position.

The gross amount of daily settlements as of December 31, 2020 was $235,503 (2019 – $105,777). The daily settlements due from or to clearing members are then netted by customer as of the balance sheet date, for cash to be paid or received on mark-to-market on futures, options premium and cash margin shortage or excess.

The following table sets out the carrying amounts of Balances of Clearing Members that are subject to offsetting, enforceable master netting arrangements and similar arrangements:

During the year 2020, the largest daily settlement amount due from a Clearing Member was $1,650,982 (2019 – $168,263) and the largest daily settlement amount due to a Clearing Member was $1,240,763 (2019 – $164,244). This amount does not reflect net amounts from open REPO agreements, which are also due from Clearing Members.

Government securities and other securities are pledged by the Clearing Members under irrevocable agreements and are held with the Canadian Depository for Securities Limited (“CDS”), a commonly controlled entity and an approved depository. Clearing Members may also pledge escrow receipts directly with the Company.

The actual collateral held by and pledged to the Company at December 31 is summarized below:

During 2020, the increase in above clearing members' cash collateral is driven by the Bank of Canada requiring clearing members to post substantially more collateral (to address Cover 1 liquidity risk under Principles of Financial Market Infrastructure (PFMI)).

Non-cash margin deposits and non-cash clearing fund deposits as at December 31, are as follows:

The market value of securities is determined using the closing quotes on the market exchange on the last trading day of the year.

Premises and equipment are comprised of:

A summary of the Company’s definite life intangible assets is as follows:

The total recognized in respect of the Company's defined contribution plan expense for the year ended December 31, 2020 was $289 (2019 – $273, 2018 – $258), which represents the employer contributions for the period.

The Company measures the present value of its defined benefit obligations for accounting purposes as at the balance sheet date of each fiscal year. 

The elements of the Company’s post retirement plan costs recognized in the year are as follows. The full cost is recognized within compensation and benefits in the income statement.

The Company recognizes experience adjustments and the effects of changes in actuarial assumptions immediately in other comprehensive loss. The aggregate actuarial losses recognized in other comprehensive loss are as follows:  

The significant actuarial assumptions adopted in measuring the obligation at December 31 are as follows (weighted average):

Decreasing or increasing the discount rate by 0.5% would increase or decrease the accrued benefit obligation by $32 and $28. Increase in mortality by 1 year would increase the accrued benefit obligation by $10. Increasing or decreasing the assumed health care cost trend rates by one percentage point would have no effect on the accrued benefit obligation.

In 2021, the Company expects to contribute approximately $5 to its post-retirement defined benefit plan.

The Company is exposed to liquidity risk through its clearing operations, and to manage risk, the Company arranged various facilities as discussed below.

The Company maintains a syndicated revolving standby liquidity facility of $320,000 to provide end of day liquidity in the event that the Company is unable to clear the daylight liquidity facilities to zero. Advances under the facility will be secured by collateral in the form of securities that have been received by, or pledged to, the Company. The borrowing rate on this facility is prime rate less 1.75%. On February 28, 2020, CDCC extended this facility to February 26, 2021.

As at December 31, 2020, the Company had drawn $4,328 on the syndicated revolving standby liquidity facility to facilitate a failed REPO settlement. The amount drawn when required, is fully offset by liquid securities included in cash and cash equivalents and fully re-paid subsequent to the reporting date.

The Company also maintains daylight liquidity facilities for a total of $975,000 to provide liquidity on the basis of collateral in the form of securities that have been received by, or pledged to, the Company. The daylight liquidity facilities must be cleared to zero at the end of each day.

A repurchase facility of $27,012,000 is also maintained with a syndicate of six major Canadian chartered banks (the “syndicated REPO facility”). This facility is fully uncommitted liquidity and is in place to provide end of day liquidity in the event that the Company is unable to clear the daylight liquidity facilities to zero. The facility would provide liquidity in exchange for securities that have been received by, or pledged to, the Company. On February 28, 2020, CDCC extended this facility to February 26, 2021.

The Company also has an agreement that would allow the Bank of Canada to provide emergency last-resort liquidity to the Company at the discretion of the Bank of Canada. This liquidity facility is intended to provide end of day liquidity only in the event that the Company is unable to access liquidity from the revolving standby liquidity facility and the syndicated REPO facility or in the event that the liquidity under such facilities is insufficient. Use of this facility would be on a fully collateralized basis.

Trade and other payables are comprised of:

The fair value of trade and other payables is approximately equal to their carrying amount given their short term until settlement.

Deferred revenue is comprised of:

The Company currently occupies premises leased by MX and TSX Inc., commonly controlled companies. The cost of using these premises amounted to $561 in 2020 (2019 – $495, 2018 – $712). These premises leased by the Company from commonly controlled companies are not identifiable assets under IFRS 16.

Starting January 1, 2021, the premises cost is estimated to amount to $682 annually.

A summary of the Company’s current provisions is as follows:

In February and March 2019, the Company announced a number of organizational changes. As a result, the Company recognized $1,831 for expected re-alignment costs, including employee termination benefits.

From time to time in connection with its operations, the Company is named as a defendant in actions for damages and costs sustained by plaintiffs, or as a respondent in proceedings challenging the Company's regulatory actions, decisions or jurisdiction. The outcomes of such matters are subject to future resolution that includes uncertainties of litigation or other proceedings. Based on information currently known to the Company, management believes that any material payment in respect of any such action, claim or proceeding is remote.

The authorized capital of the Company consists of an unlimited number of voting common shares, without par value.

The share capital of the Company is as follows:

Under the long-term incentive plan (“LTIP”), certain employees and officers of the Company will receive a mix of LTIP awards consisting of share options, performance-based restricted share units (referred to as “PSUs”) and time-based restricted share units ("RSUs").

For the year ended December 31, 2020, the Company recognized compensation and benefits expense under the following share-based payment arrangements in place:

TMX Group Limited has a share option plan whereby all employees of TMX Group Limited and those of its designated subsidiaries at or above the director level are eligible to be granted share options under the share option plan. The share option plan has options that vest in quarters over 4 years and have a maximum term of 10 years.

During the year ended December 31, 2020, the Company recognized compensation and benefits expense of $30 (2019 – $109, 2018 – $88) in relation to the above share option plan.

RSUs and PSUs vest over a maximum of three years and are payable provided the employee is still employed by the Company at the end of the second calendar year following the calendar year in which the RSUs and PSUs were granted. The amount of the award payable at the end of this vesting period will be determined by the total shareholder return over the period. Total shareholder return represents the appreciation in share price of TMX Group Limited plus dividends paid on a common share of TMX Group Limited, measured at the time RSUs and PSUs vest. The Company is charged for this arrangement in the period in which the award is earned.

During the year ended December 31, 2020, the Company recognized compensation and benefits expense of $507 (2019 – $1,090, 2018 – $509) in relation to its RSUs and PSUs.

TMX Group Limited offers an employee share purchase plan to its eligible employees and those of its designated subsidiaries. Under the employee share purchase plan, contributions by the Company and by eligible employees will be used by the plan administrator to make purchases of common shares of TMX Group Limited on the open market. Effective May 31, 2020, each eligible employee may contribute up to 15% (previously 10%) of the employee's salary to the employee share purchase plan. The Company will contribute to the plan administrator the funds required to purchase one common share of TMX Group Limited for each two common shares purchased on behalf of the eligible employee, up to a maximum annual contribution of $3,500 dollars per year (previously $2,500 dollars per year).

The Company accounts for its contributions as compensation and benefits expense when the amounts are contributed to the plan. Compensation and benefits expense related to this plan was $89 for the year ended December 31, 2020 (2019 – $63, 2018 – $55).

Income tax expense recognized in the income statements for the period is as follows:

Income tax expense attributable to income differs from the amounts computed by applying the combined federal and provincial income tax rate of 26.5% (2019 – 26.58%, 2018 – 26.67%) to income before income taxes as a result of the following:

Deferred income tax assets and liabilities as at December 31 are attributable to the following:

Movements in deferred income tax asset balances in the year are as follows: