Thomas Murray Affirms the Central Securities Depository Rating for CDS Clearing and Depository Services Inc. at 'AA'
LONDON - Thomas Murray, the specialist custody rating, risk management and research firm has affirmed the CDS Clearing and Depository Services Inc. (CDS) rating as 'AA' which represents very low risk overall. The rating is made up of the following components:
The 'AA' rating as assigned by Thomas Murray recognises CDS's ongoing commitment to minimise risk for market participants. In particular, CDS undertakes regular stress testing of their sophisticated credit risk model, in order to protect participants against the risk of default of their counterparties. The model is based on loss-sharing arrangements designed in a way in which the defaulter's collateral is sufficient to cover its obligations in the vast majority of cases. Both CDS's settlement processes and credit risk model have proved robust during recent periods of financial instability.
The outlook has been assigned as 'Stable' which suggests that there are no imminent developments that may change the rating at this stage.
During the past year CDS has introduced a number of changes which have further improved efficiency and reduced risk. Notable actions undertaken by CDS are:
CDS has strong governance arrangements that support the public interest borne out by their commitment to system development, the return of profits by way of fee reductions and/or fee rebates to its participants, transparency in its operations as demonstrated by the inclusion of participant representatives in the Risk Advisory Committee and other key committees constituted to consider system development opportunities, and the inclusion of five independent directors on its board.
Simon Thomas, CEO and Chief Ratings Officer of Thomas Murray said when announcing the Central Securities Depository (CSD) rating of CDS Clearing and Depository Services Inc., "CDS adopts an approach of continual review and improvement in all aspects of its operations which is transparent to its participants and the regulators. I am delighted to see that CDS undertakes regular stress testing to confirm the robustness of their model and additionally CDS has completed a comprehensive review of their risks, processes and procedures which is periodically necessary to ensure the resilience of controls and reduce operational risk. The strength of CDS confirms the excellence of Canada's capital market infrastructure and the 'AA' rating of CDS, one of the top ratings assigned by Thomas Murray, reflects the ongoing confidence the Canadian market has in CDS."
Ian A. Gilhooley, President and CEO of The Canadian Depository for Securities Limited said, "CDS has been working with Thomas Murray for a number of years and is pleased to place our sophisticated risk management model under independent scrutiny. The rating at 'AA', the highest given to any depository, is a reflection of our commitment to minimise risks in the Canadian capital markets and demonstrates the enormous effort that we have put into our developments and risk reduction initiatives over the past years."
The CSD rating assesses the risk exposures for investors associated with the processes the CSD has in place to facilitate the safekeeping and the clearing and settlement of securities, where applicable. It assesses six key risks. The methodology considers the capabilities of the depository and the quality and effectiveness of its operational infrastructure. It also assesses the depository's willingness and ability to protect its participants or clients from losses. As part of the rating, the scope and quality of the depository's services is assessed. The ratings are on a consistent global scale, using the familiar 'AAA' to 'C' ratings scale. Once the rating is assigned there is an ongoing surveillance process to monitor the depository.
Separately, Thomas Murray maintains proprietary assessments of over 130 CSDs globally as part of the Thomas Murray Depository Risk Assessment services. These reports are available via Thomas Murray at www.thomasmurray.com.
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