Canada’s Investment Professionals Call for More Action on Asset Backed Commercial Paper Market

(September 10, 2007) — The Investment Counsel Association of Canada, representing Canada’s professional investment counselor and portfolio management firms, today demanded that regulators, financial institutions and issuers of asset backed commercial paper (“ABCP”) significantly increase disclosure and take several other steps to restore and maintain investor  confidence.

“We believe it’s absolutely critical for Canadian securities regulators to increase the level of information and disclosure in the ABCP market and provide long-term, sustained leadership on this issue,” said Don Cranston, Chairman of the ICAC. “In our view, the principles agreed to by a consortium of Canadian financial institutions last month in Montreal is a good starting point, but there is much more to be done to address investor concerns. That’s why we’re calling on regulators, as well as financial institutions and conduit issuers themselves to intensify their efforts.”

The ICAC is proposing a number of specific measures:

  1. Enhance Transparency and Disclosure
    The ICAC urges Canadian Securities Regulators, the Bank of Canada and OSFI to play a proactive role in enhancing the level of information disclosure and transparency available to the investment community.   Furthermore, the ICAC calls for those coordinating the cooperative efforts of Canada’s financial institutions (the “Montreal Group”) to provide continuous updates to the market on the developments and/or obstacles they confront in alleviating the current issues affecting the Canadian third party ABCP market.  “Essentially, we think it’s appropriate for this consortium to keep the market fully informed of their progress, and any material events, positive or negative,” said Mr. Cranston. “For example, if a major player is not cooperating or if further issues are triggered by a potential future market event we should know.” The ICAC also calls upon the conduit issuers themselves to provide disclosure of their underlying holdings. This step is critical to enable investors of such vehicles to make informed decisions about whether to hold the converted assets post any pending conversion into floating rate notes or seek shorter term exit strategies.   It is the ICAC’s view that this disclosure should not just be a one time event.   There should be monthly investor reports detailing the composition of the various trusts.
  2. Proactively Monitor, Inform and Regulate
    The ICAC believes that the relevant market regulators in Canada should be proactive by:
    (a) Providing the registrant community with guidance during the standstill period relating to the valuation of illiquid non-bank ABCP, particularly where such holdings are held in mutual/pooled funds;
    (b) Providing ICAC member firms with some guidance re: conflict/consent issues associated with any individual firm initiative to repurchase non bank ABCP from client/pooled accounts; and
    (c) Enhance and/or clarify the obligations on traditional equity issuers as to their level of investments (i.e. use of proceeds) in ABCP or other short term securities in their future registration filings/prospectuses, etc. given the well publicized exposures to this asset class by many of the reporting issuers in Canada and elsewhere.
  3. Provide Greater Clarity on Global Liquidity Procedures
    The ICAC calls for Canadian banks to signal when they plan to formally adopt global liquidity procedures in their existing/and or new ABCP issues and indicate whether they will honour their pledge to implement such procedures in the interim period should a credit issue be triggered by bank-sponsored conduits.


On August 16, 2007, a consortium of financial institutions met in Montréal and agreed, in principle, to a series of proposals, some to take effect immediately in an interim or “Standstill Period” and some designed to be implemented as a long-term solution designed to help alleviate the current issues affecting the Canadian Third Party ABCP market.  It has been reported to the investing community in Canada that the syndicate group expects that all necessary steps to give effect to each restructuring will be completed within 30 to 60 days.

Subsequent to interim/”Standstill” provisions (during which holders of third party ABCP who are signatories to the Montreal Proposal will continue to roll their third party ABCP and encourage all other ABCP holders to do the same.  They will encourage these holders and the ABCP conduits to work together to help achieve a longer term solution, which will involve in part, a conversion of all outstanding third party ABCP into term floating rate notes.

About ICAC

The Investment Counsel Association of Canada (ICAC) is the representative organization for more than 90 investment counsel and portfolio managers in Canada.  ICAC was established in 1952 and its members are responsible for managing in excess of over $550 billion of client assets.  Member firms are only in the business of managing investments for clients in keeping with each client’s needs, objectives and risk tolerances. For further information contact:

Katie Walmsley,
Investment Counsel Association of Canada
Toronto, Ontario