Terms and Conditions for the Expanded Bank of Canada Collateral List Effective 1 November 2001

In July 2001, the Bank announced its intention to expand the list of collateral eligible for use in the Large Value Transfer System (LVTS), for loans made to direct participants in LVTS and the Automated Clearing Settlement System (ACSS), and to secure bank note withdrawals. Effective 1 November 2001, the list of eligible collateral will be expanded and will comprise the following:

• Securities issued by the Government of Canada
• Government of Canada stripped coupons and residuals
• Securities guaranteed by the Government of Canada (this category includes Canada Mortgage Bonds and NHA mortgage-backed securities with a minimum pool size of $75 million)
• Securities issued or guaranteed by a provincial government
• Bankers' acceptances and promissory notes (maximum term 364 days) with a minimum issuer credit rating of R1 (low) by the Dominion Bond Rating Service (DBRS) or A-1 (mid) by Standard and Poor's (S&P) or P1 by Moody's Investors Service (Moody's)
• Commercial paper and short-term municipal paper (maximum term 364 days) with a minimum issuer credit rating of R1 (low) by DBRS or A-1 (mid) by S&P or P1 by Moody's
• Corporate bonds and municipal bonds with a minimum long-term issuer credit rating of A (low) by DBRS or A- by S&P or A3 by Moody's
• Special Deposit Accounts held at the Bank of Canada

The following conditions will be applied to the use of these securities as collateral:

1. Only Canadian dollar securities are eligible to be pledged as collateral.
2. Securities used as collateral must be pledged using the Debt Clearing Service of The Canadian Depository for Securities Ltd., or be physically delivered to the Bank of Canada in certificated form.
3. No more than 20 per cent of the value of the collateral pledged by an institution should be the obligation of a single private sector issuer or related party. This condition does not apply for borrowings of less than $50 million.
4. Securities issued by the pledgor of collateral (or any related party) cannot be used as collateral by the pledgor.
5. The Bank must be notified 24 hours in advance (with a deadline of 3:00 p.m. Ottawa time) by the borrowing institution the first time it intends to pledge any private sector security for use as collateral the next day. At the time of notice the institution must also provide the relevant credit ratings of the security.
6. The security must not have an embedded option or carry a right of conversion into equity securities.
7. A minimum principal amount of $1 million of an individual security is required.

The following margin requirements will be applied (note that, for securities with up to one year to maturity, the margins are adjusted by term divided by 365):

For further information, contact:

Tom Hossfeld 613 782-7529
Marc Larson 613 782-7836
Financial Markets Department