the london clearing house, which is the ccp for a large portion of otc interest rate derivatives, had not managed the default as well as it did. more generally, we saw that markets served by ccps tended to be more resilient during the crisis than bilaterally settled markets. given this track record, it is not surprising that market infrastructure, and ccps in particular, have been key elements of the g - 20 ’ s efforts to strengthen financial stability. the bank of canada has a very strong interest in fmis. under the payment clearing and settlement act, the bank is responsible for the regulatory oversight of fmis with a view to controlling systemic risk in canada. bis central bankers ’ speeches but the bank is just one part of the equation. canada ’ s regulatory community and the industry are moving forward together to strengthen canadian financial market infrastructure, and thus increase the resilience of the financial system. in the rest of my remarks, i will highlight some of the principal initiatives under way. considerable progress has been made, but there is still work to be done. greater participation in the canadian ccp for fixed - income repos is essential i will start with an initiative that is close to home. here in montreal, the canadian derivatives clearing corporation ( cdcc ) launched a central counterparty service for the canadian fixedincome repo market called the canadian derivatives clearing service ( or cdcs ) in february 2012. this ccp has been under the oversight of the bank of canada since 30 april 2012. 1 repos represent a major source of wholesale funding for financial institutions and are critically important to the functioning and liquidity of other important related markets, such as the market for government bonds. cdcs was developed to facilitate a continuously open repo market, and to help prevent a repeat of the severe liquidity crunch that occurred in this market during the recent financial crisis. 2 in the short time since it began operations, cdcs has expanded its product offerings, added participants and seen a steady increase in the average daily value cleared through the system. this is all to the good, but not enough. at present, just 10 to 15 per cent of repo transactions are cleared through cdcs – not nearly enough to ensure that the markets remain open in times of stress. while most of canada ’ s major banks and securities broker - dealers are currently cdcs participants, the majority of canadian repo trades involve at least one non - cdcs participant on one side of the transaction

a viable option, given the concentration of risk that would result if these entities cleared through a single direct participant. cdcc and the industry are examining an approach that would allow these entities to directly participate in the ccp in such a way that risk is managed without requiring them to be subject to the same mutualized loss - sharing arrangements. it is important that efforts to determine the exact details of how this arrangement could work in practice be pursued. the bank of canada strongly supports the work currently being undertaken by cdcc and the investment industry association of canada to increase participation in the ccp. the bank will continue to be involved to ensure that the solutions put in place meet our high standards for risk management. while there are costs to participate in cdcs, the benefits are substantial, and they are reaped in both normal times and in times of stress. not only will the canadian financial system benefit from more repos being centrally cleared, but both current and future participants will benefit from increased netting efficiencies and reduced counterparty credit risk. these benefits will be further enhanced as the industry develops a generalized collateral repo product, in which any security in a predetermined basket of instruments can serve as collateral. this product should increase the liquidity and efficiency of the canadian repo market. the central clearing of otc interest rate derivatives is increasing let me now turn to another effort to strengthen financial stability through the use of ccps. i ’ m sure you are all well aware of the g - 20 leaders ’ commitment that all standardized overthe - counter ( otc ) derivatives be cleared through ccps. canadian authorities, like those of most member countries of the financial stability board ( fsb ), decided last autumn that we would allow our institutions to meet the g - 20 commitment by using any ccp recognized by canadian authorities, including global ccps. 5 while a ccp in canada would provide the most straightforward oversight and capacity for canadian authorities to intervene to mitigate risks, if needed, there are many advantages to the global solution. global ccps better promote liquidity and efficiency in what is largely a global otc derivatives market. a global ccp makes the financial system more robust to shocks and allows derivatives users to appropriately manage their risk. 6 the result though is that, globally, there will likely be a concentration of transactions in a small number of ccps – these are truly becoming international systemically important financial institutions. to address this concentration of risk and to ensure that local