. 3 since cdcs cannot clear a trade unless both counterparties are participants, it will not be able to materially increase the proportion of the repo market that it serves without capturing a broader set of participants. clearly, the challenge is getting more participants on board, but several issues must be addressed before some institutions can participate given the current cdcs model. for instance, smaller dealers may not be willing or able to meet daily operational demands or to actively participate in actions necessary to manage exposures in the event of a default. and large buy - side firms, in particular, pension funds, do not currently meet all the requirements for direct membership. 4 pension fund participation is especially important because these institutions are on one side of a large proportion of repo transactions. cdcc and its members are already working to find a way for both of these groups to participate. cdcc is considering how to set up a mechanism that would allow smaller firms to clear indirectly – that is, through a direct member that provides clearing services. this is a triedand - true approach, one that is well understood by financial institutions. in addition to fixed - income and repo transactions, cdcs centrally clears options and futures traded on the mx and over - the - counter ( otc ) equity options. p. chatterjee, l. embree and p. youngman, “ reducing systemic risk : canada ’ s new central counterparty for the fixed - income market, ” bank of canada financial system review ( june 2012 ) : 43 – 49. the current cdcs participants are : bank of montreal, cibc world markets inc., desjardins securities inc., merrill lynch canada inc., morgan stanley canada limited, national bank of canada, nbcn inc., rbc dominion securities inc., royal bank of canada, scotia capital inc., and toronto - dominion bank. cdcs participants must be either a member in good standing of an exchange recognized in a canadian province, or a bank to which the bank act ( canada ) applies. pension funds generally do not fall into either of these categories. bis central bankers ’ speeches current cdcs participants have a role to play in facilitating this initiative. they need to consider whether or not to provide clearing services to smaller institutions and, if they choose to do so, to develop the capacity to take on this business. they will also need to determine how to manage their exposure to their customers. for large pension funds, indirect membership may not be

track. • recent developments are in line with the bank ’ s expectation of a soft landing in the housing market and stabilizing debt - to - income ratios for households. still, household imbalances remain elevated and would pose a significant risk should economic conditions deteriorate. • in sum, the bank continues to see a gradual strengthening in the fundamental drivers of growth and inflation in canada. this view hinges critically on the projected upturn in exports and investment. with underlying inflation expected to remain below target for some time, the downside risks to inflation remain important. at the same time, the risks associated with household imbalances remain elevated. • the bank judges that the balance of these risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. the timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks. with that, tiff and i would be pleased to take your questions. bis central bankers ’ speeches