The Bank of Canada announced today that it has sent the following letter to the Investment Dealers Association of Canada.

On Monday January 29, 2001, the Investment Dealers Association of Canada (IDA) and the Bank of Canada (Bank) requested Member Firms designated as Primary Dealers to complete a series of Net Position Reports for holdings in the 10-year benchmark issue, 5.5% June 2010, as of the close of business, for the following days: December 11, 21 and 22, 2000 and January 11, 12, 15 and 22, 2001.

This action by the IDA and the Bank was prompted by concerns about how the 10-year benchmark issue was trading in the repo market. A Net Position Report provides information on inventory positions and trading patterns from the dealer community. At the request of the Bank of Canada, and in circumstances where market integrity is at risk, IDA Member Firms designated as Government Securities Distributors are required to complete Net Position Reports. This requirement is established in IDA Policy No. 5 and is a condition under the "Terms of Participation in Auctions for Government Securities Distributors".

A review of the Net Position Reports and information derived from financial asset prices indicate there are insufficient grounds to suggest that IDA Policy No. 5 guidelines were broken and that the activities of any single dealer or group of dealers had a longer-term negative impact on the integrity of the Government of Canada securities market. As such, no formal investigation is being requested by the Bank.

This episode has highlighted the central role of IDA Policy No. 5. In this vein, the Bank and the Department of Finance will shortly review Policy No. 5 with the IDA Capital Markets Committee to ensure it remains current and effective.