Statement of alignment of CORRA with the IOSCO Principles for Financial Benchmarks
June 15, 2020
The Bank of Canada is the administrator of the Canadian Overnight Repo Rate Average (CORRA). The Bank recognizes that CORRA is the main risk-free overnight reference rate currently used primarily in derivatives markets in Canada. Over time, CORRA will be further adopted across a wide range of financial products and we expect it will become the dominant Canadian interest rate benchmark used across a wide range of financial products.
The Bank does not fall within the scope of mandatory compliance with the IOSCO Principles for Financial Benchmarks. Nevertheless, the Bank intends to align with international best practice for benchmark administration, as outlined in the Principles.
Statement of alignment
The Bank is responsible for setting appropriate controls and procedures to ensure the accuracy, integrity, reliability and independence of the CORRA benchmark and alignment with the IOSCO Principles. The Bank confirms that CORRA is:
- subject to a governance structure that encompasses internal oversight and challenge informed by the external CORRA Advisory Group and supported by a control framework
- designed to be robust, reliable and based solely on transaction-level data representing the majority of repurchase (repo) market activity in Canada
- calculated and published according to the publicly available methodology
- reviewed periodically for its accuracy and representativeness
The Bank has a control framework in place for the CORRA process:
- Daily production activities are done in accordance with the clearly defined roles and responsibilities framework. Access to the input and output data is restricted to appropriate staff. CORRA revisions and publication delays are subject to internal approvals by management. Data exclusions due to reporting errors are assigned a specific code to facilitate their audit. Staff and management responsible for the calculation of CORRA are subject to the Bank of Canada Code of Business Conduct and Ethics. The Code addresses conflict of interest and confidentiality requirements for staff.
- The CORRA methodology and production are overseen by the Bank of Canada internal CORRA Oversight Committee and informed by the industry CORRA Advisory Group. The Oversight Committee is composed of senior Bank officers across the various functional areas, including the Chief Risk Officer and the Chief Internal Auditor. Members of the Advisory Group represent a wide range of buy- and sell-side market participants with expertise in the Canadian repo market and CORRA-related financial instruments.1
- The Bank’s Audit Department reviewed the control framework to provide assurance at the time the Bank became the CORRA administrator. The department will conduct reviews periodically, as required.
Quality of benchmark
CORRA is designed to be a robust, reliable and representative measure of the funding cost in the Canadian overnight repo market for Government of Canada securities. The Bank calculates CORRA based on transaction-level repo data from government securities distributors, including primary dealers and the six largest federally regulated financial institutions in Canada. This approach aligns CORRA with similar overnight risk-free reference rates published by other central banks.
Granular trade data are collected by the Investment Industry Regulatory Organization of Canada (IIROC) in accordance with IIROC Rule 2800C. IIROC applies technical data checks to ensure that data are reported in compliance with the technical requirements of IIROC’s Market Trade Reporting System (MTRS). The Bank applies data filters and checks the validity and plausibility of the data to identify possible reporting errors before calculating CORRA.
The Bank applies the alternative fallback calculation methodology if the daily trading volume is below a pre-specified threshold or if there are technical issues preventing standard calculation. The minimum threshold ensures that CORRA represents broad conditions in the overnight repo market.
Quality of methodology
The Bank uses a volume-weighted trimmed median calculation methodology. The calculation methodology was developed under the guidance of the Canadian Alternative Reference Rate Working Group (CARR), representing a wide range of market participants. It was also informed by CARR’s public consultation. According to the Bank’s research this methodology provides a representative estimate of the prevailing conditions in the general collateral overnight repo market in Government of Canada securities.
Data used in CORRA calculation include transactions in the interdealer, interbank and dealer-client repo markets. These transactions account for the vast majority of Canadian-dollar overnight repo trades. Only repo transactions conducted between unaffiliated counterparties are included in the calculation of CORRA.
In addition to CORRA, the Bank publishes the underlying repo trading volume, volume-weighted percentile rates and number of submitters to ensure transparency and public scrutiny of the data.
The Bank monitors the methodology for calculating CORRA on an ongoing basis to ensure it remains appropriate in light of any major changes to the structure of the Canadian repo market. Formal review of the calculation methodology is undertaken every five years by the CORRA Oversight Committee in consultation with the CORRA Advisory Group. The methodology will also be reviewed if monitoring suggests the current approach no longer reflects practices in the domestic repo market. All key aspects of the calculation methodology are available on the Bank’s website. Industry and public feedback can be communicated to the Bank through the CORRA Advisory Committee or by .
Audit statement of assurance
The Bank of Canada’s Audit Department has reviewed the internal controls over the production of CORRA, along with management’s self-attestation against each principle, providing reasonable assurance that controls are generally appropriately designed and in place as of June 15, 2020, and that production of the benchmark is aligned with applicable sections of the IOSCO Principles for Financial Benchmarks.