October 19, 2023

 

Introduction

 

The Canadian Securities Administrators (CSA or we) are proposing amendments to facilitate a voluntary decision by a mutual fund to shorten the settlement cycle for purchases and redemptions of its securities from two days after the date of a trade (T+2) to one day after the date of a trade (T+1) in anticipation of a reduction of the settlement cycle for equity and long-term debt market trades in Canada to T+1.

 

We are publishing for a 90-day comment period proposed amendments (the Proposed Amendments) to National Instrument 81-102 Investment Funds (NI 81-102).

 

The text of the Proposed Amendments is contained in Annex A of this Notice and will also be available on the websites of the following CSA jurisdictions:

www.lautorite.qc.ca

www.asc.ca

www.bcsc.bc.ca

nssc.novascotia.ca

www.fcnb.ca

www.osc.gov.on.ca

www.fcaa.gov.sk.ca

www.msc.gov.mb.ca

 

Summary, Substance and Purpose

 

The purpose of the Proposed Amendments is to accommodate a range of settlement cycles and particularly for those mutual funds that voluntarily decide to shorten the settlement cycle for purchases and redemptions of their securities from T+2 to T+1 when the underlying assets held by the fund move to a T+1 settlement cycle.

 

The Proposed Amendments introduce drafting changes to clarify that payments must be made no later than the reference settlement date of the purchase order. The reference settlement date of the purchase order is the business day determined by the mutual fund and disclosed in writing to the principal distributor, the participating dealer, or the person or company providing services to the principal distributor or participating dealer, which must be on or before the second business day after the pricing date.

 

The Proposed Amendments also introduce a change to paragraph 9.4(4)(a) of NI 81-102 to require a mutual fund that voluntarily decides to shorten the settlement cycle for purchase or redemption of its securities from T+2 to T+1 to redeem its securities for non-payment on the next business day after the reference settlement date of the purchase order, which would be on T+2 rather than T+3 as currently required.

 

Background

 

On December 15, 2022, the CSA published for comment proposed amendments (the NI 24-101 Amendments) to National Instrument 24-101 Institutional Trade Matching and Settlements. Among other things, the NI 24-101 Amendments focus on facilitating the shortening of the standard settlement cycle for equity and long-term debt market trades in Canada from T+2 to T+1.

 

Concurrent with the publication of the NI 24-101 Amendments, CSA staff published CSA Staff Notice 81-335 Investment Fund Settlement Cycles (Staff Notice 81-335). Staff Notice 81-335 explained that CSA staff did not propose to amend sections 9.4 and 10.4 of NI 81-102 to mandate the shortening of the settlement cycle for primary distributions and redemptions of mutual fund securities from T+2 to T+1. However, it was CSA staff’s view that mutual funds should settle primary distributions and redemptions of their securities on T+1 voluntarily if the standard settlement cycle for listed securities moves from two days to one day in Canada.

 

The comment period for the NI 24-101 Amendments closed on March 17, 2023, and we received one comment letter regarding Staff Notice 81-335. The commenter stated that, to facilitate a voluntary decision by a mutual fund to shorten the settlement cycle for purchase or redemption of its securities from T+2 to T+1, a technical amendment to the forced redemption for non-payment requirement in paragraph 9.4(4)(a) of NI 81-102 should be made. The commenter noted that the intent of paragraph 9.4(4)(a) of NI 81-102 is that a mutual fund must redeem its securities that were issued to a purchaser if the purchaser fails to pay for those securities the day after settlement. Because settlement is currently required on T+2, current paragraph 9.4(4)(a) of NI 81-102 effectively mandates redemption three days after the date of the trade (T+3). If a mutual fund voluntarily shortens its settlement cycle for a sale of its securities to T+1, the mutual fund should be required to redeem for non-payment on the date after settlement, which would be on T+2 rather than T+3.

 

Without the Proposed Amendments, current paragraph 9.4(4)(a) of NI 81-102 would make a voluntary movement to a T+1 settlement cycle by a mutual fund administratively challenging because it could not redeem its securities for non-payment until two days after the settlement date.

 

Content of Annexes

 

This Notice contains the following annexes:

 

•         Annex A – Proposed Amendments to National Instrument 81-102 Investment Funds

 

•         Annex B – Local Matters

 

How to Provide Your Comments

 

Please provide your comments in writing by January 17, 2024.

 

We cannot keep submissions confidential because securities legislation requires publication of a summary of written comments received during the comment period. All comments received will be posted on the website of each of the Alberta Securities Commission at www.asc.ca, the Ontario Securities Commission at www.osc.ca and the Autorité des marchés financiers at www.lautorite.qc.ca. Therefore, you should not include personal information directly in comments to be published. It is important you state on whose behalf you are making the submissions.

 

Thank you in advance for your comments.

Please address your submission to all of the CSA as follows:

 

British Columbia Securities Commission

Alberta Securities Commission

Financial and Consumer Affairs Authority of Saskatchewan

Manitoba Securities Commission

Ontario Securities Commission

Autorité des marchés financiers

Financial and Consumer Services Commission, New Brunswick

Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island

Nova Scotia Securities Commission

Office of the Superintendent of Securities, Service NL

Northwest Territories Office of the Superintendent of Securities

Office of the Yukon Superintendent of Securities

Superintendent of Securities, Nunavut

 

Please send your comments only to the following addresses. Your comments will be forwarded to the remaining jurisdictions: 

 

The Secretary                                      Me Philippe Lebel

Ontario Securities Commission          Corporate Secretary and Executive Director, Legal Affairs

20 Queen Street West                                     Autorité des marchés financiers

22nd Floor, Box 55                             Place de la Cité, tour Cominar

Toronto, Ontario                                 2640, boulevard Laurier, bureau 400

M5H 3S8                                            Québec (Québec) G1V 5C1

Fax: 416-593-2318                             Fax: 514-864-8381

Email: comments@osc.gov.on.ca      Email: consultation-en-cours@lautorite.qc.ca

 

Questions

 

Please refer your questions to any of the following:

 

British Columbia Securities Commission

James Leong

Senior Legal Counsel, Corporate Finance

Tel : 604-899-6681

Email: jleong@bcsc.bc.ca

 

Alberta Securities Commission

Chad Conrad
Senior Legal Counsel, Investment Funds
Tel: 403-297-4295
Email: Chad.Conrad@asc.ca

 

Financial and Consumer Affairs Authority of Saskatchewan

Heather Kuchuran

Director, Corporate Finance

Tel: 306-787-1009

Email: heather.kuchuran@gov.sk.ca

 

Manitoba Securities Commission

Patrick Weeks

Deputy Director – Corporate Finance

Tel: 204-945-3326

Email: Patrick.weeks@gov.mb.ca

Ontario Securities Commission

Michael Tang

Senior Legal Counsel, Investment Funds and Structured Products Branch

Tel: 416-593-2330

Email: mtang@osc.gov.on.ca

 

Autorité des marchés financiers

Philippe Lessard

Securities Analyst, Investment Products Oversight

Tel: 514-395-0337 # 4364

Email: Philippe.Lessard@lautorite.qc.ca

Financial and Consumer Services Commission (New Brunswick)

Joe Adair, Senior Securities Analyst

Tel: 506-643-7435

Email: joe.adair@fcnb.ca  

Nova Scotia Securities Commission

Abel Lazarus

Director, Corporate Finance Branch

Tel: 902-424-6859

Email: abel.lazarus@novascotia.ca

 

Peter Lamey

Legal Analyst, Corporate Finance Branch

Tel: 902-424-7630

Email: peter.lamey@novascotia.ca

 

ANNEX A

 

PROPOSED AmendmentS to National Instrument 81-102 Investment Funds

 

1.      National Instrument 81-102 Investment Funds is amended by this Instrument.

 

2.      Section 9.4 is amended

 

(a) by adding the following subsection:

 

(0.1)     In subsections (1), (2), and (4), “reference settlement date” means the earlier of:

 

(a)        the business day determined by the mutual fund and disclosed in writing to the principal distributor or participating dealer referred to in subsection (1), or to the person or company referred to in subsection (1) providing services to the principal distributor or participating dealer, and

 

(b)        the second business day after the pricing date.,

 

(b) in subsections (1), (2) and (4), by replacing “second business day after the pricing date” with “reference settlement date”, and

 

(c) by replacing in paragraph 4(a) “third business day after the pricing date” with “next business day after the reference settlement date”.

 

Effective Date

 

3.   (1)        This Instrument comes into force on [DATE].

 

(2)        In Saskatchewan, despite subsection (1), if this Instrument is filed with the Registrar of Regulations after [DATE], this Instrument comes into force on the day on which it is filed with the Registrar of Regulations.