The Canadian Securities Administrators, other than the British Columbia Securities Commission, have published for comment very minor proposed amendments to National Instrument 81-102 Investment Funds which would shorten the standard settlement cycle for conventional mutual funds from three days after the date of a trade (T+3) to two days after the date of a trade (T+2) (the Proposed Amendments), codifying the expectation that conventional mutual funds will settle on T+2 to remove any possibility of confusion.
Three Key Amendments
The Proposed Amendments will:
• Shorten the time for payment of the issue price of securities and redemption proceeds from a T+3 settlement cycle and to a T+2 settlement cycle;
• Require a mutual fund, in the case where payment of the issue price of the securities has not been received, to redeem the securities on the third business day after the pricing date, rather than on the fourth; and
• Harmonize the payment of redemption proceeds under National Instrument 81-104 Commodity Pools on a T+2 settlement cycle.
As published concurrently with the Proposed Amendments, the CSA are timing amendments to National Instrument 24-101 Institutional Trade Matching and Settlement to coincide with the expected September 5, 2017 adoption of the T+2 settlement cycle in the United States. Given that the standard settlement cycle for equity and long-term debt market trades in Canada is being shortened from T+3 to T+2, the CSA are of the view that the requirement for a dealer or principal distributor to forward the cash or securities received for payment of the issue price of securities of a mutual fund to the mutual fund as soon as practicable would require conventional mutual funds to adopt a T+2 settlement cycle.
What is a Conventional Mutual Fund?
A conventional mutual fund is a mutual fund that offers securities in continuous distribution under a simplified prospectus in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure. A trade in a security of a conventional mutual fund is not subject to NI 24-101. However, the underlying equity and long-term debt securities owned by conventional mutual funds are subject to NI 24-101 and would settle at T+2.
Comments and Further Information
The Proposed Amendments have been published by all members of the CSA, other than the British Columbia Securities Commission which is expected to publish a proposal, consistent with the Proposed Amendments, in the near future. Comments on the Proposed Amendments are due, in writing, on or before July 26, 2017. For further information, please see CSA Notice and Request for Comment – Adoption of a T+2 Settlement Cycle for Conventional Mutual Funds – Proposed Amendments to National Instrument 81-102 Investment Funds (April 27, 2017).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
