CSA Notice and Request for Comment
Proposed Amendments to National Instrument 81-102 Investment Funds
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.