CSA NOTICE OF PUBLICATION AMENDMENTS TO NATIONAL INSTRUMENT 81-102 INVESTMENT FUNDS AND CHANGES TO COMPANION POLICY 81-102CP TO NATIONAL INSTRUMENT 81-102 INVESTMENT FUNDS TO ACCOMMODATE A RANGE OF SETTLEMENT CYCLES FOR MUTUAL FUNDS
May 23, 2024 Introduction The Canadian Securities Administrators (CSA or we) are adopting amendments (the Final Amendments) to National Instrument 81-102 Investment Funds (NI 81-102) and changes (the Final Changes) to Companion Policy 81-102CP to National Instrument 81-102 Investment Funds (81-102CP).
Provided all necessary regulatory and ministerial approvals are obtained, the Final Amendments will come into force on August 31, 2024.
The text of the Final Amendments and the Final Changes is contained in Annexes B and C 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 Final Amendments and the Final Changes is to accommodate a range of settlement cycles and particularly for those mutual funds that voluntarily decide to shorten the
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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 Final Amendments introduce 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 made available 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 Final 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.
The Final Changes provide guidance clarifying that examples that could satisfy the requirement for a mutual fund to make available in writing the business day it determines as the reference settlement date under subsection 9.4(0.1)(a) of NI 81-102 include (a) providing the mutual fund’s settlement cycle via a clearing agency or a clearing house recognized by a securities regulatory authority in a jurisdiction, which includes Fundserv Inc., or a successor, through an electronic file or otherwise, and (b) posting the mutual fund’s settlement cycle on the mutual fund’s designated website.
Background On October 19, 2023, we published for a 90-day comment period proposed amendments to NI 81-102 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 to one day after the date of a trade in anticipation of the settlement cycle for equity and long-term debt market trades in Canada to T+1.
We received two comments. Both comments support the Final Amendments. After considering the comments, we made the Final Changes. We also changed the requirement that the reference settlement date be “disclosed” in the version of paragraph 9.4(0.1)(a) published for comment to a requirement that the reference settlement date be “made available” in the Final Amendments to better align these amendments with the Final Changes.
Content of Annexes This Notice contains the following annexes: • Annex A: List of Commenters and Summary of Comments and CSA Responses • Annex B: Final Amendments to National Instrument 81-102 Investment Funds
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Annex C: Final Changes to Companion Policy 81-102CP to National Instrument 81-102 Investment Funds
• Annex D: Local Matters 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 Management Division Tel: 416-593-2330 Email: mtang@osc.gov.on.ca
Autorité des marchés financiers Philippe Lessard Investment Funds Analyst, Investment Products Oversight Tel: 514-395-0337 # 4364 Email: Philippe.Lessard@lautorite.qc.ca
Financial and Consumer Services Commission (New Brunswick)
Clayton Mitchell, Registration and Compliance Manager Tel: 506-658-5476 Email: clayton.mitchell@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 AMENDMENTS TO NATIONAL INSTRUMENT 81-102 INVESTMENT FUNDS AND CHANGES TO COMPANION POLICY 81-102CP TO NATIONAL INSTRUMENT 81-102 INVESTMENT FUNDS TO ACCOMMODATE A RANGE OF SETTLEMENT CYCLES FOR MUTUAL FUNDS
LIST OF COMMENTERS AND SUMMARY OF COMMENTS AND CSA RESPONSES
No. Commenter Date 1. Borden Ladner Gervais (Whitney Wakeling, Roma Lotay, January 16, 2024 Donna Spagnolo, Melissa Ghislanzoni)
2.
The Investment Funds Institute of Canada (Andy Mitchell, January 17, 2024 President & CEO)
No. Subject Summarized Comment GENERAL COMMENTS 1 General Two commenters are supportive of the Support Final Amendments.
SPECIFIC COMMENTS 2 The Final Two commenters recommend that Changes guidance be added to 81-102CP to provide examples of what constitutes “in writing” to facilitate compliance.
Two commenters recommend that the CSA provide examples that would satisfy the requirement under subsection 9.4(0.1) of NI 81-102.
Response
We thank the commenters for their support.
We are adding subsection 10.2(4) to 81-102CP to clarify that examples that could satisfy the requirement for a mutual fund to make available in writing the business day it determines as the reference settlement date under subsection 9.4(0.1) of NI 81- 102 include (a) providing the mutual fund’s settlement cycle via a clearing agency or clearing house recognized by a securities regulatory authority in a jurisdiction, which includes Fundserv Inc., or a successor, through an electronic file or otherwise, and (b) posting the mutual
No.
Subject
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Summarized Comment
Response fund’s settlement cycle on the mutual fund’s designated website.
To better align the Final Amendments with the addition of subsection 10.2(4) to 81-102CP, the requirement to “disclose” the reference settlement date in the version of paragraph 9.4(0.1)(a) published for comment has been changed to “made available” in the Final Amendments.
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Other Comments
One commenter asked the CSA to affirm the continued applicability of certain exemptive relief decisions, which permit certain exchange-traded funds (ETFs) that invest in securities that settle three days after the trade date to continue to settle primary trades of ETF securities three days after the trade date.
The rulemaking process is not an appropriate forum to provide the affirmation requested by the commenter.
The commenter notes that these ETFs will technically be unable to satisfy a condition of the decisions, which require these ETFs to disclose that primary market trades of their securities settle two days after the trade date because primary market trades of their securities will settle one day after the trade date following the transition to a T+1 settlement cycle.
ANNEX B THE MANITOBA SECURITIES COMMISSION MSC Rule No. 2024-5 (Section 149.1, The Securities Act)
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 made available 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) in paragraph 4(a) , by replacing “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 August 31, 2024.
3.(2) In Saskatchewan, despite subsection (1) , if this Instrument is filed with the Registrar of Regulations after August 31, 2024, this Instrument comes into force on the day on which it is filed with the Registrar of Regulations.
ANNEX C CHANGES TO COMPANION POLICY 81-102CP TO NATIONAL INSTRUMENT 81-102 INVESTMENT FUNDS
1. Companion Policy 81-102CP to National Instrument 81-102 Investment Funds is changed by this Document.
2. Section 10.2 is changed by adding the following subsection:
(4)
Examples that could satisfy the requirement for a mutual fund to make available in writing the business day it determines as the reference settlement date under subsection 9.4(0.1) of the Instrument include
(a) providing the mutual fund’s settlement cycle via a clearing agency or a clearing house recognized by a securities regulatory authority in a jurisdiction, which includes Fundserv Inc., or a successor, through an electronic file or otherwise, and
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(b) posting the mutual fund’s settlement cycle on the mutual fund’s designated website.. These changes become effective on August 31, 2024.