The Canadian Securities Administrators (CSA) recently published for comment proposed amendments to National Instrument 24-101 Institutional Trade Matching and Settlement (NI 24-101). The proposed amendments would allow for the shortening of the standard settlement cycle for institutional equity and long-term debt market trades from T+2 to T+1. The amendments follow the lead of the U.S Securities and Exchange Commission (SEC) which, in February 2022, voted to shorten the settlement cycle for US equities to T+1.

Registered dealers and advisers trading on a delivery against payment or receipt against payment basis (DAP/RAP) for or with an institutional investor must match a DAP/RAP trade as soon as practical after the trade is executed, but currently by noon on T+1 (ITM deadline). In consideration of this move by the SEC, the CSA also proposed amendments to the ITM deadline from noon on T+1 to 9PM on the trade date. With the proposed advent of T+1, the CSA clarified their view that allowing matching to occur until noon on T+1 would leave insufficient time to address issues that may occur with the processing of trades.

In addition, the amendments propose to permanently repeal the exception reporting requirement which, as noted in our April 2020 bulletin article, has been suspended since the CSA moratorium came into effect on July 1, 2020. The reporting requirement would have otherwise necessitated the filing of a Form 24-101F1 by registered dealers and advisers if less than 90% of trades executed by or for the firm in the preceding quarter matched within the timing deadlines. CSA Staff agreed with the consensus of stakeholders who indicated that the exception reporting requirement was overly burdensome while achieving limited utility. While the amendment contemplates the removal of the exception reporting requirement and use of Form 24-101F1, applicable firms will still need to ensure their operations comply with other requirements of NI 24-101, including having policies and procedures to achieve the matching threshold for institutional trades.

Concurrently, the CSA also published Staff Notice 81-335 – Investment Fund Settlement Cycles in which the CSA announced that they were not proposing to amend National Instrument 81-102 Investment Funds (NI 81-102) to shorten the settlement cycle for primary distributions and redemptions of mutual fund securities in line with the proposed amendments to NI 24-101 discussed above.

The CSA highlighted the importance of allowing flexibility for individual mutual funds to evaluate whether a T+1 settlement cycle would make sense for their operations, acknowledging that a requirement of T+1 in NI 81-102 would impair that flexibility. This decision, while encouraging mutual funds to voluntarily settle primary distributions and redemptions on a T+1 cycle where practicable, leaves latitude for fund managers to decide what settlement cycle is right for their funds.

Firms may need to review their procedures and processes in consideration of these proposed changes. The deadline for comments on the amendments to NI 24-101 is March 17, 2023, with changes not expected to take effect until 2024.

January 31, 2023