Shortening the Settlement Cycle: Final CSA Amendments to NI 24-101

Canadian Securities Administrators announced they are adopting amendments to National Instrument 24-101

Institutional Trade Matching and Settlement

July 2017

Executive Summary

The Canadian Securities Administrators (CSA) announced on April 27, 2017 that they are adopting amendments to National Instrument (NI) 24-101 "Institutional Trade Matching and Settlement" and to its companion policy. The CSA notes that some of its revisions are being made in anticipation of the upcoming shortened settlement cycle standard for equity and long-term debt market trades in Canada, which will be moving to two days after the date of a trade (T+2) from three days after the date of a trade (T+3). Canada's move to a T+2 settlement cycle is expected to occur on September 5, 2017, in alignment with the timelines of the U.S. markets.

CIBC Mellon is playing an active role in the industry in preparation of Canada's move to a shortened T+2 settlement cycle and the company is represented on all of the Canadian Capital Markets Association's (CCMA) working groups and committees. CIBC Mellon also participates in the CIBC T+2 working group and is plugged into the U.S. BNY Mellon Depository Trust & Clearing Corporation (DTCC) working group. The company is currently testing relevant scenarios to prepare for service continuity under a T+2 settlement cycle standard by September 5, 2017, and to make certain that CIBC Mellon's technology and operational procedures are adequately updated.

Non-North-American Trades to be Matched on T+1

The CSA is repealing the provisions of NI 24-101 that extend the institutional trade matching (ITM) deadline to noon on T+2 where a delivery-against-payment (DAP) and receipt-against-payment (RAP) trade results from an order to buy or sell securities received from an institutional investor whose investment decisions or settlement instructions are usually made in and communicated from a geographical region outside the North American region (non-North-American trades). The CSA notes that an extended deadline of noon on T+2 for non-North-American trades leaves insufficient time to solve problems and avoid failed trades; as such, parties need to match earlier on T+1.

Revisions to Clarify or Modernize NI 24-101: Application to Exchange-Traded Funds

Currently, NI 24-101 does not apply to a trade in a security of a mutual fund to which NI 81-102 "Investment Funds" applies. As exchange-traded funds (ETFs) are mutual funds and therefore subject to NI 81-102, ETF securities are not currently subject to NI 24-101. Amendments to the instrument will narrow the scope of the current exception for investment funds with the CSA's aim to clarify that DAP/RAP trades in ETF securities, that are bought and sold like any other stock on the secondary market and settled through the facilities of the Canadian Depository for Securities (CDS), are to be included in the exception reports under NI 24-101 (form 24-101F1) by registered firms as "equity" DAP/RAP trades, and not as "debt" DAP/RAP trades.

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This article is provided for general information purposes only and CIBC Mellon and its affiliates make no representations or warranties as to its accuracy or completeness, nor do any of them take any responsibility for third parties to which reference may be made. This article should not be regarded as legal, accounting, investment, financial or other professional advice nor is it intended for such use.

About CIBC Mellon

CIBC Mellon is a Canadian company exclusively focused on the investment servicing needs of Canadian institutional investors and international institutional investors into Canada. Founded in 1996, CIBC Mellon is 50-50 jointly owned by The Bank of New York Mellon (BNY Mellon) and Canadian Imperial Bank of Commerce (CIBC). CIBC Mellon's investment servicing solutions for institutions and corporations are provided in close collaboration with our parent companies, and include custody, multicurrency accounting, fund administration, recordkeeping, pension services, exchange-traded fund services, securities lending services, foreign exchange processing and settlement, and treasury services.

As at June 30, 2022, CIBC Mellon had more than C$2.3 trillion of assets under administration on behalf of banks, pension funds, investment funds, corporations, governments, insurance companies, foreign insurance trusts, foundations and global financial institutions whose clients invest in Canada. CIBC Mellon is part of the BNY Mellon network, which as at June 30, 2022 had US$43.0 trillion in assets under custody and/or administration. CIBC Mellon is a licensed user of the CIBC trade-mark and certain BNY Mellon trade-marks, is the corporate brand of CIBC Mellon Global Securities Services Company and CIBC Mellon Trust Company, and may be used as a generic term to refer to either or both companies.

For more information – including CIBC Mellon's latest knowledge leadership on issues relevant to institutional investors active in Canada – visit www.cibcmellon.com or follow us on Twitter @CIBCMellon.