As with the move to T+2 in 2017, the transition is being led by the Canadian Capital Markets Association (CCMA) with a proposed implementation date that will align with the U.S.’s effective date to move to T+1. The effective date in the U.S. was initially projected to be Q2 2024 but will potentially be Q3 2024 (Labour Day weekend). This remains uncertain until the SEC completes a review of its proposed rule amendment consultation. The Investment Funds Institute of Canada (IFIC) has supported this initiative through involvement in CCMA working committees.
U.S. mutual funds are not sold in Canada, and Canadian mutual funds are not sold in the U.S. The U.S. securities markets are much more liquid than Canada’s, which is why the U.S. mutual fund industry already settles on T+1. The U.S. has other factors that help funds meet liquidity needs, such as higher borrowing limits, advance notice of major mutual fund orders and inter-fund borrowing.
While the move to T+2 in 2017 seemed relatively straightforward, there were investment fund liquidity concerns. Funds with significant continued exposure to T+3 jurisdictions argued they would have trouble raising cash to satisfy redemptions by T+2. The CSA noted this concern and responded by providing appropriate exemptive relief. Due to the small exposure of the Canadian fund industry to T+3 securities of foreign jurisdictions, the number of funds that required exemptive relief was limited.
The move to T+1 would not be as straightforward because, unlike T+2, the European Union (EU) and the United Kingdom (U.K.) are not moving to T+1.
It should be noted that ETFs entail different considerations than mutual funds because, while their units typically trade intraday on exchanges, the funds also need to create and redeem baskets of portfolio securities from time to time.
To give a sense of the assets of Canadian mutual funds that will not be moving to T+1 along with Canada and the U.S., IFIC undertook an analysis of Canadian mutual fund assets. Our analysis* showed that there are 1,539 funds with greater than 10% exposure to jurisdictions that will not be moving to T+1. This is a staggering 46.3% of all Canadian funds. In terms of assets under management (AUM), with fund of funds double counting removed, $364.5 billion in AUM held by Canadian mutual fund managers or 19.2% of the total Canadian mutual fund AUM will be impacted.
The settlement cycle mismatch between the settlement of trades in portfolio securities and the settlement cycle of mutual fund orders that exists in the T+2 settlement cycle will be exacerbated by the move to T+1 for funds exposed to non-domestic and non-U.S. securities. Mandating a T+1 settlement cycle will require regulators to provide significant exemptive relief to address the liquidity problem.
On the other hand, some funds may wish to move to settle on T+1 instead of T+2, so that purchase proceeds can be received and invested more quickly. Also, do investment fund managers want different settlement cycles for different types of investment funds?
For dealers, the move to T+1 for funds holding Canadian or U.S. securities would reduce settlement risk and provide investors with increased investing opportunities.
There are no easy answers. Mandating a T+1 settlement cycle for investment funds would create consistency and reduce confusion for investors.
Still, given the absence of an overriding need to align Canadian and U.S. investment funds markets, allowing greater flexibility would permit funds to move to T+1 if and when the EU and the U.K. move to T+1 also. Perhaps a market-based solution for investment funds is the most viable option for the Canadian market.
Paul Bourque is president and CEO of the Investment Funds Institute of Canada.
* IFIC data analysis based on May 2022 data from IFIC, Investor Economics and Morningstar.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
