Investment

Investment funds and the move to T+1 – Investment Executive

Published

2 years ago

September 12, 2022

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.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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