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The proposed reforms “focus on facilitating fairness and shortening the normal settlement cycle of long-term credit market transactions,” the CSA said in the announcement, adding that the changes may require market participants to review their own processes and procedures.
The exact timing of the transition to T+1 remains up in the air. The U.S. Securities and Exchange Commission initially indicated the move should occur in the first quarter of 2024, but industry trade groups have argued for the 2024 Labor Day weekend.
CSA noted that the proposed changes are intended to align with the transition in the US.
At the same time, the regulators published a staff memo suggesting they did not propose changes to investment fund rules that would require faster settlement in that sector — a decision aimed at preserving flexibility for investment funds given the various mechanics involved. With settlement fund transactions.
“If the standard settlement cycle for listed securities moves from two days to one day in Canada, we believe mutual funds will be required to voluntarily settle their principal issuances and warrants on T+1 when applicable,” the CSA said. In the advertisement.
“In our view, moving to T+1 will allow the mutual fund industry to improve investor and distributor cash flow management, align with US settlement cycles, and allow mutual funds to remain competitive from a settlement perspective,” the regulators said.
However, they acknowledged that the move to T+1 settlement for investment funds would “cause operational problems for funds that are sitting at T+2 or higher in their portfolio.”
As a result, the CSA decided to allow mutual funds the flexibility to “determine whether a T+1 settlement cycle could work for them.”
Comments on the CSA’s proposed rule changes are expected until March 17.
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