Canadian funds get new sec lending rules
14 July 2014 Toronto
Image: Shutterstock
All investment funds engaging in securities lending in Canada will be subjected to enhanced disclosure requirements from September, while restrictions and operating requirements for non-redeemable investment funds will also come into force.
The final amendments to National Instrument 81-102 Mutual Funds were published in late June, as a part of the Canadian Securities Administrators’s (CSA) Modernization of Investment Fund Product Regulation Project.
The CSA, the council of the securities regulators of Canada's provinces and territories, coordinates and harmonises regulation for the Canadian capital markets.
Initially proposed March 2013, the amendments will require the aggregate market value of securities loaned under lending transactions or sold in repo transactions by an investment fund to not exceed an amount equal to 50 percent of the fund’s net asset value.
This was previously a fund’s total assets. New non-redeemable investment funds must comply with the rule change by 22 September. Existing funds have until 21 September 2015 to comply.
“This amendment is intended to offset the effect of leverage employed by non-redeemable investment funds, whereby a non-redeemable investment fund’s total assets may be substantially greater than its NAV,” explained the CSA.
“The CSA do not expect this amendment to have a material effect on mutual funds, as mutual funds are generally not permitted to employ leverage and their liabilities are generally not significant relative to their total assets.”
Under the new disclosure requirements, mutual and non-redeemable investment funds must disclose a reconciliation of the gross amount generated from the securities lending transactions of the investment fund to the revenue from securities lending disclosed under Section 3.2(4) of NI 81-106.
A disclosure must include the identity of each person or company entitled to receive payments out of the gross amount generated from the securities lending transactions of the investment fund and the amount that each recipient is entitled to receive.
“The purpose of this disclosure requirement is to better highlight the costs and returns of an investment fund’s securities lending activities,” according to the CSA, because chargeable fees can be skewed by broader custody or fund management services.
Similarly, investment funds must also disclose the name of their securities lending agents in their prospectuses, as well as the relationship of the agent to the fund’s manager.
"By modernising these important investment fund rules, the CSA aims to create fair and consistent product regulation across the spectrum of retail investment funds," commented Bill Rice, chair of the CSA, and chair and CEO of the Alberta Securities Commission.
The final amendments to National Instrument 81-102 Mutual Funds were published in late June, as a part of the Canadian Securities Administrators’s (CSA) Modernization of Investment Fund Product Regulation Project.
The CSA, the council of the securities regulators of Canada's provinces and territories, coordinates and harmonises regulation for the Canadian capital markets.
Initially proposed March 2013, the amendments will require the aggregate market value of securities loaned under lending transactions or sold in repo transactions by an investment fund to not exceed an amount equal to 50 percent of the fund’s net asset value.
This was previously a fund’s total assets. New non-redeemable investment funds must comply with the rule change by 22 September. Existing funds have until 21 September 2015 to comply.
“This amendment is intended to offset the effect of leverage employed by non-redeemable investment funds, whereby a non-redeemable investment fund’s total assets may be substantially greater than its NAV,” explained the CSA.
“The CSA do not expect this amendment to have a material effect on mutual funds, as mutual funds are generally not permitted to employ leverage and their liabilities are generally not significant relative to their total assets.”
Under the new disclosure requirements, mutual and non-redeemable investment funds must disclose a reconciliation of the gross amount generated from the securities lending transactions of the investment fund to the revenue from securities lending disclosed under Section 3.2(4) of NI 81-106.
A disclosure must include the identity of each person or company entitled to receive payments out of the gross amount generated from the securities lending transactions of the investment fund and the amount that each recipient is entitled to receive.
“The purpose of this disclosure requirement is to better highlight the costs and returns of an investment fund’s securities lending activities,” according to the CSA, because chargeable fees can be skewed by broader custody or fund management services.
Similarly, investment funds must also disclose the name of their securities lending agents in their prospectuses, as well as the relationship of the agent to the fund’s manager.
"By modernising these important investment fund rules, the CSA aims to create fair and consistent product regulation across the spectrum of retail investment funds," commented Bill Rice, chair of the CSA, and chair and CEO of the Alberta Securities Commission.
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