Are you mainly buying HSAV.TO or CASH.TO | Page 4 | Investing | Discussion forum

Norman1 said

mordko said

Could you provide a reference to an actual statement referring to “notice”? All the formal, published materials on these ETFs that I am seeing don’t even refer to “notice”.

Given that there is a 100% liquidity requirement” for these ETFs, I would be extremely concerned about overall solvency if “bank refuses” to pay up and therefore if Market Makers were to refuse to participate.

There's actually no 100% liquidity requirement for those ETF's.

That OSFI requirement is on the banks accepting deposits from those ETF's for any part of the deposits that the ETF can contractually withdraw within the next 30 days. The ETF cannot legally withdraw any funds that are subject to, for example, a 60 day notice before 60 days.

The references to these withdrawal notification periods and pro-rata withdrawal requirements are in Appendix 1 of OSFI's October 31, 2023 letter OSFI upholds current LAR guideline treatment for HISA ETFs.  

Sorry, I’ll use OSFI as my source, which literally says:

OSFI upholds 100% liquidity requirement for HISA ETFs to promote financial resilience

This is a more stringent requirement than for conventional HISA accounts.

https://www.osfi-bsif.gc.ca/en/news/osfi-upholds-100-liquidity-requirement-hisa-etfs-promote-financial-resilience#

Norman1 said

mordko said

Sorry, I’ll use OSFI as my source, which literally says:

OSFI upholds 100% liquidity requirement for HISA ETFs to promote financial resilience

This is a more stringent requirement than for conventional HISA accounts.

https://www.osfi-bsif.gc.ca/en/news/osfi-upholds-100-liquidity-requirement-hisa-etfs-promote-financial-resilience#

Read the rest of the press release. It is a bad habit to just read the headline.

Also, become informed: OSFI is a federal regulator and has no jurisdiction over ETF's. Investments, like mutual funds and ETF's, are provincial jurisdiction.

Sometimes, the real headline is too long to fit and gets edited by a not-so-smart editor:

OSFI upholds 100% liquidity requirement for [deposits from] HISA ETFs [that can be withdrawn within 30 days] to promote financial resilience

  

The headline does not contradict anything in the body. All HISA ETF balances can be withdrawn within 30 days.

The text repeats the headline numerous times, eg:

The Basel Committee on Banking Supervision emphasizes the importance of financial institutions being able to withstand periods of financial stress. This approach, fully described in Basel III, is supported by the 100% liquidity requirement for wholesale funding that can be withdrawn by other financial institutions on demand, including HISA ETFs.

This is a requirement for banks. It interprets HISA ETFs as “wholesale funding”. We already know how ETFs are bought and sold, thats not specific to HISA EtFs. The argument was whether using ETF hisa funding requires more onerous liquidity requirements on banks compared to standard HISAs. OSFI decided that it does, that all ETF share owners might decide to withdraw at once (unlike saving accounts) and that the banks must have 100% liquidity to deal with this risk. In the past, banks” risk management assumption was that some of the back up cash does not need to be liquid in the same way as they treat savings accounts.

When the text says 2+2=4, one can always claim its really 5 but it requires a lot of imagination.

No, the bank does not. Bank has to return every single penny within the notice period of the deposit. If the deposit has notice period of 31 days + 5 days of grace, then the bank has up to 36 days.

Norman1 said
No, the bank does not. Bank has to return every single penny within the notice period of the deposit. If the deposit has notice period of 31 days + 5 days of grace, then the bank has up to 36 days.  

My point is investors will rec their cash eventually, unless the deposited bank the ETF uses failed. So if some kind of silly liquidity one can’t wait and sell it materially thru the NAV by a big margin, I will scoop them in,

mordko said

So, when OSFI says that HISA ETFs must have 100% liquidity requirement (for banks), they are obviously lying? Is it a conspiracy of sorts?

As a result of these new rules, banks now must classify deposits from HISA ETFs as unsecured wholesale funding with 100% run-off, requiring 100% liquid coverage.

In practice, to keep the rates up, providers of HISA ETFs are now shifting a proportion of the funds from bank hisas to money market fund type of assets/T-bills. That’s where a hypothetical delay might happen, if 100% of investors decide to redeem 100% of Hisa ETF securities and nobody wants to effectively own short term government of Canada bond at any price. Quite an event…  

if 2009 financial crisis happens again, when no banks trust each other, depositors dont trust their banks.....
Never say never, but CBs now have experience to deal with it 🙂

I bought my first ISA - ATL5075 which is USD HISA with current rate 5.15% and it was completed yesterday.
The Unit is $1.00 so average price is $1.00
and it shows today the avg price as $1.00 and price as $1.0038
Can anyone please explain to me how this is calculated and reflected in the account. Just trying to see how it becomes 1.0038 in a day or is it 2 days, how to get this value.
I want to know how the interest is paid on this type of account? Does it accumulate in the unit price or is it paid separately as cash in the account?

AltaRed said
Edit: Correction: The difference would be unrealized cap gains/loss for a USD money market mutual funds or USD Cash ETFs, but really does not apply to ISAs which are deposit accounts.  

Yes ISAs are deposit accounts, so my unit price $1.00
example: so let's say I bought a total of $10,000 USD and unit price is $1.00
If the yield is 5.15% the monthly interest will be approx. $42.92
so will it show my principal as 10,042.92 in 1 month? unit price still as $1.00?

savemoresaveoften said
it will show u as having an extra $42.92 worth of unit in the fund. The unit price is constant at $1.
That $42.92 will be taxed as interest income
I did not verify ur calculation of $42.92, just assume you did it correctly.  

Thanks savemoresaveoften.
So the interest is deposited 1st of every month and added to the units held?

zgic said

Thanks savemoresaveoften.
So the interest is deposited 1st of every month and added to the units held?  

Month end depends on the individual bank behind the ISA. Some work 28th to 28th, some 30th to 30th, etc. Some shift from month to month so as not to fall on a weekend, so one month might be 28 days, another may be 30 days, etc. It does not matter though since interest is calculated daily and you are credited a re-investment of new units monthly.

Example for BMT104 in BMO Investorline: My interest for December was calculated as of Dec 29th. The new units showed up in my account when I logged on Jan 3rd, but showed that it was posted Jan 2nd.

Exact same thing happened for DYN6004 in my Scotia iTrade account.

In the case of November, the interest was calculated as of Dec 1st and was posted on Dec 4th.

I expect for February, the calculation will be done as of Mar 1st and I will see the posting online on Monday Mar 4th.

zgic said
I want to see the units before going into this journey of creating new ISAs  

Do you mean new ISA holdings in other accounts? With an ISA sponsor like ATL backed by CIBC, I wouldn't think you would need to be concerned about CDIC limits.