Bay Street is fighting over high-interest ETFs that retail investors love, sparking a federal review, say sources | Investing | Discussion forum

mordko said
…or the big banks could just cut margins and bonuses a notch, raise HISA interest rates and attract liquidity. Problem solved.  

The banks do have the option to raise their ISA rates to about the same level if they chose to do so, albeit there is probably 10bp or so of administrative costs administering million of smaller accounts to retail investors versus a few billion dollars that each of CASH or CSAV or PSA (as institutions) would have in those deposits.

OSFI is right to investigate "cash" ETF's. What some of the ETF's consider to be "cash or cash equivalents" is not what one would think of as cash deposits.

Horizons High Interest Savings ETF's 2021 annual financial statements, for example, define "cash or cash equivalents" as follows:

Cash and cash equivalents consist of cash on deposit and short-term, interest bearing notes with a term to maturity of less than three months from the date of purchase.

Norman1 said
OSFI is right to investigate "cash" ETF's. What some of the ETF's consider to be "cash or cash equivalents" is not what one would think of as cash deposits.

Horizons High Interest Savings ETF's 2021 annual financial statements, for example, define "cash or cash equivalents" as follows:

Cash and cash equivalents consist of cash on deposit and short-term, interest bearing notes with a term to maturity of less than three months from the date of purchase.

  

Dictionary seems to agree with Horizon’s definition.

Horizon operates funds rather than takes anything to the grocery store so does not seem relevant.

This is: https://www.investopedia.com/terms/c/cashandcashequivalents.asp#:~:text=Cash%20and%20cash%20equivalents%20refers,of%20less%20than%2090%20days.

kesa said
the yield p/u is enticing but I’m not risking it for a ‘break the buck’ type scenario.  

Norman1 said

mordko said
Also, I have a sneaking suspicion that every single institution you use for HISAs does not keep all of your deposits in the form that can be taken to a grocery shop.

Banks and credit unions don't need to because they have agreements with the Bank of Canada or their credit union central to borrow grocery-store-accepted cash against what the HISA money has been put into.

What central bank or credit union central does that "cash" ETF have a backstop agreement with?  

What is more relevant is whether those cash bearing instrument are govt or corp paper. If it is 100% government issues only, then a much lower chance of default and I will say the chance of breaking the buck is close to zero. After all that is the ultimate concern as an investor, not the definition of what cash is.

Answer the question: What central bank or credit union central does that "cash" ETF have a backstop agreement with?

That "cash deposits" statement is a lie. A two-month deposit note is not cash. Who will be advancing cash for that deposit note to the ETF before maturity, if needed?

If it really is in 100% cash in bank accounts accessible anytime, then why the qualifier in their annual report?

I had another look at the annual report and at the June 2022 interim report. Still can't tell how much of that "cash and cash equivalents" is actually cash deposits. I guess we'll have to see what OSFI finds and whether that "100.00% cash deposits" statement is "cash" or "cash or cash equivalents".

The definition is important. Would the Canadian Western Bank Flex Notice Account mentioned previously be considered a "cash deposit"?

Norman1 said
Answer the question: What central bank or credit union central does that "cash" ETF have…

Sorry, I don’t have to answer random questions which are not relevant to the topic. If you can point to the regulation(s) which are being broken then we can continue this discussion.

None of these claims are made in the Globe article. The article does not claim that any of the Tier 1 banks’ funding used by these ETFs is not liquid.