CSA opens fund access to liquidity tool

By James Langton | July 24, 2025 | Last updated on July 24, 2025
2 min read
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Investment funds will have access to an emergency liquidity facility operated by the Bank of Canada, expanding the liquidity management tools that may be available to funds during episodes of severe market stress.

On Thursday, the Canadian Securities Administrators (CSA) issued a series of coordinated blanket orders that aim to remove barriers to certain funds from accessing the bank’s Contingent Term Repo Facility — a mechanism that’s designed to bolster the stability of the financial system by combatting liquidity shortages.

The facility, which is activated and deactivated at the discretion of the central bank, can provide short-term, Canadian-dollar funding against securities issued or guaranteed by the federal or provincial governments.

The facility is currently deactivated. It was suspended in 2021, after the market stress that accompanied the pandemic eased. The next time it’s needed, investment funds may be able to participate in the mechanism.

“Investment funds with exposure to Canadian dollar money market and/or fixed-income securities may need to access the [facility] to better manage their liquidity if there is a severe market-wide liquidity stress event,” the CSA said in a notice Thursday.

However, as it stands, accessing the facility would prevent funds from being able to comply with certain regulatory requirements for funds engaging in repurchase transactions.

As a result, the regulators are adopting orders to give investment funds exemptive relief to access the facility subject to certain conditions, including that it’s in the best interest of the fund.

Earlier this year, the Bank of Canada also announced a series of planned changes to the mechanism that aim to enable non-bank financial institutions — including investment funds — to access the facility, given their growing importance in the fixed-income markets and in the global financial system. 

Among other things, it updated the eligibility criteria for participants, and determined that banks that have access to other liquidity facilities operated by the central bank won’t be able to use the CTRF.

The CSA’s orders aim to facilitate that access by removing potential regulatory impediments, giving investment funds a potential liquidity risk management tool.

The bank also made certain operational changes to the facility, including onboarding potential participants prior to its activation, along with added testing and enhancements to its existing systems and processes that support its operation.

At the same time, in the wake of events — such as Russia’s invasion of Ukraine, and recent turmoil in U.S. Treasury markets — global securities regulators have sought to bolster investment funds’ ability to manage their liquidity risks during periods of extreme market stress.

Earlier this year, the International Organization of Securities Commissions unveiled a set of reform recommendations that aim to enhance the ability of funds to cope with liquidity issues that can arise when stressed markets challenge their ability to meet short-term redemption demands. Those recommendations include proposals for fund design, operational practices, funds’ use of liquidity management tools, stress testing, governance and disclosure expectations.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.