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From OSFI to CASH: Understanding the Review and Investment Options

Naseem Husain
Update: October 31, 2023

Per the Office of the Superintendent of Financial Institutions (OSFI) news release on October 31, 2023, deposit taking institutions are required to transition to a 100% run-off factor on High Interest Savings Account(HISA) ETF deposits in their calculation of Liquidity Adequacy Requirements by January 31, 2024.
Clarity allows for growth and innovation: The clarity from OSFI reinforces the longevity of these funds, as they look to ensure that the products can grow to be much larger and allow for innovation in the space
Solid yields can continue: Although rates are expected to come down, the product can still provide significant return and operational benefits to a variety of investors
More competition: The recent OSFI guidance will likely introduce more deposit counterparties, which is good for the products and investors

Welcome to our blog, where we’ll be discussing two critical topics in the world of finance today. We will start by diving into the ongoing OSFI review that affects the funding sources of HISA ETFs, shedding light on what’s happening, what’s already transpired, and what the future might hold. Following that, we’ll conduct a product overview of T-Bill ETFs, High-Interest Savings Account (HISA) ETFs, and Guaranteed Investment Certificates (GICs). The following are my takeaways from a recent webinar call I was invited to participate in, where we discussed the questions and opportunities facing IIROC advisors surrounding HISA ETFs and the OFSI Review.

Understanding OSFI: The Financial Watchdog

The Office of the Superintendent of Financial Institutions (OSFI) is a pivotal player in the financial landscape. This independent federal government agency takes on the task of regulating and supervising over 400 federally regulated financial institutions (FRFIs) to ensure their financial soundness and compliance with requirements. While OSFI doesn’t directly regulate ETF providers like Horizons ETFs, it oversees organizations like the banks that form a significant part of the ETF ecosystem. This oversight includes implementing policies, procedures, and managing risks.

October Clarity: What’s in Store?

In the words of Peter Routledge, Superintendent of Financial Institutions, “Clarification on the treatment of HISA ETFs will help ensure risks are managed appropriately. We will carefully review the feedback we received during our consultation to help us determine the appropriate liquidity treatment for these products in what is a fast-evolving risk landscape.”

The big event we’re eagerly anticipating is the clarity that October promises. OSFI will reveal how it intends to direct deposit-taking institutions under its purview. This clarity is expected to pave the way for innovation and new products in the finance sector. While some have voiced concerns about the potential impact of severe liquidity treatment, two scenarios emerge:

  1. OSFI maintains the status quo.
  2. OSFI mandates that banks hold more cash to enhance liquidity.

The outcome of these scenarios could mean that yields for HISA ETFs may remain steady or slightly decrease, affecting the monthly income investors can expect to receive. Let’s take a quick look at recent history for more insights.

A Walk Through Recent History

Our journey takes us back to February 2020 when Horizons ETFs introduced the HISA ETF, HSAV1. At that time, assets under management (AUM) were on the rise, albeit with relatively low yields. Fast forward to January 2021, as assets began pouring into HISA ETFs, and Horizons ETFs announced the suspension of creations in HSAV. Subsequently, in the same year, Horizons ETFs launched CASH, free from such restrictions. A year after the initial announcement, HSAV was capped at $2 billion and suspended new subscriptions. AUM in this space continued to swell as cash ETFs attracted interest due to central bank rate hikes and a thirst for consistent returns.

Source: Horizons ETFs Management (Canada) Inc.

Innovation continued in this space with Horizons ETFs launching CBIL and UBIL.U which operate outside of using the banks as a funding source and use exposure to 0-3 month treasury bill ETFs to help generate monthly income. These T-bill ETFs currently have yields slightly below those of HISA ETFs but are inline or more competitive compared to many fixed-income ETFs due to the inverted yield curve in the fixed-income markets where shorter rates are the same or higher than long-term rates.  CBIL and UBIL.U have a combined AUM of $633M ($465M and $168M respectively) as at Nov 2, which is notable since these products were only listed in April 2023.

In May 2023, OSFI initiated a public consultation, and ETF issuers submitted their comments.  The outcome of this consultation would result in Deposit Taking Institutions (DTI) being expected to align with the liquidity adequacy requirement guidelines (LAR Guidelines) effective August 1, 2023. Speculation continued on HISA ETF rates coming down, which did not slow the pace of adoption of HISA ETFs (they would surpass $20 billion in June 2023), while also seeing inflows into T-bill ETFs and GICs.  As a result of comments received during the public consultation on May 31, 2023, OSFI announced the deferral of the expectation of liquidity treatment. OSFI will confirm any changes to the LAR Guidelines in October 2023, and DTIs will be expected to align in January 2024 to the guidelines. In the interim, OSFI stated that the banks should “prudently manage the risk of liquidity runoffs associated with these products”.

Diverse Investment Options: T-Bill ETFs, HISA, and GICs

Much of the conversation with the advisors was focused on these three product categories. When choosing between them, it is important to understand the risk differences of the products, even at this low-risk end of the investment risk spectrum.

HISA ETFs: Attractive Yields with Liquidity

High-Interest Savings Account (HISA) ETFs have gained popularity due to their attractive yields and daily liquidity. Their yields are typically tied to the overnight rate set by the Bank of Canada, making them responsive to changes in interest rates.

GICs: Dual Layer of Protection

Guaranteed Investment Certificates (GICs) offer a dual layer of protection for your investment. They are a liability of the issuing financial institution and come with legal obligations to repay both the principal and interest earned. Additionally, GICs issued by members of the Canada Deposit Insurance Corporation (CDIC) are insured by CDIC, protecting eligible deposits up to $100,000 in case of financial institution insolvency.

T-Bill ETFs: Safety and Liquidity

Treasury Bills (T-Bills) are short-term debt securities issued by governments to raise capital. They do not pay coupons and are issued at a discount to face value. T-Bills are backed by the full faith and credit of their respective governments, making them a low-risk investment option. T-Bill ETFs primarily invest in these short-term T-Bills, offering stable and consistent returns across various market conditions. These ETFs provide flexibility as they can be bought or sold anytime throughout the trading day, offering an advantage over some traditional savings options like GICs.

In conclusion, the OSFI review and the variety of investment options in the market present investors with a wealth of choices. The key is to align your investment strategy with your risk profile, financial goals, and investment horizon. Stay tuned for further insights by us on the OSFI review, and explore the diverse world of cash and cash alternative investments to find the best fit for your financial needs.

Naseem Husain

Senior Vice-President, ETF Strategist, Horizons ETFs

Naseem Husain is Senior Vice-President, ETF Strategist for Horizons ETFs. Naseem has a cross functional role including supporting product development and management, content creation and supporting institutional and retail sales teams. Prior to joining Horizons, Naseem spent 4 years at Mackenzie Investments building out their multi-channel business strategy, and prior to that he spent 13 years at RBC as a trader, analyst and ETF subject matter expert. Naseem earned a Bachelors of Applied Science and a Masters Degree in Engineering from the University of Toronto as well as a Masters of Business Administration from the University of Western Ontario.  Naseem is a Chartered Investment Manager and a Fellow of the Canadian Securities Institute.

Commissions, management fees, and expenses all may be associated with an investment in the Horizons 0-3 Month T-Bill ETF (“CBIL”), the Horizons 0-3 Month U.S. T-Bill ETF (“UBIL.U”), the Horizons High Interest Savings ETF (“CASH”), and the Horizons Cash Maximizer ETF (“HSAV”), (collectively, the “ETFs”) managed by Horizons ETFs Management (Canada) Inc. The ETFs are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the ETFs will be able to maintain their net asset value per security at a constant amount or that the full amount of your investment in the ETF will be returned to you. Past performance may not be repeated. The prospectus contains important detailed information about the ETFs. Please read the prospectus before investing.

CASH and HSAV uses cash accounts and does not track a traditional benchmark but rather receives interest paid on cash deposits that can change over time. CASH and HSAV primarily invests in bank deposit accounts and are not covered by the Canada Deposit Insurance Corporation or any other government deposit insurer.

CBIL & UBIL.U may be susceptible to an increased risk of loss, including losses due to adverse events because fund assets are concentrated in a particular issue, issuer or issuers, country, market segment, or asset class.  While U.S. Treasury and Canadian Treasury obligations are fully backed by the respective governments, such securities are nonetheless subject to credit risk (i.e. the risk that the issuing government may be, or be perceived to be, unable or unwilling to honour its financial obligations, such as making payments). For a full description of the associated risks, please refer to the fund’s prospectus at

Any distributions which are received by HSAV are reflected automatically in the net asset value (NAV) of HSAV. As a result, the shareholders of HSAV are not expected to receive any taxable distributions

1On February 3, 2022, HSAV suspended new subscriptions after reaching approximately $ 2 billion in assets. During a period of suspended subscriptions, investors should note that ETF shares of HSAV would be expected to trade at a premium or substantial premium to the NAV per ETF Share of HSAV. During such periods, investors are strongly discouraged from purchasing ETF shares of HSAV on a stock exchange. Any resumption of subscriptions for HSAV will be announced by press release and announced on the Manager’s website. A suspension of subscriptions, if any, will not affect the ability of existing Shareholders to sell their ETF Shares of HSAV in the secondary market at a price reflective, or potentially higher than, the NAV per ETF Share.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

The views/opinions expressed herein are solely those of the author(s) and may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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