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Executive Summary
Effective Date: December 31, 2021
The accrued interest calculation in subsection 4803(6) of the IIROC Rules1 , which was illustrated in GN 4800-21-002, is intended for monthly pay instruments that compound interest monthly.
However, instruments such as NHA mortgaged-backed securities (NHA MBS), compound interest semi-annually. Furthermore, the interest is due on the first day of the month, but is not paid to the investor until mid-month. Consequently, these instruments require a different accrued interest calculation and are exempt from the accrued interest calculation in subsection 4803(6); and therefore, should follow the calculation in Appendix 1.
- 1In this Guidance, all rule references are to the IIROC Rules unless otherwise specified.
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Applicable Rules
IIROC Rules this Guidance Note relates to:
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section 4803.
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Previous Guidance Note
This Guidance Note replaces MR0148 - Exemption from Regulation 800.48 – Interest Calculation for Monthly Pay Instruments.
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Appendices
Appendix 1 – Exempt from accrued interest calculation example
Appendix:
An example to demonstrate the accrued interest calculation on the sale of NHA MBS, settling on April 30, 2002.
|
Face Value |
$100,000 |
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Coupon rate |
5.75% |
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Maturity |
12/01/2004 |
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Coupon compounding frequency |
Semi-annually |
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Payment date |
15th of each month |
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Accrued interest calculation (NHA MBS convention) |
= (face value x monthly coupon rate x (number of days from the first day of the settlement month to the settlement day)) / ((number of days in the settlement month)) |
|
= (100,000 x 0.473525% x (29))/((30)) |
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|
|
|
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Monthly coupon rate |
= ((1+(5.75%/2))(1/6) – 1)
= 0.473525% |
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|
|
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Value date (settlement date) |
04/30/02 |
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Number of days from the first day of the settlement month to the settlement day |
29 |
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Number of days in the settlement month |
30 |
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Accrued interest |
$457.74 |