Exemption from subsection 4803(6) of the IIROC Rules – Interest calculation for monthly pay instruments

GN-4800-21-002
Type: Rules Notice> Guidance Note
Rule connection:
IIROC Rules
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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. 
  1. Applicable Rules 

IIROC Rules this Guidance Note relates to: 

  • section 4803. 

  1. Previous Guidance Note  

This Guidance Note replaces MR0148 - Exemption from Regulation 800.48 – Interest Calculation for Monthly Pay Instruments. 

  1. 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 

Coupon rate 

5.75% 

Maturity 

12/01/2004 

Coupon compounding frequency 

Semi-annually 

Payment date 

15th of each month 

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)) 

 

 

Monthly coupon rate 

= ((1+(5.75%/2))(1/6) – 1) 

 

= 0.473525% 

 

 

Value date (settlement date) 

04/30/02 

Number of days from the first day of the settlement month to the settlement day 

29 

 

 

Number of days in the settlement month 

30 

Accrued interest 

$457.74