Lesson 23 of 25 · 7 min

Cut-offs, weekends, and a clock that is not yours

Eleven minutes late, a sale priced at the next day's valuation and left the cure incomplete.

Deadlines in this subject are not measured in elapsed time. They are measured against a series of fixed hours, and being on the wrong side of one of them by a minute has the same effect as being a day late.

The cut-offs that decide whether an action counts today:

A pooled fund order entered after the daily cut-off, commonly 16:00 or earlier, prices at the next day's valuation rather than today's.
A wire initiated after the payment cut-off arrives the next business day, however early in the day it was prepared.
A business day is defined by the lender's own calendar and location, which need not match yours.
A weekend or public holiday suspends the movement of cash while leaving interest and prices untouched.

Price the first of those. An order to sell 3,400 units of a pooled fund is entered at 15:41 against a 15:30 cut-off. Today's valuation is $152.90, which would have realised 3,400 × $152.90 = $519,860. It prices instead at tomorrow's, and the fund falls 2.8 percent to $148.62, realising 3,400 × $148.62 = $505,308. The shortfall in question is $161,156.60, which at a 69 percent threshold is what a $519,860 sale would have closed: $519,860 × 0.31. The actual sale closes $505,308 × 0.31 = $156,645.48, leaving $4,511.12 outstanding — which is also the $14,552 of missing proceeds multiplied by 0.31.

The calendar interacts with this. A notice generated on the Thursday before a long weekend, granting three business days, expires on the Wednesday: six calendar days, of which two contain no session and one is a holiday on the lender's calendar rather than necessarily yours. Interest accrues on all six.

Eleven minutes and a 2.8 percent move left $4,511.12 of a $161,156.60 shortfall outstanding. Nothing about the sizing of the cure was wrong.

Key terms

Valuation cut-off: The hour by which a pooled fund order receives today's valuation. After it, the order prices at tomorrow's.
Payment cut-off: The hour after which a cash transfer is dated the next business day, regardless of when it was instructed.
Lender's calendar: The set of days the lender counts as business days. It governs the deadline even where it differs from your own.

Worked example

Eleven minutes, priced

3,400 units of a pooled fund, order entered 15:41 against a 15:30 cut-off. Today's valuation $152.90; tomorrow's $148.62, 2.8 percent lower. Threshold 69 percent, shortfall $161,156.60.

Proceeds at today's valuation: $519,860
Proceeds at tomorrow's: $505,308
Proceeds lost: $14,552
Gap closed as intended: $161,156.60
Gap actually closed: $156,645.48
Residual shortfall: $4,511.12

The sale was sized correctly and executed at the wrong day's price, and the residual is the price difference scaled by the same multiple that sized the sale.

Check yourself

A $96,000 pooled-fund sale is intended to cure a shortfall at a 74 percent threshold, but the order misses the cut-off and prices at a valuation 2.8 percent lower. What is left outstanding?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.