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I found this in the fact sheet of BMO Junior Oil Index ETF (TSX: ZJO):

What if I change my mind?

Under securities law in some provinces and territories, you have the right to cancel your purchase within 48 hours after you receive confirmation of the purchase.

Ontario Securities Commission's website says the same thing about mutual funds: If I change my mind after purchasing a fund, what can I do?

Aren't these cancellations disadvantageous to the fund? For example, I could buy an ETF and if the price drops after my purchase, I could cancel my purchase within 48 hours to avoid the loss. I must be missing something here. How does the cancellation work?

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  • ZJO was delisted in December 2020 (reference 1, reference 2), but the fact that it was delisted is not relevant to the question.
    – Flux
    Jun 23 at 11:08
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In Ontario, the legal basis is section 137 of the Securities Act:

Rescission of purchase of mutual fund security

137 (1) Every purchaser of a security of a mutual fund in Ontario may, where the amount of the purchase does not exceed the sum of $50,000, rescind the purchase by notice given to the registered dealer from whom the purchase was made within forty-eight hours after receipt of the confirmation for a lump sum purchase or within sixty days after receipt of the confirmation for the initial payment under a contractual plan but, subject to subsection (5), the amount the purchaser is entitled to recover on exercise of this right to rescind shall not exceed the net asset value of the securities purchased, at the time the right is exercised. R.S.O. 1990, c. S.5, s. 137 (1). [...]

Reimbursement

(5) Every registered dealer from whom the purchase was made shall reimburse the purchaser who has exercised the right of rescission in accordance with this section for the amount of sales charges and fees relevant to the investment of the purchaser in the mutual fund in respect of the shares or units of which the notice of exercise of the right of rescission was given.

You are not allowed to recover more than what your purchased assets are worth at the moment of withdrawal, except for sales charges and fees charged by registered dealers which are recoverable separately.

It can be disadvantageous to the fund because there are other costs incurred when the rights are exercised (but that's part of their business risk), but it does not allow the purchaser to profit.

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  • Hmm, so what's the difference between rescinding and simply selling?
    – nanoman
    Jun 23 at 22:34
  • @nanoman For exchange traded funds, unless subject to another contractual term (e.g. you must keep the ETF for x days or you must buy this ETF on this day), not much. The regulation applies to all sorts of mutual fund though, not just those traded on exchange.
    – xngtng
    Jun 23 at 23:26
  • OK, so this way you could save the "load" on a mutual fund (which you would otherwise pay for the privilege of buying and then promptly selling)?
    – nanoman
    Jun 23 at 23:54
  • @nanoman Yes. In any case, you get the lower of the amount you paid and the value of the underlying assets at time of the rescission; you can't claim any increase in value.
    – xngtng
    Jun 24 at 0:19
  • So a front-end load is still lost? With 5% load, I pay $1,050 for $1,000 of assets. If I rescind, I get $1,000? If so, it sounds like only a back-end load could be avoided. There, I pay $1,000 for $1,000 of assets; if I sell, I get $950, but if I rescind, I get $1,000? Any other scenario where rescinding differs from selling? I'm not aware of mutual funds that outright prohibit quick sales. They just block you from buying in again, and would presumably do the same for rescission.
    – nanoman
    Jun 24 at 1:02

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