On October 3, 2008, the Ontario Securities Commission published proposed changes to OSC Rule 13-502 Fees, its Forms and Companion Policy. The deadline for comments is January 3, 2009. If adopted by the OSC and approved by the Ontario government, the amended Rule would take effect on April 1, 2009.
The proposed changes are significant and will affect reporting issuers, registrants, and unregistered fund managers. The proposed changes have particular resonance when considered against the current market and economic downturn.
The most important proposed change relates to the basis of calculation of participation fees that are payable on an annual basis by reporting issuers, registrants and unregistered fund managers. Instead of basing calculations on capitalization, in the case of a reporting issuer, or its specified Ontario revenue, in the case of a registrant/unregistered fund manager, for its most recently completed financial year, a participant will prepare the required calculations based on the applicable data for its last completed financial year that ended prior to January 1, 2008. The OSC defines this as the participant's "reference fiscal year", but does not comment on the fact that this period represents the peak of the capital markets. Participants who did not have the status of a reporting issuer, registrant or unregistered fund manager throughout that financial year will use their most recently completed fiscal year, as is currently the case for all participants.
The Corporate Finance and Capital Markets participation fee tiers remain unchanged, but the OSC proposes to increase the fees for each tier. The fees will increase by at least 55 percent for reporting issuers and by a range from 11 to 25 percent for registrants and unregistered fund managers. The OSC explains that the current fees are lower since they reflect accumulated OSC surpluses, which will be used up by the time the amended Rule comes into force.
The OSC states that the change to historical data, as opposed to forecasted data, will allow staff to more accurately forecast the fees payable by Ontario capital markets participants, which will facilitate the OSC's budgetary process. The OSC expects that participants also may benefit from being able to forecast future fees.
Currently, the OSC reviews the participation fees – both the tiers and the fees for each tier - every three years. The OSC now proposes to review (and presumably change) the reference fiscal year, the tiers and the fees every two years. This means that participants will be calculating participation fees based on capitalization/Ontario revenues as at their last financial year before January 1, 2008, until April 1, 2011.
The OSC proposes other changes, including increased fees for some activities (prospectus filings and applications for exemption, among other things), simplification of participation fees payable by new participants and clarification of late filing fees.
The OSC explains its reasons for proposing these changes and reiterates that the fee revenue generated from the Rule is intended to cover the operating costs of the OSC. Any surpluses will be returned to participants. The OSC also explains how it proposes to apply its projected $49 million surplus as at March 31, 2009.
We intend to comment on the proposed changes to the Rule, with particular focus on the need for transparency in how the OSC determines its operating budgets and how it allocates surplus fee revenue amongst reporting issuers and registrants. We believe that the OSC should reconsider its decision to require the use of historical data in light of the market conditions, considering that most participants can be expected to have lower capitalization and revenues for their current fiscal years than they did for the fiscal years ended prior to January 1, 2008.
Please click here for a copy of the Request for Comments and the proposed Rule, Forms and Companion Policy.
For reporting issuers (Corporate Finance participants) please
contact:
Alfred L.J.
Page; Michael
DeCosimo
For registrants and unregistered investment fund managers
(Capital Markets participants) please contact:
Rebecca
Cowdery; Donna
Spagnolo
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
