By Sharon Kretchmar and Linda Raffaghello on April 7th, 2015
Effective April 6, the OSC is implementing amendments to OSC Rule 13-502 – Fees (the "New Rule"). While largely consistent with the basic framework under the previous version of the fee rule (the "Old Rule"), the New Rule changes the basis for the calculation of participation fees by removing the use of a "reference fiscal year", introduces nominal increases to certain activity fees, and introduces new management certification requirements for participation fee forms.
Participation Fees
The two main types of fees charged under the Old Rule are participation fees and activity fees. Participation fees are set based on estimates of OSC operating costs for upcoming periods and fee levels are set using a tiered structure. Participation fees for issuers are based on average market capitalization in a fiscal year. Participation fees for registrant firms and unregistered capital market participants are based on their Ontario revenues.
Since the Old Rule was introduced in 2013, participation fees had to be calculated based on historical data or a reference fiscal year ("RFY"). Accordingly, under the Old Rule, market participants who had a decline in their Ontario revenue or market capitalization across the fee cycle did not see any reduction in their participation fees, and those market participants who experienced growth in Ontario revenue or market capitalization did not see any increase in the fees.
The New Rule removes the use of the RFY such that market participants will calculate participation fees using the most recently completed financial year end data. In the case of registrant firms and unregistered capital market participants, the participation fee under the New Rule will be calculated using the most recent financial year ending in the calendar year. This means that participation fees payable will increase or decrease based on actual changes in business conditions and performance. The participation fees payable under the New Rule are meant to more closely track current market conditions. The New Rule does not increase participation fee levels.
Activity Fees
Activity fees are generally charged where certain documents, such as prospectuses or applications for discretionary relief, are filed with the OSC. Activity fees are based on the average cost to the OSC of reviewing documents of the particular class. The New Rule introduces nominal increases to the prospectus filing fees, application fees and registration-related activity fees.
Certification of Participation Fee Forms
The New Rule introduces new certification requirements in connection with the filing of participation fee forms. In the case of a corporate finance participant, the management certification will require an officer of the reporting issuer to certify that the participation fee form data is complete and accurate. In the case of a capital market participant, the certification must be completed by the Chief Compliance Officer.
Implementation Particulars
Although there is no specific guidance in the New Rule, the OSC has confirmed that issuers with a year-end prior to April 5, 2015 are to prepare their participation fees based on the Old Rule and issuers with a year-end following April 5, 2015 are to prepare their participation fees under the New Rule.
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