Changes to Ontario’s Fee Rules To Take Effect in April

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Certain market participants in Ontario’s over-the-counter (OTC) derivatives market will be required to pay an Ontario Securities Commission (OSC) annual participation fee. Reduced fees for most existing fee payers will also take effect, some activity and late fees will be eliminated, and reporting timelines will change. The changes impact both domestic and foreign Ontario capital markets and derivatives markets participants.

In a recently issued notice of coming into force, the OSC announced that Ontario Securities Commission Rule 13-502 Fees (OSC Rule 13-502) and Ontario Securities Commission Rule 13-503 (Commodity Futures Act) Fees (OSC Rule 13-503) and their companion policies will be repealed and replaced on April 3, 2023. Amendments to the fee rules were published by the OSC on November 23, 2022. The OSC is putting into place an updated fee structure “to ensure that as specific sectors grow more than others, fees collected are proportionate to the cost of regulation across market segments”.

OTC Derivatives Participation Fees

The OTC derivatives sector is expected to continue to rapidly grow year after year, and the OSC indicate that the new fee is being implemented to fund the cost of investing in technology and staffing to support the derivatives regulatory oversight framework. The fee is expected to generate $13.5 million.

The annual participation fee will mostly affect large financial institutions that are responsible for the majority of OTC derivatives trading in Ontario, and is comprised of tiers based on a fee payer’s average quarterly outstanding notional amount of all transactions that are required to be reported under OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC Rule 91-507) over a one-year period. The requirement applies to a derivatives market participant that was a reporting counterparty in Ontario as defined in OSC Rule 91-507, subject to the exclusions listed below.

For the first derivatives participation fee payment due on August 29, 2023, participants have the option to calculate their payment based on the outstanding notional amount as at the end of the first derivatives fee year rather than on an average quarterly basis. Annual fees start at $3,000 for outstanding notional between $3 billion to $7.5 billion, and go up to $1.9 million for outstanding notional over $10 trillion (all amount in C$).

Fees are not payable:

  • if a fee payer’s average outstanding notional is under $3 billion,
  • by an entity that is not a reporting counterparty (as defined in OSC Rule 91-507), or
  • by a recognized or exempt clearing agency.

Reduced Fees and Eliminated Activity Fees

According to the OSC, the participation fee reduction is expected to benefit 98% of registrant firms and unregistered capital market participants and 88% of issuers, and is primarily aimed at small and medium-sized businesses as a part of its ongoing efforts to reduce regulatory burden, foster capital formation and competitive capital markets. The fee calculation will be simplified based on the most recently completed financial statements and will no longer require the use of estimates and subsequent filing of adjustment of fee forms. The deadline for firms to file a completed Form 13-502F4 showing information to determine the applicable participation fee will change from December 1st to between September 1st and November 1st. The fee will continue to be payable by December 31st of each year.

Other amendments include:

  • A reduced activity fee for exempt distribution filings under OSC Rule 45-101 Ontario Prospectus and Registration Exemptions and National Instrument 45-106 Prospectus Exemptions;
  • Removal of the $4500 activity fee for filing an information circular by a person or company in connection with a dissident proxy circular;
  • Elimination of late fees for document filings that attract late fees but do not compromise investor protection;
  • Eliminating various registration related late fees, including late fees on outside activities; and
  • Relief from the duplication of fees for joint applications made by any applicants affiliated with each other.

Application to Exempt Foreign Firms

Exempt international firms that engage in capital market activities in Ontario in any given year are required to pay an annual participation fee for that year and will therefore also benefit from the reduction in fees if their specified Ontario revenues fall below $100 million. As discussed above, although the participation fee will continue to be due on December 31st, exempt firms should note the change in the timeline for filing a complete Form 13-502F4 from December 1st to between September 1st and November 1st.

Foreign firms that are required to report a derivatives transaction under OSC Rule 91-507 will also be subject to the new derivatives annual participation fee. As there are currently no registration requirements in place for trading all types of OTC derivatives in Ontario, this fee will apply to any firm that engages in an OTC derivatives transaction in Ontario, regardless of whether the firm is registered or exempt to trade in securities in Ontario.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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