The Ontario Securities Commission (“OSC”) recently published OSC Rule 81-510 Dealer Rebates of Trailing Commissions (the “Rule”), which codifies temporary exemptive relief from the order-execution only (“OEO”) trailer ban that was introduced in Ontario Instrument 81-508 Temporary Exemptions from the OEO Trailer Ban to Facilitate Dealer Rebates of Trailing Commissions and Client Transfers (“Ontario Instrument 81-508”) and subsequently extended by OSC Rule 81-509 Extension to Ontario Instrument 81-508 Temporary Exemptions from the OEO Trailer Ban to Facilitate Dealer Rebates of Trailing Commissions and Client Transfers(“OSC Rule 81-509”).
In June 2022, the Canadian Securities Administrators (“CSA”) adopted amendments to National Instrument 81-105 Mutual Fund Sales Practices to implement the OEO trailing commission ban. As we discussed in a previous post, the OEO trailing commission ban prohibits: (i) investment fund managers (“IFMs”) from paying trailing commissions where the dealer is not required to make a suitability determination in connection with a client’s purchase and ongoing ownership of prospectus qualified mutual fund securities; and (ii) dealers from soliciting or accepting trailing commissions from an IFM in connection with mutual fund securities held in an account of a client of the dealer if the dealer is not required to make a suitability determination.
To support the implementation of the OEO trailing commission ban, the CSA issued exemptive relief, which included Ontario Instrument 81-508 and OSC Rule 81-509, for IFMs and OEO dealers to facilitate dealer rebates of trailing commissions to clients holding mutual fund securities in OEO dealer accounts and to process client transfers. OSC Rule 81-509 will cease to be effective as of May 31, 2025, and the temporary exemptive relief cannot be extended further under Ontario securities law. Equivalent blanket orders issued by other CSA jurisdictions are either not subject to an expiration date or are subject to an expiration date that may be extended further. The Rule is being implemented by the OSC to ensure that IFMs and OEO dealers in Ontario are not disadvantaged.
Subject to ministerial approval, the Rule will come into force on the earlier of 15 days following receipt of such approval and June 17, 2025.
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