Regulatory Changes Affecting Calculations for Capital Markets Participation Fees in Ontario

Effective April 1, 2013, important changes to the Ontario Securities Commission (the OSC) Rule 13-502 – Fees (the Rule), came into force. These changes introduced the concept of a “reference fiscal year” for purposes of calculating your Ontario capital markets participation fees. Your firm’s “reference fiscal year” for 2013, 2014 and 2015 (the Cycle Years) will be determined in one of two ways:

  1. Firms registered or exempt in Ontario prior to May 1, 2012

    If your firm had a fiscal year ending before May 1, 2012 and at the end of that fiscal year, (i) was registered under the Securities Act (Ontario) (the Act) as a dealer, adviser or investment fund manager (a registrant firm), or (ii) operated in Ontario under the international dealer exemption or the international adviser exemption (an unregistered exempt international firm), then your firm’s reference fiscal year for purposes of completing Form 13-502F4 will be its last fiscal year ending before May 1, 2012 (for purposes of this notice, we refer to the firms falling in this category as Affected Firms). As an example, if your firm falls into this category and has a December 31 fiscal year end, your firm will have a reference fiscal year ending December 31, 2011.1
  2. Firms that became registered or exempt in Ontario after May 1, 2012

    If your firm became registered or exempt in Ontario after May 1, 2012, your firm’s reference fiscal year for purposes of completing Form 13-502F4 will be your fiscal year ending in each Cycle Year. As an example, if your firm falls into this category and your firm has a December 31 fiscal year end, the fiscal years ending on December 31, 2013 and December 31, 2014 will be your firm’s reference fiscal years for purposes of filing its Form 13-502F4 on December 1, 2013 and December 1, 2014, respectively.

A firm’s Ontario capital markets participation fee payable on December 31 of each Cycle Year now depends on its calculated “specified Ontario revenues” for its “reference fiscal year.”  However, this change has practical implications only for Affected Firms, since the reference fiscal year will remain static for the Cycle Years. The “reference fiscal year” for non-Affected Firms will change for each Cycle Year as described in (b) above.

Calculation of Capital Markets Participation Fees for Affected Firms in Ontario

If your firm is not an Affected Firm, the changes highlighted in this section do not apply to your firm. Please proceed to the next section titled OSC Staff Notice re: Calculation Deficiencies.

For an Affected Firm, as noted above, the reference fiscal year for purposes of calculation of the firm’s specified Ontario revenues will remain static for the Cycle Years. However, the Ontario capital markets participation fee payable based on the firm’s specified Ontario revenues will increase by a prescribed amount in each Cycle Year (see the revised Appendix B to the Rule).

This change has a number of important practical implications for an Affected Firm:

  1. an Affected Firm will not need to calculate its specified Ontario revenues for each of the Cycle Years for purposes of completing its Form 13-502F4 in such year,
  2. an Affected Firm will not need to make a “good faith estimate” when filing its Form 13-502F4 on December 1st of each Cycle Year, since the calculation of its specified Ontario revenues will be the same as its calculation for its reference fiscal year, and
  3. the actual fee payable by an Affected Firm in each Cycle Year has already been fixed in the Fees Appendix.

OSC Staff Notice re: Calculation Deficiencies

The OSC published Staff Notice 33-741 – Report on the Results of the Review of Capital Markets Participation Fees (the Staff Notice) on July 18, 2013. In the Staff Notice, the staff of the Compliance and Registrant Regulation Branch of the OSC (the OSC Staff) identified certain deficiencies with respect to the manner in which capital markets participants have been calculating and reporting their Ontario capital markets participation fees.

We have discussed with the OSC Staff the deficiencies identified in the Staff Notice in relation to firms required to complete Part III of Form 13-502F4 (i.e. non-IIROC and non-MFDA member firms). The OSC Staff have acknowledged that the deficiencies identified in the Staff Notice with respect to deductions for “revenue not attributable to capital markets activities” (Line 2 of Part III of Form 13-502F4) and with respect to the calculation of the “Ontario percentage” (Line 9 of Part III of Form 13-502F4) do not apply to: (1) registrant firms (other than registered investment fund managers) that do not conduct any of their business from an office or location in Ontario, or (2) unregistered exempt international firms that do not have a permanent establishment in Ontario (or, if a firm is not a company, would not have a permanent establishment in Ontario if the firm were a company).2

For the firms described above, the definition of “capital markets activities” does not include the firm’s activities outside of Ontario. Accordingly, “revenue not attributable to capital markets activities” for such a firm will include all revenues earned outside of Ontario and, therefore, after deducting this amount (and any other deductible amounts) from the firm’s gross revenues, the balance will represent the firm’s “specified Ontario revenues” such that the “Ontario percentage” for the firm will always be 100%.

1  This notice does not address the impact of the Rule changes on a firm that participates in the Ontario capital markets solely as an “unregistered investment fund manager.” Such firms must file a completed Form 13-502F4 and pay the applicable Ontario capital markets participation fee not later than 90 days after the end of each fiscal year.

2  If the firm is a registered investment fund manager or is an unregistered investment fund manager for one or more investment funds that distribute securities in Ontario, the deficiencies in the Staff Notice discussed above may still be relevant to the manner in which the Form is completed because the definition of “capital markets activities” includes the firm’s world-wide activities as an investment fund manager.