On May 30, 2016, the Alberta Securities Commission (ASC) announced important changes to ASC Rule 13-501 Fees (Fee Rule) that will come into force on December 1, 2016.
The Fee Rule is a significant modernization of the ASC fee regime, and is intended to balance the needs of the ASC’s operational budget with the financial burden placed on capital market participants. The amendments include a number of increased activity fees but, most significantly, the ASC has now adopted a progressive participation fee model, similar to the fee regime in Ontario.
PARTICIPATION FEES
The new participation regime is a significant departure from the old framework, under which issuers paid fixed participation fees of C$2,400 (for short form issuers) or C$300 (for all others) at the time of filing their annual financial statements. The new participation fees, by way of contrast, are intended to collect fees from capital market participants in proportion to their access to the Alberta capital market. For example, under the new Fee Rule, the largest Class 1 and Class 2 reporting issuers, with a capitalization of C$25-billion or more, will be required to pay a participation fee of C$48,000 (compared to C$100,500 in Ontario) and the smallest reporting issuers, with capitalization of under C$10-million, will be required to pay a participation fee of C$400 (compared to C$890 in Ontario).
The Fee Rule classifies each reporting issuer into one of four classes:
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Class 1 reporting issuers are those with securities listed or quoted on a marketplace in Canada that do not qualify as Class 3A or 3B reporting issuers
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Class 2 reporting issuers are companies incorporated in any jurisdiction in Canada that do not have any listed or quoted securities on a marketplace
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Class 3A reporting issuers are foreign incorporated companies that are not listed or quoted on any marketplace or that meet certain de minimus requirements as to Alberta investors and Canadian trading activity
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Class 3B reporting issuers are foreign incorporated companies that qualify as “designated foreign issuers” or ” Securities and Exchange Commission foreign issuers” under National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers
Class 3A reporting issuers are only required to pay a flat C$400 annual participation fee and Class 3B reporting issuers are subject to a reduced scale of participation fees (as compared to Class 1 reporting issuers) based on their capitalization level.
For Class 1 and 3B reporting issuers, capitalization from the previous financial year is measured as the average market value of each class or series, plus the fair value of outstanding debt. The average market value of each class or series of equity securities listed or quoted on a marketplace is the average of the closing price of the security in the class or series on the last trading day of each financial quarter in which the security was listed or quoted on the highest trading marketplace (measured by volume). For Class 2 reporting issuers, capitalization of the previous financial year will be measured as the sum of retained earnings or deficit, contributed surplus, share capital or owners’ equity, options, warrants and preferred shares whether classified as debt or equity, non-current borrowings including the current portion, finance leases, non-controlling interest, items classified on the statement of financial position as non-current liabilities and not otherwise included, and any other item forming part of the equity of the issuer in the amounts included in the issuer’s audited financial statements.
In addition, the Fee Rule provides that a number of specified regulated entities will be required to pay a participation fee in accordance with Form 13-501F7 and Fee Rule Appendix C, including securities, derivative and exempt exchanges, quotation and trade reporting systems, alternative trading systems, clearing agencies, and recognized trade repositories.
ACTIVITY AND LATE FEES
The fees for exempt market distributions under the new Fee Rule for reporting issuers are now fixed at C$200, while the fee for other market participants remains based on a percentage of the proceeds of the distribution. Similarly, a reporting issuer that is not an investment fund, unlike any other selling security holder, is not required to pay a fee for distributing rights under an offering circular.
There will be an increase in select activity fees, including fees for filing of a report of exempt distribution. The Fee Rule contains a new provision imposing a C$1,400 registration fee for international dealers and international advisers that must accompany a Form 31-103F2 Submission to Jurisdiction and Appointment of Agent for Service, and a C$1,400 fee for filing an annual notice under part 8 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103). Further, the new Fee Rule brings in the requirement to pay a fee to submit a notice of acquisition of registered firm’s securities or assets, required to be submitted under part 11 of NI 31-103.
The Fee Rule also contains changes to late fee ceilings. There will be a ceiling for late fees charged on insider reporting, and the ceiling on late fees charged for filing a report of exempt distribution will be a to a maximum of C$1,000 per report, rather than the former rule imposing a maximum of C$5,000 per calendar year.
