OSC plans fee hike

Additionally, to reduce the impact on smaller players, the OSC is proposing to split the lowest participation fee tier for both issuers and registrants into two tiers. As a result, it says, 45% of issuers and 55% of registrants will be paying the same or lower participant fees.

It is also proposing two new categories of participation fees. One for entities such as exchanges, alternative trading systems (ATSs), clearing agencies and trade repositories; and, one for designated rating organizations. And, it’s proposing new activity and participation fees in areas where workload has increased and more resources are needed, it says.

The commission says that it must raise fees because to meet the increasing regulatory demands, both national and international, that are generating cost pressures for the OSC; including enhancing oversight of emerging market issuers, derivatives markets, and credit rating organizations. It also aims to build its general reserve to $30 million to help give it financial flexibility and to put it in a position to deal with its growing responsibilities. The surplus has been drawn down to just $7 million in recent years to prevent fee increases.

“The ability of the OSC to adjust quickly to changing circumstances and regulatory challenges is constrained by the practice of setting fees every three years and the length of the process required to implement changes to fees. The OSC needs a reserve that is sufficient to allow it to deal with unforeseen cost increases or revenue shortfalls that could materially impair its ability to operate,” it says.

The size of the fee increases that are now being proposed reflects the influence of a number of factors, the OSC says. For one, it says that due to previous efforts to restrain fees due to tough market conditions, it has been operating at a deficit, and increasing revenues by 6.9% from current levels would be required just to offset the current operating deficit. The proposal also assumes that costs will increase by 5% in each of the next three years.

Along with increasing the size of fees, the OSC will also be shifting from calculating participation fees based on the projected size of issuers and registrants to historical information. The current model reduces the predictability of participation fees, it notes. The proposed rule would set these fees for the three-year fee cycle based on the market capitalization (issuers) or revenues (registrants) for the most recent fiscal year prior to May 1, 2012.

“Using this historical data will reduce the risk that the revenues from these fees will produce significant surpluses or deficits for the commission, and will assist market participants in their cash-flow planning,” it says.

The OSC notes that under this approach market participants who see a decline in their operations across the three-year fee cycle will not see any reduction in their fees, and those who experience growth will avoid increased fees. However, this impact is not expected to be significant, it adds, as it will be moderated by the tiered fee structure.

“Aligning our revenues and costs in a manner that is fair to all market participants and reflective of the new regulatory reality is a key objective of this funding model,” said Maureen Jensen, the OSC’s executive director and chief administrative officer. “The proposed fee structure is intended to provide the commission with the resources required to meet our increasing regulatory commitments, while continuing to deliver strong investor protection.”

If approved, the new model will be in effect for a three-year period, starting April 1, 2013. Comments are due by November 21.