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Caldwell Securities chairman Tom Caldwell says that the last thing the brokerage industry needs is a huge cost increase while it is going through ‘an incredibly tough time.’ (Tibor Kolley/The Globe and Mail)
Caldwell Securities chairman Tom Caldwell says that the last thing the brokerage industry needs is a huge cost increase while it is going through ‘an incredibly tough time.’ (Tibor Kolley/The Globe and Mail)

SECURITIES REGULATION

OSC proposes major increase in fees Add to ...

Canada’s largest securities commission says it is facing a financial shortfall this year and needs a major increase in the annual fees it charges to public companies and those registered to work in the securities industry.

The Ontario Securities Commission, which finances its operations from fees it collects and by orders to recover costs from targets of its investigations, said it will run a deficit of $6.5-million in the current fiscal year ended March 31. The shortfall will have to be covered by using money from its dwindling surplus fund, but the OSC says it needs a fee increase in the future.

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“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,” executive director Maureen Jensen said in a release.

The fee increase will total 15.5 per cent in each of the next three years for issuers – companies that have issued securities in Ontario. Compounded over three years, that means fees will be 54 per cent higher by 2015 than they are today.

A major corporation with market value over $25-billion would pay $124,220 to the OSC in 2015 as its basic annual “participation” fee, up from $80,600 currently. Fees for specific activities, such as getting prospectuses approved, are also set to climb.

Registrants – firms and individuals registered to work in the securities industry – would face increases of 7.9 per cent annually over the next three years, the OSC said. Compounded, that means an increase of about 25 per cent by 2015.

The largest registrants, such as major brokerage firms with annual revenue over $2-billion, would pay an annual participation fee of $2.33-million by 2015, up from $1.86-million currently.

Caldwell Securities Ltd. chairman Tom Caldwell said on Thursday that the last thing the brokerage industry needs is a huge cost increase while it is going through “an incredibly tough time.” He said the proposal signals the OSC is “out of touch” with the industry it is regulating.

“The regulators are right out of hand,” Mr. Caldwell said. “The costs of regulating the securities markets, for dealers and for public companies, are way beyond [reason]. They’re literally strangling an industry now.”

The OSC said the fee increases will vary depending on the size of the players, with small issuers and registrants facing little or no fee increase. The commission estimates 45 per cent of small companies and 55 per cent of small registrants will not face an increase and could see fees fall.

The commission added that its proposed fee increase is a lower percentage for registrants than issuers because registrants currently contribute 60 per cent of the OSC’s total fee income. The plan is to adjust fees so registrants and issuers each cover 50 per cent of funds raised.

Ian Russell, chief executive officer of the Investment Industry Association of Canada, which represents brokerage firms, said IIAC has not studied the proposal but will “scrutinize” it closely.

“That’s coming at a difficult time obviously,” he said.

While the OSC can cover its losses this year from its surplus fund, the commission said the fund is dwindling. It now has $13.5-million in the fund, but that will decline to $7-million by the end of the fiscal year. The OSC has authority to have a reserve fund of up to $20-million, but has had to dip into the money since 2010.

The OSC last increased its fees in 2010, but said it purposely did not increase them enough to cover its operating costs because the economic climate was so weak and it was concerned about burdening companies with new costs.

It said a 6.9-per-cent annual fee increase would be required just to eliminate the current operating deficit, but would not allow the OSC to build its reserve fund or cover anticipated growth in costs in future years.

The commission said its workload has increased steadily over the years and it is now regulating a wider variety of new markets and investment products. The OSC is planning to create a new fee category for stock exchanges and alternative trading systems, as well as for bond rating agencies, saying it needs to cover ballooning costs in both areas “that are consuming more resources.”

The OSC is seeking comment on its proposed fee changes by Nov. 21.

 

Editor's note: An earlier online version of this story and the original newspaper version of this story incorrectly described how the OSC finances its operations. This online version has been corrected.

 

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