The Ontario Securities Commission (“OSC”) recently published 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 (the “Rule”). The Rule extends the temporary relief from the order-execution only (“OEO”) trailer ban granted previously for an additional 18 months.
As we discussed in a previous post, the OEO trailer ban was adopted in June 2022 through amendments to National Instrument 81-105 Mutual Fund Sales Practices, in response to investor protection and market efficiency issues identified with the payment and acceptance of dealer trailing commissions where no suitability determination is required. Dealers that do not have an obligation to make suitability determinations include OEO dealers and dealers acting on behalf of a “permitted client” that has waived suitability requirements.
To facilitate client transfers and rebates of trailing commissions as required to implement the OEO trailer ban, the Canadian Securities Administrators (“CSA”) issued blanket orders to temporarily exempt investment fund managers (“IFMs”) and OEO dealers from the ban, as we also discussed in a previous post. Whereas Ontario’s blanket order came into effect on June 1, 2022, and expires on November 30, 2023, equivalent orders in other CSA jurisdictions are either not subject to an expiration date or expected to be extended beyond November 30, 2023.
To allow for the continued provision of certain dealer rebates and grace periods, and so as not to disadvantage IFMs and OEO dealers in Ontario, the OSC made the Rule to extend the existing relief until May 31, 2025. The Rule was delivered to the Minister of Finance and will come into force on December 1, 2023, if approved.