This quarter, we have summarized two developments with regard to offerings - the Ontario Securities Commission (“OSC”) is looking to increase its fees and the Canadian Securities Administrators (“CSA”) is continuing its review of prospectus exemptions.
OSC to Increase Participation & Activity Fees
On August 23, 2012, the OSC published proposed amendments to OSC rules 13-502 and 13-503, which would increase the OSC’s fees for the next three years. The OSC stated that it is facing a budget shortfall and is projected to run a deficit of $6.5 million in its current fiscal year (which ends March 31, 2013). While this deficit will be paid out of its surplus fund in the short-term, the OSC is looking to increase fees on both issuers and registrants to cover its costs.
On average, the total participation fees paid by issuers will increase by 15.5% per year for the next three years. This will result in issuer participation fees being 54% higher in 2015 than they are today. Registrant participation fees will see an increase of only about half that amount as their rates are set to go up 7.9% per year (approximately 25% by 2015). The OSC has indicated this difference is an attempt to bring the balance of total fees paid by issuers and registrants closer to 50/50.
Activity fees will also be increasing in several categories such as the fee for filing a preliminary prospectus which is slated to increase from $3,250 to $3,750 and the additional fee for filing a preliminary prospectus accompanied by a technical report is proposed to increase from $2,000 to $2,500. Take-over bid circulars and issuer bid circulars will rise in cost from $4,000 to $4,500 and rights offering circulars will go from $2,000 to $3,750. If approved, the new model will be in effect for a three-year period, starting April 1, 2013. The OSC is seeking comments on the proposed changes during the comment period which closes on November 21, 2012.
OSC Provides Update on its Review of Prospectus Exemptions
On June 7, 2012, the CSA published Staff Consultation Note 45-401 – an update on the status of their review of the “minimum amount” and “accredited investor” exemptions. Back in November 2011, CSA staff put out a consultation paper and asked for feedback from market participants. This notice serves to update market participants on the status of this consultation process since the comment period closed in February 2012.
In the note, the CSA provided a high-level overview of the comments received. For the “minimum amount” exemption, depending on the results of the consultation process, the CSA may (1) retain the minimum amount exemption in its current form; (2) adjust the $150,000 threshold (up or down); (3) limit the use of the exemption to certain investors, such as institutional investors and not individuals; (4) use alternative qualification criteria; (5) impose other investment limitations, or (6) repeal the exemption. The CSA stated that from feedback reviewed so far, some commentators wanted to increase the $150,000 threshold or impose additional limitations on the use of the exemption to ensure sufficient investor protection, while others stated that the exemption should remain as is or should be broadened to increase access to capital and investment opportunities.
For the “accredited investor” exemption, the CSA is considering whether to (1) retain the exemption in its current form; (2) adjust the income and asset thresholds in the definition of accredited investor; (3) use alternative qualification criteria for individuals; (4) limit the exemption to certain investors, such as institutional investors and not individuals; and (5) impose other investment limitations. An equally diverse selection of comments were received about changing the accredited investor exemption – some in favour of loosening the standard, some preferring to tighten restrictions, and others preferring different proxies for investor sophistication based on an investor’s education, work experience or investing experience.
CSA staff have indicated that they need further time to complete their review and intend on finalizing their assessment and publishing a final report later in 2012. They have not indicated what direction their final report will take, but regulators in the U.S. have recently amended their “accredited investor” exemption to exclude the value of an individual’s primary residence as part of their net worth calculation.