The Ontario Securities Commission (“OSC”) recently proposed amendments (the “Proposed Amendments”) to OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees (together, the “Fee Rules”) that would introduce two additional fees for restricted dealers, which include crypto asset trading platforms (“CTPs”). The Proposed Amendments were published for a 90-day comment period that ends on February 7, 2024.
Proposed Amendments
The review of novel businesses in emerging sectors requires significant regulatory resources to initiate compliance discussions, understand complex business models and impose detailed obligations that mitigate investor protection risk. The OSC therefore incurs significantly higher costs when onboarding restricted dealers, such as CTPs, as compared to other market participants. Although fees are typically reviewed by the OSC every three years, the Proposed Amendments were introduced outside of the regular cycle to address and recover these additional costs.
New additional fees
The average registration fee paid by a CTP has historically been approximately C$2,600; however, the OSC estimates that, unlike typical firms, CTPs cost an additional C$24,500 to register. The OSC has accordingly proposed an additional registration fee of C$24,500 for restricted dealers, to better align regulatory fees with costs.
Apart from becoming registered as a restricted dealer, a CTP that performs marketplace functions also needs to obtain an exemption from operating as a recognized alternative trading system. The OSC estimates that it spends an additional C$24,500 on applications for such exemptive relief, as compared to applications for exemptive relief that are more typical. The Proposed Amendments therefore include an exemptive relief application fee of C$24,500 for restricted dealers that perform marketplace functions, in addition to existing fees that range from C$4,800 to C$7,000.
For ease of reference, the proposed onboarding fees for restricted dealers are summarized in the table below.
Modified definition of “registrant firm”
The Proposed Amendments would also modify the definition of “registrant firm” in the Fee Rules to extend the application of the participation and late fee requirements to unregistered firms that are required to be registered. This will better align the definition of “registrant firm” with the definition of “registrant” in the Securities Act (Ontario) (“OSA”) and the Commodity Futures Act (Ontario) (“CFA”), which includes “a person or company registered or required to be registered.” The change will capture unregistered firms that participate in Ontario’s capital markets in non-compliance with the relevant dealer, adviser and investment fund manager requirements in either the OSA or the CFA and require them to pay the participation fees applicable to other registered firms.
If approved, the Proposed Amendments are expected to come into force on July 2, 2024.
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