Alert:
A nationwide postal strike or lockout may occur as early as November 3, 2004. Dealer Members must take steps to ensure that document delivery requirements prescribed under CIRO Rules continue to be met.
IIROC collects most of its revenue under four fee models: the Dealer Member Fee Model, the Equity Market Regulation Fee Model, the Debt Market Regulation Fee Model and the Debt Information Processor Fee Model.
Under the existing Dealer Member Fee Model, an IIROC Dealer Member pays an annual fee for each fiscal year.
Based on experience in administering the existing annual fee and, after considering a number of alternatives, we are proposing to amend and simplify the Minimum Fee Component of the annual fee by:
IIROC presented its proposal to the Financial and Operations Advisory Section Executive Committee and to the Investment Industry Association of Canada Small Dealers Committee.
IIROC collects most of its revenue under four fee models: the Dealer Member Fee Model, the Equity Market Regulation Fee Model, the Debt Market Regulation Fee Model and the Debt Information Processor Fee Model. The main elements of these fee models were developed after consultation with the industry and were published for comment prior to approval by IIROC’s recognizing regulators.
Under the Dealer Member Fee Model, an IIROC Dealer Member pays, among other fees, Annual Fees for each Fiscal Year. For ease of reference, Appendix 1 contains an extract from IIROC’s Fee Model Guidelines, setting out the relevant sections regarding the calculation of the Annual Fee. IIROC’s Fee Model Guidelines can be viewed in their entirety at IIROC Notice 17-0072.
Annual Fees are determined with reference to four components:
The current proposal would amend only the Minimum Dealer Regulation Fee Component of the Annual Fee.
Currently, IIROC uses a Dealer Member’s Total Allocated Costs (as defined in the Fee Model Guidelines) to determine the Dealer Member’s Minimum Dealer Regulation Fee Component (“Minimum Fee”). The calculation results in two possible Minimum Fee categories. If the Total Allocated Costs are equal to or less than $20,000, the Minimum Fee is $15,000. If the Total Allocated Costs are greater than $20,000, the Minimum Fee is $27,500.
We believe that this method is unnecessarily complex.
IIROC uses the following guiding principles as an objective frame of reference to evaluate potential fee model changes:
IIROC has identified the following disadvantages of the current calculation:
In order to address these disadvantages, we propose to:
To determine which Dealer Members would be impacted by the proposed change, IIROC analyzed the 4-year average minimum fee paid by Dealer Members active over those 4 years. We found that most minimum-fee-paying Dealer Members have a 4-year average fee payment greater than $22,500 and will benefit from a drop in their fees.
In FY 2017, there were 69 Dealer Members in both Minimum Fee categories combined, of which 61 (38% of active Dealer Members) were active over the past 4 years:
Of the Dealer Members in the $15,000 Minimum Fee category in FY 2017, only 2 could be found in the bottom 20 Dealer Members sorted by revenue. The remaining 18 Dealer Members are not in the lowest Minimum Fee category, and are currently paying $27,500.
Essentially, in FY 2017, under the current calculation method, the majority of lowest-revenue Dealer Members are in the higher Minimum Fee category. This is important for two reasons. First, it indicates that under the current model, the lowest-revenue Dealer Members may end up paying the higher Minimum Fee if their allocated costs increase in a particular year due to IIROC activity with that Dealer Member. Second, a single, new $22,500 Minimum Fee category will not necessarily increase the fee burden on the lowest-revenue Dealer Members.
The impacts of the proposed change in FY 2017 would have seen a majority of Minimum Fee payers benefit from a reduction of fees and result in an overall increase of $200,000 or 0.4% of fees paid by non-Minimum-Fee payers.
In determining the Minimum Fee level, we sought to minimize the impact on Dealer Members, particularly any significant impact of a fee increase. Most Minimum Fee payers will benefit from a reduction in fees.
The reduction in volatility resulting from the proposed change strongly suggests that IIROC should move to a single Minimum Fee category.
In looking to simplify the Minimum Fee, we considered two alternative approaches.
IIROC anticipates that the proposed changes to the Minimum Fee would become effective April 1, 2018.
IIROC presented its proposal to the Financial and Operations Advisory Section Executive Committee and to the Investment Industry Association of Canada Small Dealers Committee.
The amendments were approved for publication for comment in November 2017 by both the IIROC Finance Audit and Risk Committee and IIROC Board of Directors.
IIROC seeks written comments on the proposed amendments. Comment letters should be delivered by February 5, 2018 (45 days from the publication date of this notice) addressed to the attention of:
The amendments were approved for publication for comment in November 2017 by both the IIROC Finance Audit and Risk Committee and IIROC Board of Directors.
IIROC seeks written comments on the proposed amendments. Comment letters should be delivered by February 5, 2018 (45 days from the publication date of this notice) addressed to the attention of:
Shuaib Shariff
Senior Vice President, Finance and Administration
121 King Street West, Suite 2000
Toronto, ON, M5H 3T9
[email protected]
Commenters should be aware that a copy of their comment letter will be made publicly available on the IIROC website at www.iiroc.ca