Undertaking Regarding Retractable Preferred Shares

(Updated December 8, 2020)

The MFDA has received inquiries from Members regarding the classification of issued and outstanding retractable preferred shares for the purpose of calculating the risk adjusted capital (“RAC”) of the Member. MFDA Form 1 (General Notes and Definitions) provides that the Member’s financial statements are to be prepared in accordance with International Financial Reporting Standards (“IFRS”), except as prescribed by the MFDA. In accordance with IFRS, where preferred shares are retractable or redeemable at the option of the holder, the MFDA will normally require these shares to be categorized as a current liability of the Member rather than equity for the purpose of calculating RAC.

In order to have retractable preferred shares considered equity rather than debt, Members are required to complete, execute, and provide to the MFDA, in either hardcopy or electronic format, the attached standard undertaking (Schedule “A”).

Schedule “A” - Undertaking