From the Regulators

New fees would recover the cost of IIROC’s new debt market oversight responsibilities

By James Langton |

Investment dealers will be facing new fees next year to cover the regulatory costs of overseeing debt markets, as new rules take effect to bolster transparency in that market.

The Investment Industry Regulatory Organization of Canada (IIROC) published its proposal Thursday for a fee model to recover the cost of its new debt market oversight responsibilities.

The new fees will fund the cost of a new system to collect and analyze debt trade reports that are required under new rules designed to improve transparency in this massive market, which are due to take effect next fall.

In the proposals released today, IIROC recommends adopting a fee model that is based on both primary and secondary transactions, with an adjustment made for repo transactions (to reflect the fact that the Bank of Canada will be paying IIROC a fee to collect and share this data with the central bank). It says this approach fits best with the principles it used in developing the fee model, including fairness, transparency, and industry competitiveness.

The proposals examine a number of alternative approaches, but IIROC says that the recommended model is viewed as preferable to methodologies that exclude certain types of transactions (such as primary distributions, or repos) because all transactions create regulatory costs. So, it believes that the fairest approach is to include all transactions in the fee model. IIROC says that it will review the fee model after one of two years, and adjust it if necessary. The initial model was developed in consultation with an industry working group established by IIROC that included a cross-section of dealers.

Under the recommended approach, IIROC reports that its analysis shows that the cost per debt transaction reported in 2013 would have been $0.19.9¢, and 21.5¢ in 2012. Using this model, institutional dealers would have paid aggregate fees of $123,075 in 2013 and $112,314 in 2012; integrated dealers would have been charged $855,995 in 2013, and $866,154 in 2012; and, retail dealers would have incurred fees $20,930 in 2013 and $21,532 in 2012.

The proposal is out for comment for 60 days. The comment period ends Feb. 9, 2015; and, once approved, the new model would take effect, along with the new transaction reporting rule on Nov. 1, 2015.