Application by bank (the Bank) and capital trust subsidiary (the Trust) for an order varying a previous order granting the Trust relief from the requirement in OSC Rule 13-502 Fees(the Fees Rule) to pay participation fees -- relief in previous order no longer available due to condition in previous order no longer being satisfied -- Bank has paid, and will continue to pay, participation fees applicable to it under s. 2.2 of the Fee Rule, and includes capitalization of Trust in its calculation -- relief analogous to relief for "subsidiary entities" contained in s. 2.9(2) of the Fees Rule -- Trust may not, from a technical accounting perspective, be considered to be a "subsidiary entity" of Bank for Canadian GAAP purposes and may not be entitled to rely on the exemption in s. 2.9(2) of the Fees Rule -- Trust and Bank satisfy conditions of exemption in s. 2.9(2) but for definition of "subsidiary entity" -- previous order varied to delete the condition and to permit fee relief to continue.
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
OSC Rule 13-502 Fees, ss. 2.2, 2.9(2).
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 13-502 FEES
IN THE MATTER OF
THE BANK OF NOVA SCOTIA
SCOTIABANK CAPITAL TRUST
WHEREAS the Director issued a decision (the "Original Order") on November 25, 2004 under section 6.1 of Ontario Securities Commission Rule 13-502 Fees (the "Fee Rule") that the requirement to pay a participation fee under section 2.2 of the Fee Rule shall not apply to Scotiabank Capital Trust (the "Trust") subject to certain conditions;
AND WHEREAS The Bank of Nova Scotia (the "Bank") and the Trust have applied to the Director for an Order varying the Original Order;
AND WHEREAS the Bank and the Trust have represented to the Director that:
1. The Original Order provided an exemption from the requirement on the part of the Trust to pay a participation fee under section 2.2 of the Fee Rule.
2. At the time of the application for the Original Order, it was not contemplated that the Trust would issue additional tranches of securities to the public. Accordingly, the Original Order included a representation that the Bank would not issue additional Scotiabank Trust Securities through the Trust (the "Representation") and a condition that the Bank not issue any further securities out of the Trust (the "Condition").
3. Following the issuance of the Original Order, the Trust issued additional securities pursuant to a final short form prospectus dated September 20, 2006.
4. The Trust continues to comply with the Original Order, but for the Condition and the Representation, and is not in default of any requirements of Ontario securities legislation other than a requirement to pay a participation fee under the Fee Rule that may have arisen as a result of the lapse of the Original Order.
5. The Bank, as a legal and factual matter, controls the Trust though its ownership of the Special Trust Securities issued by the Trust and its role as Administrative Agent. The Bank has paid, and will continue to pay, participation fees applicable to it under section 2.2 of the Fee Rule. For that purpose, the capitalization of the Trust has been included in the calculation of the participation fee payable by the Bank.
6. The Fee Rule includes an exemption for "subsidiary entities" in subsection 2.9(2) of the Fee Rule. The Bank and the Trust meet all of the substantive requirements to rely on the exemption in subsection 2.9(2) of the Fee Rule, but for the definition of "subsidiary entity". The Fee Rule defines "subsidiary entity" by reference to the accounting definition under Canadian GAAP, rather than by reference to a legal definition based on control.
7. On November 1, 2004, the Canadian Institute of Chartered Accountants adopted Guideline 15, Consolidation of Variable Interest Entities. As a result, in accounting terms, the Bank "de-consolidated" the Trust. Accordingly, the Trust may not, from a technical accounting perspective, be considered to be a "subsidiary entity" of the Bank for Canadian GAAP purposes and may not be entitled to rely on the exemption in subsection 2.9(2) of the Fee Rule.
8. The exemption contained in subsection 2.9(2) of the Fees Rule does not include a restriction on the ability of a subsidiary entity to issue additional classes of securities.
9. The Trust may issue further securities, from time to time, and wishes to vary the Original Order to permit the Original Order to remain in effect in spite of additional issuances of securities.
AND UPON considering the application and the recommendation of the staff;
AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;
IT IS HEREBY ORDERED that the Original Order be varied as follows:
1. the Representation in paragraph 13 of the Original Order is deleted;
2. the words "(ii) the Bank does not issue further securities out of the Trust;" in the operative portion of the Original Order are deleted; and
3. the words "(iii) the capitalization of the Trust represented by the Scotia BaTS II Series 2002-1 and Scotia BaTS II Series 2003-1 is included in the participation fee calculation applicable to the Bank" in the operative portion of the Original Order are deleted and replaced with the words "the capitalization of the Trust represented by the Scotia BATS II Series 2002-1 and the Scotia BATS II Series 2003-1 and any additional Scotiabank Trust Securities that may be issued, from time to time, by the Trust is included in the participation fee calculation applicable to the Bank, and the Bank has paid the participation fee calculated on this basis."
DATED at Toronto this 4th day of January, 2007