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Management's Discussion and Analysis
The financial statements present the results of the Ontario Securities Commission for the year ended March 31, 2003 with March 31, 2002 comparatives and accompanying notes. The following comments provide an analysis of the factors which affected the Commission’s operations during 2003 as well as the factors that reasonably may be expected to impact on future operations and results. The document should be read in conjunction with the financial statements.
Analysis of Operating Results
Excess of Revenue over Expenditures
Excess of revenue over expenditures for the twelve months ended March 31, 2003 was $14.6 million (2002 — $30.1 million). The general operating surplus as at March 31, 2003 was $7.0 million (2002 — $9.4 million).
In accordance with the provisions of the Securities Act, the Minister of Finance has requested the Commission to remit funds that are surplus to its operating requirements to the Province. During the twelve month period, the amount distributable from the Commission to the Province was $16.9 million (2002 — $20.0 million).
Actual Results Compared to Budget
Revenue is over budget because a planned 10% fee decrease was not implemented. Expense overspending occurred due to a one time, unbudgeted payment of $2.0 million to CDS Inc. which related to cost overruns on implementation of the National Registration Database system. Capital expenditures are over budget because renovation related costs were $665k higher than expected and were only partially offset by underspending on information technology capital which was $204K under plan.
Revenue
In 2003, $70.5 million was collected under the Securities Act and the Commodity Futures Act. Total revenue for 2002 was $79.9 million. This represents a decrease of $9.4 million or 11.8%.
The Commission has five primary sources of revenue:
Prospectus filings, comprising fees for preliminary and final filings and mutual fund renewals, were $35.9 million and accounted for 50.9% (2002 — 54.5%) of total revenues. Prospectus filings fees are strongly correlated to the overall level of capital market activity. Prospectus revenue fell by $7.7 million due to a decline in market financing activity by issuers as well as lower mutual fund fee revenues. These fees represent the most variable component of the Commission’s revenue base.
Registrations, comprising fees for registration of dealers, advisors and salespersons, were $26.7 million and accounted for 37.9% (2002 — 34.6%) of total revenues. Registration fees decreased by $0.9 million or 3.2% reflecting timing issues related to the introduction of a uniform registration date.
Disclosure filings, comprising fees related to filings by reporting issuers, were $5.1 million and accounted for 7.2% (2002 — 7.6%) of total revenues. Lower takeover bid activity was the cause of this 16.3% revenue decrease.
Applications for Exemptive Relief, comprising fees from issuers seeking exemptions or modifications to filing requirements, increased by 35.0% to $1.3 million and represented approximately 1.9% (2002 — 1.2%) of total revenues. This increase can be explained by one significant filing ($580K) received during the year.
Investment Income is comprised mainly of interest earned on cash balances at a rate of 1.75% below the prime rate or 0.25% below bankers’ acceptance, as well as interest earned on the reserve which is invested in short and mid term instruments through the Ontario Financing Authority. Investment income generated by deposits and other investments was $1.4 million and accounted for 2.0% (2002 — 2.0%) of total revenues. The decrease in investment income can be traced to lower interest rates.