Application by bank (the Bank) and capital trust subsidiary (the Trust) for an order granting the Trust relief from the requirement in OSC Rule 13-502 Fees (the Fees Rule) to pay participation fees -- Bank has paid, and will continue to pay, participation fees applicable to it under s. 2.2 of the Fees Rule, and Bank will include capitalization of Trust in its fee calculation -- relief analogous to relief for "subsidiary entities" contained in s. 2.6(2) of the Fees Rule -- 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 s. 2.6(2) of the Fees Rule -- Trust and Bank satisfy conditions of exemption in s. 2.6(2) but for definition of "subsidiary entity" -- Trust exempt from requirement to pay participation fees, subject to conditions.
Applicable Legislative Provisions
OSC Rule 13-502 Fees, s. 2.6(2).
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 13-502 FEES
IN THE MATTER OF
THE TORONTO-DOMINION BANK AND
TD CAPITAL TRUST IV
WHEREAS the Ontario Securities Commission (the "Commission") has received an application from The Toronto-Dominion Bank (the "Bank") and TD Capital Trust IV (the "Trust") for an order, pursuant to section 6.1 of Ontario Securities Commission Rule 13-502 Fees (the "Fees Rule"), that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions;
AND WHEREAS the Bank and the Trust have represented to the Commission that:
1. The Trust is a trust established under the laws of the Province of Ontario pursuant to an amended and restated declaration of trust dated as of January 26, 2009, as may be amended, restated or supplemented from time to time.
2. The Trust's head and registered office is located in Toronto, Ontario.
3. The Trust has a financial year end of December 31.
4. The Trust is a reporting issuer in each of the provinces and territories of Canada (the "Reporting Jurisdictions"). The Trust is not, to the best of its knowledge, in default of any requirement of the securities legislation in the Reporting Jurisdictions.
5. Pursuant to an amended and restated administration agreement dated as of January 26, 2009, between Montreal Trust Company of Canada, as trustee of the Trust (the "Trustee") and the Bank, the Trustee has delegated to the Bank certain of its duties in relation to the administration of the Trust. The Bank, as administrative agent, provides advice and counsel with respect to management of the assets of the Trust and other matters as may be requested by the Trustee from time to time and administers the day-to-day operations of the Trust.
6. The outstanding securities of the Trust consist of: (i) 9.523% TD Capital Trust IV Notes -- Series 1 Due June 30, 2108 (the "TD CaTS IV -- Series 1"), (ii) 10.00% TD Capital Trust IV Notes -- Series 2 Due June 30, 2108 (the "TD CaTS IV -- Series 2"), (iii) 6.631% TD Capital Trust IV Notes -- Series 3 Due June 30, 2108 (the TD CaTS IV -- Series 3, and collectively with the TD CaTS IV -- Series 1 and TD CaTS IV -- Series 2, the "TD CaTS IV Notes"), and (iv) 2,500 voting trust units (the "Voting Trust Units", and collectively with the TD CaTS IV Notes, the "Trust Securities"). All of the Voting Trust Units, which are the only voting securities of the Trust, are held by the Bank.
7. No Trust Securities are currently listed on a marketplace as defined in National Instrument 21-101 Marketplace Operation.
8. The Trust has been established for the purpose of effecting offerings of Trust Securities in order to provide the Bank with a cost effective means of raising capital for Canadian bank regulatory purposes by means of: (i) creating and selling the Trust Securities; and (ii) acquiring and holding assets (collectively, the "Trust Assets"), which consist primarily of one or more senior unsecured deposit notes of the Bank ("Deposit Notes"). The Trust Assets will generate income for distribution to holders of Trust Securities. The Trust does not and will not carry on any operating activity other than in connection with offerings of Trust Securities and in connection with the Trust Assets.
9. Pursuant to a decision dated May 14, 2009 (the "Continuous Disclosure Exemption Decision") granted to the Trust by the Commission, as principal regulator, on behalf of itself and the securities regulatory authorities of the Reporting Jurisdictions under the passport system contemplated by Multilateral Instrument 11-102 Passport System, the Trust has been granted an exemption from the requirements contained in the securities legislation of the Province of Ontario (the "Legislation") to:
(i) file interim financial statements and audited annual financial statements and deliver same to the security holders of the Trust, pursuant to sections 4.1, 4.3 and 4.6 of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102");
(ii) file interim and annual management's discussion and analysis and deliver same to the security holders of the Trust pursuant to sections 5.1 and 5.6 of NI 51-102;
(iii) file an annual information form pursuant to section 6.1 of NI 51-102; and
(iv) comply with any other provisions of NI 51-102;
(collectively, the "Continuous Disclosure Obligations"); and
(b) file interim and annual certificates pursuant to Parts 4, 5 and 6 of National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (the "Certification Obligations").
10. As a result of granting the Continuous Disclosure Exemption Decision, the Trust is exempt from the Continuous Disclosure Obligations and Certification Obligations, subject to certain terms and conditions, and, except as set out in the Continuous Disclosure Exemption Decision, no continuous disclosure documents concerning only the Trust will be filed with the Commission.
11. The Trust was established by the Bank in order to comply with the regulatory requirements of the Office of the Superintendent of Financial Institutions ("OSFI") relating to the issuance of innovative capital instruments (as contained in OSFI's Principles Governing Inclusion of Innovative Instruments in Tier 1 Capital).
12. OSFI maintains strict guidelines and standards (the "OSFI Guidelines") with respect to the capital adequacy requirements of federally regulated financial institutions, including the Bank, and, in particular, specifies minimum required amounts of capital to be maintained by such institutions. Tier 1 capital consists of common shareholders' equity, qualifying non-cumulative perpetual preferred shares, qualifying innovative instruments and qualifying non-controlling interests arising on consolidation from Tier 1 capital instruments. Innovative instruments, such as the TD CaTS IV Notes, must satisfy the detailed requirements of the OSFI Guidelines to be included in the Tier 1 capital of the Bank, including the requirement that such instruments be issued by a special purpose vehicle (such as the Trust), whose primary purpose is to raise innovative Tier 1 capital. OSFI approved the inclusion of the TD CaTS IV Notes as Tier 1 capital of the Bank. If the Bank could issue the TD CaTS IV Notes directly, this capital would be included in the calculation of the participation fee payable by the Bank.
13. The Trust is a "Class 2 reporting issuer" under the Fees Rule and would be required (but for this Order) to pay participation fees under such rule.
14. The Bank, as a legal matter, controls the Trust through its ownership of the Voting Trust Units issued by the Trust. The Bank has paid, and will continue to pay, participation fees applicable to it under section 2.2 of the Fees Rule.
15. The Fees Rule includes an exemption for "subsidiary entities" in subsection 2.6(2) of the Fees Rule. The Bank and the Trust meet all of the substantive requirements to rely on the exemption in subsection 2.6(2) of the Fees Rule, but for the requirement in subsection 2.6(2)(b) that the accounting standards to which the parent's financial statements are prepared under Ontario securities law require the consolidation of the parent and the subsidiary entity. The Fees Rule defines "subsidiary entity" by reference to the accounting definition under Canadian GAAP, rather than by reference to a legal definition based on control.
16. On November 1, 2004, the Canadian Institute of Chartered Accountants adopted Guideline 15, Consolidation of Variable Interest Entities (the "VIE Guideline"). According to the VIE Guideline, the Bank may not consolidate the Trust because the assets of the Trust consist primarily of the Deposit Notes, liabilities of the Bank. As a result, the Trust is not, from a technical accounting perspective, entitled to rely on the exemption in subsection 2.6(2) of the Fees Rule.
THE ORDER of the Commission under the Fees Rule is that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:
(a) the Bank and the Trust continue to satisfy all of the conditions contained in the Continuous Disclosure Exemption Decision; and
(b) the capitalization of the Trust represented by the TD CaTS IV Notes and any additional securities of the Trust 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 this 26th day of November, 2009.