Canada: Significant Changes to TSX Rules

Last Updated: October 11 2005

Edited by C.L. Sugiyama

Effective January 1, 2005, the Toronto Stock Exchange (the "TSX") has amended the Toronto Stock Exchange Company Manual. These amendments are intended to provide issuers, investors and their respective advisors with a complete and transparent set of standards and practices that will give more certainty when planning and completing transactions. The TSX published a recent Staff Notice on March 21, 2005 providing interpretation of the amendments. These amendments include significant changes to the TSX policies on:

  • Private Placements (including changes to Pricing, Size and Discounts, TSX Acceptance, Warrants, Insider Participation and Security Holder Approval);
  • Security Based Compensation Arrangements (including changes to Annual Disclosure, Approval, Flexibility of Plans, Removal of Restrictions, Amendments and Amendments to Insider Securities);
  • Special Requirements For Non-Exempt Issuers;
  • Suitability of Directors, Officers and Insiders;
  • Prospectus Offerings; and
  • Normal Course Issuer Bids.

The following update provides a summary of the various amendments to the TSX Company Manual.

Private Placements

Pricing, Size and Discounts

Under the TSX rules in place prior to January 1, 2005, a listed issuer was not permitted to enter into a private placement transaction that resulted in more than 25% of a listed issuer's capital being issued or subject to issuance in a six month period unless prior security holder approval was obtained.

Under the amendments, "blanket" advance approval of private placements will no longer be accepted. Subject to certain exceptions, private placements that are priced at or above market will no longer be reviewed by the TSX and the number of securities issuable are no longer subject to a 25% threshold. In relation to private placements priced below the prevailing market price, the amendments now provide that the 25% threshold will be calculated on a per transaction basis rather than over a six month period.

The amendments also allow listed issuers to set a price per security for a particular transaction below the specified discount limits if security holder approval is obtained.

TSX Acceptance

The amendments also provide for an expedited 3 day acceptance process (7 days previously) for private placements that are priced at or above market and for discounted private placements that do not exceed the 25% threshold. The TSX has also removed the requirement that issuers file a questionnaire and an undertaking of placees not to trade securities for the hold period under securities legislation.


The amendments set out revised requirements for warrants issued in a private placement that reflect previously unpublished TSX practices. Provided that security holder approval is obtained, warrants may now be issued at an exercise price below market price. The amendments further provide that a listed issuer may apply to the TSX to amend the exercise price or term of a warrant provided that disclosure of such amendments is made by way of press release 10 business days prior to the effective date of the change. Security holder approval will be required for amendments to the terms of warrants held by insiders or for any proposal to amend a warrant exercise price to a price less than the current market price at the time of the amendment. Amendments have also been made to provide for the cashless exercise of warrants.

Insider Participation

Under the amendments, security holder approval is required for private placements to insiders for securities that during any six month period give insiders greater than 10% participation in the issuer's capital.

Security Holder Approval

Private placements which require security holder approval must close, and the securities must be issued, no later than 135 days from the date upon which the market price of the securities being issued is established, only when such security holder approval is obtained at a duly convened meeting of security holders.

Security Based Compensation Arrangements

The new requirements do not require TSX listed issuers to amend their existing plans, however, listed issuers which have existing security based compensation arrangements where shares are issued from treasury should consider whether these plans should be amended to provide for certain changes allowed by the amendments described below.

Annual Disclosure

It is also important to note that the amendments have created annual disclosure requirements that will have immediate effect on disclosure documents prepared by an issuer with a financial year ending on or after December 31, 2004. A listed issuer is now required to disclose on an annual basis in its information circular or other annual disclosure document the terms of its security-based compensation arrangements and any amendments to those arrangements. The TSX has indicated that the disclosure must be as of the date of the information circular, and must include grants, exercises and amendments that occur during and after the most recently completed financial year. The amendments also require that in connection with obtaining security holder approval for security based compensation arrangements and amendments thereto, the applicable disclosure materials must be pre-cleared by the TSX.


The amendments provide that almost all security based compensation arrangements (stock options, stock option plans, stock purchase plans, stock appreciation rights or any other compensation or incentive mechanism which involve the issuance of shares from treasury) must be submitted to both the board of directors and security holders for approval, however, there are exceptions for certain inducement and acquisition arrangements.

Previously, only a small number of plans required "disinterested" security holder approval under the TSX Company Manual. The amendments provide that all insiders of a listed issuer entitled to receive a benefit under a security-based compensation arrangement are not eligible to vote their securities in respect of such approval unless the securities available to insiders under the arrangement and the number of securites issuable to insiders within any once year period do not exceed 10% of the listed issuer's total issued and outstanding securities (when combined with all other security-based compensation arrangements of such listed issuer).

Flexibility of Plans

The amendments contemplate that all security based compensation arrangements must have a maximum number of securities issuable, either as a fixed number or as a fixed percentage of issued and outstanding securities. The amendments permit rolling maximum or evergreen plans that fix a maximum number of shares issuable as a percentage of the issued and outstanding securities of a listed issuer. Existing plans will require amendments to convert them into rolling maximum or evergreen plans. If plans do not provide for a fixed number of securities (such as a rolling maximum or an evergreen plan), security holder approval will be required every three years. A recent TSX staff notice also provides that increases in the maximum number of shares reserved under a plan will not be permitted without specific security holder approval for the increase, even if the plan includes an amendment procedure permitting increases to such maximum numbers.

Removal of Restrictions

Under the amendments, the TSX no longer requires security based entitlements (such as options) to be non-assignable, to expire within 10 years of the date of their grant, and the TSX will no longer require that the number of shares reserved for issuance to any one person pursuant to security based entitlements be no greater than 5% of the issued and outstanding shares.


Many existing plans currently have general amendment provisions which provide that amendments to such plans are subject to the approval of the board of directors and, if required, the TSX and shareholders. The TSX has provided clarification on the application of the requirements to plans which have this type of general amendment provision. For existing plans which have such an amendment provision, the TSX has indicated that they will not require security holder approval for certain types of amendments, including: (i) amendments of a housekeeping nature, (ii) changes to the vesting provisions, (iii) a change to the termination provisions of a security or plan which does not entail an extension beyond the original expiry date, and (iv) an addition of a cashless exercise feature payable in cash or securities which provides for a full deduction of the number of underlying securities from the plan reserve. The TSX has indicated that they will require security holder approval where a plan has a general amendment provision for the following types of amendments: (i) amendments to the number of securities issuable under the plan, (ii) any change to the eligible participants which would have the potential of broadening or increasing insider participation, (iii) the addition of any form of financial assistance, (iv) any amendment to a financial assistance provision which is more favourable to participants, (v) the addition of a cashless exercise feature which does not provide for a full deduction of the number of underlying securities from the plan reserve, and (vi) the addition of a deferred or restricted share unit or any other provision which results in participants receiving securities while no cash consideration is received by the listed issuer. The foregoing list of amendments which would require security holder approval where the plan has a general amendment provision is not exhaustive and security holder approval will be required when an amendment may lead to a significant or unreasonable dilution in the issuer's outstanding securities or may provide additional benefits to eligible participants, especially insiders at the expense of the issuer and its existing security holders.

Amendments to Insider Securities

The TSX requires security holder approval, excluding the votes of securities held by insiders benefiting from the amendment, for a reduction in the exercise price or purchase price, or an extension of the term, of options or similar securities, held by insiders. The TSX has recently indicated that if an issuer cancels options or similar securities held by insiders and then regrants those securities under different terms, the TSX will consider this an amendment to those securities and will require security holder approval, unless the regrant occurs at least three months after the related cancellation.

Special Requirements For Non-Exempt Issuers

Previously, non-exempt (junior) issuers were required to pre-clear all material transactions with the TSX even when no securities were to be issued. The amendments provide that non-exempt issuers continue to be required to notify the TSX of all proposed material transactions but the TSX will only review those transactions involving insiders, transactions materially affecting control or certain other specifically listed transactions.

Suitability Of Directors, Officers And Insiders

The amendments now specify that upon notice of a new director, officer, trustee or insider of a listed issuer, the TSX will conduct a review of the new director, officer, trustee or insider with a view to determining the suitability of the individual or entity. The TSX may also request the issuer to provide a Personal Information Form for any such person.

Prospectus Offerings

The amendments relating to prospectus offerings were made to address the fact that many prospectus offerings are not traditional public offerings, but rather are transactions that are more akin to private placements, such as special warrant offerings or other prospectuses filed to qualify previously issued securities. As a result of the amendments, the TSX Company Manual provides that the TSX may apply the provisions of the private placement rules to the prospectus offering and in making such decision the TSX will consider (i) the method of distribution; (ii) participation of insiders; (iii) the number of placees; (iv) the offering price; and (v) economic dilution. A cover leter must be filed with the TSX at the time of filing of the preliminary prospectus stating certain prescribed information to enable the TSX to make such determination.

Normal Course Issuer Bids (Proposed Amendments)

It is proposed that the current rolling 2% restriction on repurchases within any 30 day period be eliminated. The daily purchase limit for normal course issuer bids will be increased to 25% of the average daily trading volume based on the previous month's trading. Issuers will continue to be subject to the aggregate 12 month repurchase restriction of that number of securities equal to the greater of 10% of the public float or 5% of the issued and outstanding securities.

Certain listed issuers enter into forward purchase contracts and put options that may result in the repurchase of their listed securities. The TSX had developed internal guidelines for the use of forward purchase contracts, put option agreements and call option agreements (individually or collectively, ''derivatives'') in conjunction with NCIBs. The guidelines are proposed to be incorporated into the amendments and provide requirements regarding the acceptable terms for derivatives, purchase restrictions and reporting and disclosure requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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