Canada: TSX Proposes New Listing Requirements For Investment Funds And Structured Products

On January 15, 2015, the Toronto Stock Exchange (the TSX) published for comment proposed amendments (the Proposed Amendments) to the TSX Company Manual (the Manual) that introduce a tailored set of rules for exchange traded products, including exchange traded funds and exchange traded notes (collectively ETPs), closed-end funds and structured products, such as convertible notes and principal or capital protected notes (collectively non-corporate issuers). A copy of the Proposed Amendments is available here. The comment period on the Proposed Amendments ends March 16, 2015.

A compendium of TSX listing requirements for these types of non-corporate issuers is a welcome addition to the Manual. The current rules in the Manual fit awkwardly with these issuers – the Manual was principally developed for traditional corporate entities, while the requirements for non-corporate issuers have been developed on an ad hoc basis over the past several years.

The increase in prominence of ETPs and closed-end funds in Canada has motivated the amendments, and although listed structured products have not seen similar growth, the introduction of these rules may be the TSX's move to market itself to providers in this category. The TSX is also catching up with its competitor exchanges, like the Aequitas Neo Exchange, which already has listing requirements for ETPs and closed-end funds in its listing manual.

Whatever the motivation, in developing a tailored set of rules for non-corporate issuers, the TSX is codifying (and in some cases deviating from) the practices it has adopted over time for non-corporate issuers. The key features of the Proposed Amendments are highlighted below.

Listing on the Exchange

The Proposed Amendments set out minimum listing criteria for non-corporate issuers in three distinct categories: market capitalization, the structure and experience of management and the frequency of net asset value (NAV) calculation.

Currently, there are no published minimum market capitalization requirements for non-corporate issuers, although threshold requirements have developed in practice. The Proposed Amendments will impose a $1 million minimum market capitalization for ETPs and structured products, which is a marked departure from the previously accepted minimum of $5 million (often reduced to $2 million upon application). For closed-end funds, the proposed minimum market capitalization is $20 million, which is consistent with the TSX's adopted practice and the minimum market cap generally required by the industry.

The Proposed Amendments require that the manager of non-corporate issuers have "adequate and appropriate experience in the asset management industry, as determined by the TSX", along with a CEO, a CFO, and a secretary. There must also be an independent review committee in respect of the issuer, presumably with the mandate imposed by, and acting in accordance with, National Instrument 81-107 Independent Review Committee for Investment Funds.

There is no further articulation of what proficiency requirements are expected from management of the manager and for which individuals specifically. Given the emphasis of the Canadian Securities Administrators (the CSA) on enhancing the regulation of managers of investment funds (whether offered publicly or privately) over the past few years, by, among other things, imposing a registration requirement for fund managers, we would like to see the TSX place more reliance on the fact that managers are regulated by the CSA, without imposing additional requirements.

The Proposed Amendments also provide for minimum frequency of NAV calculation, being daily for ETPs and at least weekly for closed-end funds and structured products, which must be available on a publicly accessible website. Managers of closed-end funds will be aware that National Instrument 81-106 Investment Fund Continuous Disclosure imposes a daily NAV calculation requirement for investment funds that use derivatives or sell securities short.

Listing Additional Securities

ETPs will continue to be required to notify the TSX on a quarterly basis about any additional issuances of listed securities in the previous quarter. Such notification must be accompanied by a legal opinion that all securities have been validly issued as fully paid and non-assessable. No prior notification will be required for the continuous distribution of listed securities of ETPs. However, ETPs must notify the TSX in writing of any transaction involving the issuance or potential issuance of any new class of securities that is convertible into a listed class of ETP securities.

Closed-end funds and structured products will need pre-approval from the TSX to issue additional securities, other than unlisted, non-voting, non-participating securities. The TSX may impose conditions on this approval, though no further guidance is provided about what those terms may be. Further, the issuance of additional securities of a listed class must yield net proceeds per security (which, we note, must take into account the costs of the offering) to the issuer of no less than 100% of the most recently calculated NAV per security. This is consistent with the recent amendments to National Instrument 81-102 Investment Funds (NI 81-102) and will continue to make it difficult for many closed-end funds to list additional securities of an existing class because, in many instances, securities of closed-end funds trade at a discount to NAV, making the securities available pursuant to an additional listing less marketable in comparison.

Generally, a new class of listed securities must meet the minimum market capitalization requirements for an original listing noted above. The proposed rules provide an exception for ETPs and closed-end funds where the new class of securities is convertible into a listed class, in which case the minimum market capitalization is waived for ETPs and reduced to $2 million for closed-end funds. Structured product issuers listing an additional class of securities will be required to meet the $1 million minimum market capitalization requirement.

Ongoing Listing Requirements

The Proposed Amendments deal with instances in which non-corporate issuers may be suspended or delisted from the TSX. A closed-end fund may be suspended or delisted if the market value of its securities falls below $3 million for any period of 30 consecutive trading days, if the number of freely-tradable, publically held securities is less than 500,000 or if the number of public securityholders is less than 150.

An ETP or a structured product may be suspended or delisted if, in the opinion of the TSX, the continued listing "would not be consistent with preserving the overall quality of the market", taking into account trading liquidity, the market value of the listed securities, the absence of a designated broker (in the case of an ETP) or a market maker for the product (in the case of a structured product), and the bid and ask spread.

The Proposed Amendments also provide that non-corporate issuers must "pre-clear" with the TSX any materials sent to securityholders (other than continuous disclosure documents, such as financial statements and management reports of fund performance). This may capture additional securityholder materials that were not previously required to be cleared by the TSX.

Fundamental Changes to ETPs and Closed-end Funds

We suspect product manufacturers may take issue with the requirement that securityholder approval be obtained for any amendment to the constating documents of ETPs or closed-end funds that are not covered by the general amendment provisions set out in those constating documents.

Securityholder approval for specified fundamental changes to investment funds is governed by NI 81-102, which was recently extended to closed-end funds. Flexibility to amend such constating documents (in accordance with their terms) is necessary in order to react to market events and changes to applicable laws. Non-corporate issuers should consider reviewing their constating documents to determine whether these Proposed Amendments have the potential to feter this flexibility.

Securityholder approval is also proposed for the extension of an ETP or closed-end fund beyond the contemplated termination date, unless securityholders are able to redeem securities at NAV on or about the originally contemplated termination date.

It will be important to comment on the Proposed Amendments before the expiry of the comment period on March 16, 2015. We would be pleased to assist you in preparing a comment letter. Please contact your usual lawyer in BLG's Investment Management practice group, the authors of this Bulletin or one of the leaders of the Investment Management practice group listed below if you would like our assistance or if you have any questions on the proposed rules or how they may affect the listing of new products.

About BLG

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions