Canada: TSX Proposes New Listing Requirements For Exchange Traded Products, Closed-End Funds And Structured Products

Last Updated: January 24 2015
Article by Jason A. Chertin, Money Khoromi, Margaret McNee and Shahen A. Mirakian

On January 15, 2015, the Toronto Stock Exchange ("TSX") published for comment proposed amendments (the "Amendments") to the TSX Company Manual (the "Manual"). The Amendments create listing requirements for non-corporate issuers in a new Part XI to the Manual. These entities include exchange traded products ("ETPs"), closed-end funds and structured products. ETPs include exchange traded funds ("ETFs") and exchange-traded notes.

Background

The Manual provides detailed requirements for all applicants seeking to be listed on the TSX. The existing rules set out in the Manual are primarily designed for corporate entities. In response to the growth of ETFs, closed-end funds and structured products, the Amendments propose new listing rules for non-corporate entities.

In the past six years, the TSX has added six more ETF providers and 251 new products, including 56 new ETF listings in 2014. Over the last five years, the TSX has had an average of 35 new closed-end fund listings per year. While there are currently only six structured products publicly listed on Canadian exchanges, the TSX believes that there could be benefits to having more structured products publicly traded. The rules proposed in the Amendments are specifically designed to facilitate the listing of ETPs, closed-end funds and structure products. The Amendments correspond with the amendments to National Instrument 81-102—Mutual Funds ("NI 81-102") recently adopted by the Canadian Securities Administrators (the "CSA") related to the regulation of closed-end funds.

CSA Amendments to NI 81-102

As part of the recent amendments to NI 81-102, the CSA has restricted closed-end funds from distributing rights or warrants to current security holders. As a result, the Amendments do not contain rules regarding warrant and rights offerings for closed-end funds. Additionally, as a result of the CSA's amendments to the requirements for closed-end funds proposing to merge with another closed-end fund or convert into an open-ended mutual fund, the TSX rules relating to these matter will be removed concurrently with the implementation of the Amendments.

Proposed Amendments

A. Minimum requirements for original listings

The Amendments create minimum listing requirements for non-corporate issuers.

The TSX proposes $1 million as the minimum market capitalization for ETP listings. Less than the current unpublished practice of a $2 million minimum, this is intended to accommodate designated brokers who want to limit the seed capital for an ETP. The Net Asset Value ("NAV") must be calculated daily and be available on a publicly accessible website. An ETP not issued by a financial institution would also be required to have a CEO, CFO, Secretary and Independent Review Committee ("IRC"). An ETP issued by a financial institution would need to identify the individuals who are responsible for the management and operations of the ETP.

Closed-end funds would be subject to a minimum market capitalization of $20 million, which reflects current TSX practice. At least 1 million freely-tradable securities would need to be held by at least 300 public holders, each with one board lot or more. The Amendments would also require that the NAV be calculated weekly and be available on a publicly accessible website. There must also be a CEO, CFO, Secretary and IRC for the closed-end fund or its manager.

Structured products would be subject to a minimum market capitalization of $1 million, which is lower than the current TSX practice of a $2-million minimum, in order to accommodate structured products' short product lives and low trading volumes. The TSX also proposes the NAV to be calculated weekly and be available on a public website. A non-financial institution issuer or its manager would be required to have two independent directors, a CEO, CFO and Secretary. For structured products issued by a financial institution, the individuals responsible for the management and operations would need to be identified. The TSX encourages entities other than financial institutions to have preliminary discussions with the TSX prior to submitting their listing application.

B. Capital structure changes

The Amendments propose further rules for transactions involving capital structure changes subsequent to the original listing. In general, listed ETPs must notify the TSX of any issuance or potential issuance of a new class of securities that is convertible into a listed class of securities. No prior notification is necessary if the securities are offered on a continuous basis. For closed-end funds and structured products, they must notify the TSX of any issuance or potential issuance of securities other than unlisted, non-voting and non-participating securities and receive pre-approval from TSX.

a. Additional listings

Under the proposed Amendments, the creation of any securities of an ETP must accord with its constating documents and NI 81-102. ETPs must provide a Form 1 and a legal opinion that securities from the previous quarter have been fully paid.

Closed-end funds and structured products require TSX acceptance before proceeding with the issuance of any securities other than unlisted, non-voting and non-participating securities. Any public announcements of the transaction must indicate this.

b. Supplemental listings

The Amendments propose that ETPs or closed-end funds must apply to the TSX in order to list any securities of a class that is not already listed. The TSX will give a preliminary opinion on the eligibility to list the supplemental securities.

There are also specific rules if the new class of securities is convertible into a currently listed class of securities. For ETPs, the number of securities of the new class must not be less than the minimum prescribed number as set out in the constating documents. For closed-end funds, the market value of the securities of the new class must not be less than $2 million and there must be at least 100,000 freely-tradable securities held by at least 100 public board lot holders.

If the new class of securities to be listed by ETPs or closed-end funds is not convertible into a currently listed class of securities, such a listing needs to comply with the minimum original listing requirements for the respective products. 

c. Security holder approval

In addition to the requirements under section 5.1 under NI 81-102, the Amendments propose that security holder approval be required for any amendments to the constating documents that are not otherwise covered by their general amendment provisions. Any extensions of an ETP or closed-end fund beyond the original termination date must also have security holder approval unless the security holders are given an opportunity to redeem securities at NAV on the original termination date.

d. Termination

Unless there is a fixed termination date, security holders of non-corporate issuers must be given at least 30 days' notice before termination.

e. Notification to TSX

Non-corporate issuers must pre-clear with the TSX any materials sent to security holders unless they are continuous disclosure documents like financial statements or management reports on fund performance.

f. Continued listing requirements and delisting

Under the Amendments, securities of a closed-end fund may be suspended or delisted if the fund is less than $3 million in the value for over 30 consecutive days, has less than 500,000 freely-tradable publicly held securities, or has less than 150 public security holders. For ETPs and structured products, the requirements are more general. They may be delisted if continued listing does not preserve the quality of the market.

Specific Questions

The TSX has posed the following specific questions with respect to the Amendments:

  1. Are the proposed original listing requirements for ETPs, Closed-end Funds and Structured Products appropriate? In particular, are the proposed minimum initial public offering conditions appropriate?

  2. For Closed-end Funds that do not calculate NAV on a daily basis, what is a reasonable time period within which they should be required to price an offering of additional listed securities? 

  3. For Closed-end Funds, is it appropriate to require new funds to publish a daily NAV on their website? Should exemptions be made for certain fixed-income funds or alternative asset funds?

  4. Does Independent Review Committee approval for fund mergers provide any value to the TSX? Is there any other way to provide comfort to TSX, when security holder approval is not sought, that the merger of two funds is fair and reasonable for current security holders of both funds?

  5. Should TSX require security holder approval for any other matters for ETPs, Closed-end Funds and Structured Products?

  6. Are the proposed continued listing requirements appropriate?

  7. Are there any other rules or requirements contained in the Manual that should be adapted to better suit ETPs, Closed-end Funds and Structured Products?

The deadline for submitting comments to the TSX is March 16, 2015. Please contact a member of our Investment Funds & Asset Management Group listed below if you have any questions or seek assistance with the preparation of a comment letter.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

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
Jason A. Chertin
Money Khoromi
Shahen A. Mirakian
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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