Canada: Proposed Amendments To TSX Company Manual Regarding Closed-End Funds, Exchange Traded Products And Structured Products

On January 15, 2015, the Toronto Stock Exchange (TSX) published proposed amendments (Amendments) to the TSX Company Manual which will introduce formal listing requirements for Closed-end Funds, Exchange Traded Products and Structured Products. The Amendments that relate to matters other than original listing requirements generally codify the TSX's existing practice with respect to Closed-end Funds, Exchange Traded Products and Structured Products.

Comments on the Amendments have been requested by the TSX by March 16, 2015.

Background to the Proposed Amendments

The TSX is proposing the Amendments in order to respond to the ongoing evolution in the structure and nature of listed issuers from traditional corporate issuers. In the last ten years, Closed-end Funds and ETFs have become more common in Canada. Additionally, while there are currently only six Structured Products listed on the TSX or other Canadian exchanges, the TSX believes that there may be benefits to public listings of such products — the market for which is dominated by the six major Canadian banks — in the future.

For purposes of the Amendments:

  • "Closed-end Fund" means an investment fund, mutual fund, split share corporation, capital trust or other similarly formed entity that is managed in accordance with specific investment goals and strategies.
  • "Exchange Traded Product" or "ETP" means redeemable equity securities or debt securities offered on a continuous basis under a prospectus which gives an investor exposure to the performance of specific indices, sectors, managed portfolios or commodities through a single security.
  • "Structured Product" means securities generally issued by a financial institution under a base shelf prospectus and pricing supplement where an investor's return is contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows (including securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates). For purposes of the Amendments, a "financial institution" means a financial institution regulated by the Office of the Superintendent of Financial Institutions (OSFI) or, if a foreign financial institution, by a regulatory body equivalent to OSFI with not less than $150 million market capitalization.

The TSX will have discretion in each case to determine whether or not an issuer and/or a security will be considered a Closed-end Fund, an ETP or a Structured Product.

Highlights of the Proposed Amendments

The Amendments will introduce the following requirements:

  • Minimum offering size/market capitalization – A minimum initial public offering size or market capitalization for Closed-end Funds of $20 million, for ETPs of $1 million and for Structured Products of $1 million.
  • Minimum initial distribution for Closed-end Funds – Closed-end Funds must have an initial minimum distribution of 1,000,000 freely tradeable securities and 300 public board lot holders (there will be no such minimums for ETPs or Structured Products).
  • On-going minimum market capitalization and minimum distribution for Closed-end Funds – Closed-end Funds must have an on-going minimum market capitalization of $3 million and 150 public board lot holders (there will be no such minimums for ETPs or Structured Products).
  • Website and publication of NAV – Closed-end Funds, ETPs and Structured Products must have and maintain a publicly accessible website and make available on that website any applicable net asset value (NAV), which will be calculated daily for ETPs and weekly for Closed-end Funds and Structured Products.
  • Management – Closed-end Funds and ETPs (other than ETPs issued by a financial institution) or their manager must have a CEO, a CFO (who is not the CEO), a Secretary and an independent review committee. If a Structured Product is not issued by a financial institution, the issuer or the manager must have at least two independent directors, a CEO, a CFO (who is not the CEO) and a Secretary. In each case, the manager must have adequate experience in the asset management industry, as determined by the TSX.
  • Additional listings by Closed-end Funds and Structured Products – The issuance of additional securities must yield net proceeds per security to the issuer of not less than 100% of the most recently calculated NAV (other than distributions to all of the issuer's securityholders on a pro rata basis).
  • Notice of termination – Closed-end Funds, ETPs and Structured Products without a fixed termination date must provide 30 days' notice to securityholders prior to termination. In addition, an extension beyond the originally contemplated termination date will require securityholder approval unless holders are given an opportunity to redeem their securities at NAV on the originally contemplated termination date.

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