Canada: Proposed TSX Company Manual Amendments Create Tailored Listing Regime For Non-Corporate Issuers

On January 15, 2015, the Toronto Stock Exchange (TSX) published for comment proposed public interest amendments to the TSX Company Manual (the Manual) in respect of Non-Corporate Issuers, comprising Exchange Traded Products (ETPs), Closed-end Funds and Structured Products, by introducing a new Part XI to the Manual and amending Part I of the Manual (the Amendments). The proposed Amendments relate to the listing of and transactions undertaken by Non-Corporate Issuers.

Many of the Amendments codify existing TSX practice.

1. The Three Categories of Non-Corporate Issuers

Certain of the proposed Amendments introduce rules specifically tailored to listing ETPs, Closed-end Funds and Structured Products. In each case, the TSX retains the discretion to determine if an issuer will be considered a Closed-end Fund or whether the securities will be considered an ETP or Structured Product. Each of these terms is defined as follows:

  • A "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.
  • An "Exchange Traded Product" means redeemable equity securities (an exchange traded fund) or debt securities (an exchange traded note) 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.
  • A "Structured Product" means securities generally issued by a financial institution (or similar entity) 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. Structured Products include securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates.

2. Original Listing Requirements

The original listing requirements for structured products focus on three areas: minimum IPO raise or market capitalization; frequency of NAV calculation and disclosure; and management structure. The following table summarizes the minimum market capitalization/IPO raise and NAV requirements for each of the three categories of financial products:

Minimum IPO Raise or Market Capitalization Net Asset Value Calculations
Closed-end Funds $20,000,000 Calculated weekly and posted on a publicly accessible website.
Exchange Traded Products $1,000,000 Calculated each trading day and posted on a publicly accessible website.
Structured Products $1,000,000 Calculated weekly and posted on a publicly accessible website.

The TSX's current practice in respect of minimum IPO raise/market capitalization requirements varies. There is no published minimum market capitalization requirement for exchange traded products and structured products but the TSX's general practice has been to allow exchange traded products to list with a minimum of $2,000,000 in market capitalization. The proposed amendments lower this threshold. On the other hand, the TSX has required a market capitalization for Closed-end Funds of $20,000,000. The proposed amendments do not vary from prior practice.

Closed-end Funds are subject to one additional original listing requirement. At least 1,000,000 freely tradeable securities must be held by at least 300 public holders, each holding one board lot or more.

The TSX notes in its commentary that a higher market capitalization requirement for Closed-end Funds ensures that there is sufficient liquidity in the secondary market. In the view of TSX staff, this is not as important a concern for ETPs or Structured Products. Issuers of ETPs can create new securities at any time in order to increase market capitalization. Furthermore, the liquidity of an ETP is correlated with the underlying securities. Similarly, liquidity is not as important a concern for Structured Products because they are not frequently traded and the issuer can typically enhance liquidity by acting as a market maker.

The TSX also proposes certain minimum governance and experience requirements for financial institutions or issuers/managers of Non-Corporate Issuers. The proposed Amendments provide that the minimum listing requirements should be read in conjunction with the Section 325 – Management of the Manual that sets out the Exchange's requirements regarding the quality of management. As with listing applications for corporate entities, the TSX reserves for itself the jurisdiction to review the past conduct of members of management.

The proposed Amendments provide that the minimum listing criteria have been designed as guidelines and the TSX reserves the right to exercise its discretion in applying them. This discretion may well take into consideration facts or situations unique to a particular applicant, resulting in the granting or denial of a listing application notwithstanding the published criteria.

3. Changes in Capital Structure

The proposed Amendments in relation to capital structure changes codify the TSX's existing practice and extensively cross-reference other sections of the Manual and applicable securities laws. The following table summarizes proposed requirements in respect of the issuance of securities and additional and supplemental listings:

ETPs Closed-end Funds Structured Products
Issuance of Securities Immediate notification to TSX of any transaction involving the issuance or potential issuance of any new class of securities that is convertible into a listed class of securities. Immediate notification to and pre-approval by TSX of any transaction involving the issuance or potential issuance of any securities other than unlisted, non-voting, non-participating securities.
Additional Listing Any creation of securities to be effected in accordance with constating documents and NI 81-102—Investment Funds if applicable. No prior approval required from TSX for issuance or potential issuance of securities of a class already listed on TSX. Issuers will provide TSX with a legal opinion on a quarterly basis for all new security issuances during the previous quarter. The issuance of additional securities should be at a price that yields net proceeds per security of no less than 100% of the most recently calculated NAV per security calculated immediately prior to the pricing of such issuance other than by way of distributions to all security holders on a pro rata basis.
Supplemental Listings The minimum distribution requirement is the prescribed number of units if the new class of securities is convertible into a currently listed class of securities. If the new class of securities is not convertible into an already listed class of securities then the minimum requirements for an original listing apply. The minimum market value is $2M for the new class of securities provided that such securities are convertible into a currently listed class. There must also be at least 100,000 publicly held securities by at least 100 public board lot holders at the time of listing. If the new class of securities is not convertible into an already listed class of securities, then the minimum requirements for an original listing apply. Not applicable. A supplemental listing by issuers of Structured Products will be reviewed as an Original Listing.

The following are some additional proposed requirements with respect to changes in capital structure:

  • Due Bill trading will not apply to special distributions to be paid in securities where the securities to be distributed are immediately consolidated after the distribution, resulting in no change to the number of securities held by security holders.
  • For distributions that are payable in securities, and where those securities will be re-invested and the resulting securities immediately consolidated so that the number of securities held by each investor will not change, the TSX will require issuers to press release the estimated distribution amount four days prior to the declared record date. Upon determination of the exact amount of any estimated distribution, the issuer must disseminate the final details by news release.
  • Any management fees payable with securities issued from treasury will be subject to Section 613 of the Manual – Security Based Compensation Arrangements.
  • In the case of ETPs and Closed-end Funds, security holder approval is required for:

    • any amendments to constating documents not covered by general amendment provisions therein.
    • an extension of the termination date beyond the originally contemplated termination date unless security holders can redeem securities at NAV on the original termination date.
  • Non-Corporate Issuers must provide security holders with 30 days' notice of termination, unless there is a fixed termination date.
  • Non-Corporate Issuers must pre-clear with the TSX any materials sent to security holders, other than continuous disclosure documents (such as financial statements and management report of fund performance).
  • Directors and officers of the issuer, the manager or management responsible for day-to-day operations will be required to submit a PIF.

Comments on the proposed amendments will be accepted by the TSX and the OSC until March 16, 2015.

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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