Following its 2012 public consultation on emerging market issuers (EMIs) the Toronto Stock Exchange has published a staff notice on the application of the TSX original and continued listing requirements to EMIs. EMIs are generally considered by the TSX to have higher risk profiles than other issuers. The staff notice sets out the TSX's expectations when it is considering listing an EMI and should be read in conjunction with the requirements of the TSX Company Manual.
Which issuers will be considered EMIs by the TSX?
The TSX will consider each of the following factors in determining whether a listing applicant is an EMI:
- the residency of its mind and management;
- the jurisdiction of the principal business operations and location of assets;
- the nature of the EMI's business;
- the jurisdiction of its incorporation; and
- its corporate structure.
It is not necessary that all factors be present for an issuer to be considered an EMI. The TSX is focusing on jurisdictions outside Canada, the US, the UK, Western Europe, Australia and New Zealand.
What are the risks identified by the TSX as being applicable to EMIs and how are they addressed?
The staff notice outlines the risks associated with such issuers, which are similar to the risks identified by the Ontario Securities Commission in its review of EMIs in 2012. The TSX considers some but not all of the EMI risk factors to be mitigated for resource issuers who have produced independent technical reports, have management and board directors who have been resident or reside in Canada or another non-emerging jurisdiction, and have title opinions with respect to their properties that have been reviewed by the author of the independent technical report. The principal emerging market risk factors identified and the TSX's expectations are as follows:
|Risk Factor||TSX Expectations|
|Management's lack of knowledge of Canadian securities laws and TSX rules, resulting in non-compliance, inadequate corporate governance and less sensitivity regarding market concerns regarding related party transactions||Sufficient number of key
management (CEO, CFO, COO or corporate secretary) and directors
should have adequate North American public company experience
(although UK or Australia and other country expertise may be
considered) as well as technical expertise relevant to the
TSX stresses the importance of adequate independent oversight of management, especially where the EMI has a substantial or controlling shareholder (over 50%). Where an EMI has such a shareholder, the TSX may also require a majority of directors to be unrelated to that shareholder.
Adequate independence may be demonstrated by:
|Communication issues due to board of directors and management not sharing a common language or not being fluent in the language of EMI jurisdiction, resulting in inadequate oversight by board of management||TSX may require an EMI to prepare a communications plan that addresses communication issues, such as translation and time zone issues. In addition, one senior member of management (CEO, CFO, COO, corporate secretary or senior IR person) must be fluent in English or French to ensure adequate communication with shareholders.|
|Lack of local business knowledge||At least one director (ideally independent) should have significant knowledge and experience in the EMI jurisdiction obtained through work or having lived there. Other members should have thorough understanding of the EMI jurisdiction and director education should be put in place.|
|Financial reporting concerns regarding qualifications of CFOs, audit committee composition and external auditors||Factors to be considered
a) as CFO include:
|Adequacy of internal controls (IC)||
|Non-traditional corporate structure and title to assets held by non-affiliate||
|Related party transactions (RPTs)||
In connection with an original listing application, the TSX recommends an early pre-filing meeting to address any potential concerns in the above and other areas.
A copy of the TSX staff notice can be accessed here.
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