Canada: Tailored Listing Regime For TSX Non-Corporate Issuers Comes Into Force

Amendments to the TSX Company Manual were made effective September 17, 2015 to add various requirements for non-corporate issuers such as exchange traded funds and non-redeemable investment funds, as noted in a previous post.  The amendments are intended to provide guidance to the increasing numbers of non-corporate issuers listed on the TSX with respect to original listing requirements and requirements relating to changes in capital structure.

Our readers will recall that the amendments were first published for comment on January 15, 2015.  The final amendments, approved on September 17, 2015, incorporate comments received on the proposed amendments relating to the definition of "Closed-end Fund", the market capitalization requirement for Closed-end Funds, amendments to constating documents, pre-clearance of security holder documents and NAV calculations

1. The Three Categories of Non-Corporate Issuers

The amendments relate exclusively to non-corporate issuers, which are comprised of Exchange Traded Products (ETPs), Closed-end Funds and Structured Products.  The TSX retains the discretion to determine whether an issuer will be considered a Closed-end Fund or whether the securities will be considered an ETP or a Structured Product but definitions for each of these terms are included in the amendments.  An ETP and a Structured Product are defined in the same manner as in the proposed amendments:

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.

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.

The definition of Closed-end Fund was revised and now has the same meaning as a "non-redeemable investment fund" as set out in the Securities Act(Ontario).

2. Original Listing Requirements

The amendments provide minimum market capitalization requirements for an initial listing for each of the three types of non-corporate issuers.  In order to be listed on the TSX, an ETP must have a minimum market capitalization of $1,000,000; a Structured Product must have a minimum market capitalization of $1,000,000 and a Closed-end Fund must have a minimum market capitalization $10,000,000.  The TSX reduced the minimum market capitalization requirement for closed-end funds from $20,000,000, as originally proposed, to $10,000,000 out of a concern that the increased minimum investment amount may create uncertainty in launching Closed-end Fund offerings.

The TSX will review the management responsible for the day-to-day operations of the non-corporate issuer to ensure that they meet the requirements of section 325 of the TSX Company Manual.  As such, the TSX may review of the conduct of an officer, director or promoter to ensure that the business is conducted with integrity and in the best interests of security holders and the investing public.

In addition to the principal requirements set out above, non-corporate issuers must provide a representation to the TSX that NAV will be calculated no less frequently than daily for ETPs and weekly for Structured Products.  Closed-end Funds must calculate NAV as required under applicable securities law.  ETPs, Closed-end Funds and Structured Products must also maintain a website which publishes the applicable NAV.

3. Changes in Capital Structure

The amendments provide a comprehensive code for changes in capital structure such as an issuance of securities, additional and supplemental listings and the issuance of dividends and other distributions.  The TSX notes that the amendments related to changes in capital structure generally codify existing practices with respect to non-corporate issuers.

As noted above, security holder approval requirements were revised from what was originally proposed.  With respect to ETPs and Closed-end Funds, the TSX may require security holder approval for any amendments to the constating documents (or equivalent) that are not covered by the amendment provisions thereof and that may materially affect the rights of security holders. In addition, security holder approval is required for the extension of an ETP or Closed-end Fund beyond the originally contemplated termination date, unless security holders are provided with: (a) the opportunity to redeem securities at NAV within three months of the originally contemplated termination date; and (b) notice of the extension at least 30 days prior to the redemption deadline.

The text of the final amendments and other related information can be found in the Ontario Securities Commission's Notice of Approval.

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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