Canada: Toronto Stock Exchange (TSX) approves Deference Model - 5 November 2015

Last Updated: November 12 2015
Article by Brian Moller and Alina Preston

On 10 September 2015, the Toronto Stock Exchange (TSX) adopted amendments (the Amendments) to the TSX Company Manual. The Amendments modify, expand and formalise certain exemptions available to issuers listed on two or more exchanges or marketplaces (Interlisted Issuers).

The Amendments allow TSX to defer to other exchanges or jurisdictions for an expanded number of transactions as well as on certain corporate governance matters as they apply to certain Interlisted Issuers (the Deference Model). TSX acknowledges that corporate statutes and market requirements in other jurisdictions may differ from those in Canada; however, they address similar policy objectives, including protecting security holders and maintaining the quality of the market. TSX recognises the Deference Model is appropriate where the other exchange and corporate laws have appropriate requirements (although not necessarily the same as in Canada) and TSX has a clear minority of trading.

Exemptions previously available to Interlisted Issuers

TSX has previously granted exemptions to Interlisted Issuers for a limited number of transactions, such as private placements and acquisitions. However, it had limited the availability of the exemptions to Interlisted Issuers where: (i) at least 75% of the issuer's trading volume and value over the six months preceding notification of the transaction occurs on another exchange (the Previous Trading Threshold); and (ii) the other exchange is reviewing the transaction.

Certain Interlisted Issuers could also apply to TSX for relief on a discretionary basis from elements of TSX's corporate governance requirements.

Transaction-based exemptions

Interlisted Issuers listed on a Recognised Exchange (being Australian Securities Exchange, London Stock Exchange Main Board, AIM, Hong Kong Stock Exchange Main Board, New York Stock Exchange and NASDAQ) and who meet the New Trading Threshold will be able to apply to be exempted from the following requirements relating to transactions:

  • existing exemptions:
    • Security holder approval;
    • Private placements;
    • Acquisitions;
    • Security based compensation arrangements,
    • Unlisted warrants;
  • new exemptions:
    • Prospectus offerings;
    • Rights offerings;
    • Convertible securities;
    • Special requirements for non-exempt issuers;
    • Securities issued to registered charities.

TSX amended the Previous Trading Threshold to the New Trading Threshold as follows: (i) less than 25% of trading occurring in Canada, rather than more than 75% of trading occurring outside Canada; (ii) the trading over a period of 12 months preceding the application, rather than 6 months; and (iii) trading volume only, rather than value and volume.

Application process

For transactions, the application process for to obtain the above listed exemptions includes:

  • notification to TSX;
  • evidence that the Recognised Exchange or relevant regulator has accepted the transaction; and
  • disclosure in news releases issued in connection with the transaction that the issuer intends to or has relied on the exemption from TSX rules.

Corporate governance exemptions

Interlisted Issuers listed on a Recognised Exchange, who meet the New Trading Threshold and are incorporated or organised in a Recognised Jurisdiction (being Australia, England, Hong Kong and the State of Delaware and other jurisdictions with corporate statutes substantially modelled on the Canadian Business Corporations Act) can apply to be exempted from the following corporate governance requirements:

  • Director Election Requirements; and
  • Annual Meeting.

Application process

For corporate governance matters, eligible Interlisted Issuers may apply to TSX for its first annual exemption, and in subsequent consecutive years it may provide prior notice to TSX that it will continue to rely on such exemption without being required to re-apply for the exemption.

Ineligible Interlisted Issuers

The corporate governance exemptions are not available to Canadian-based Interlisted Issuers unless TSX grants a discretionary waiver from its requirements. TSX has stated it does not generally believe that it is appropriate to grant such waivers to Canadian-based Interlisted Issuers.

In connection with the Amendments, the TSX published Staff Notice 2015-002 for ineligible Interlisted Issuers who are not incorporated or organised in a Recognised Jurisdiction or who are not listed on a Recognised Exchange, or both. Such Interlisted Issuers may apply to the TSX for a corporate governance exemption from the Director Election Requirements and the Annual Meeting Requirements on an annual basis. Unlike exemptions for eligible Interlisted Issuers, these exemptions are not renewable on an annual basis. Consequently, if an ineligible Interlisted Issuer receives an exemption in a given year it is required to re-apply in subsequent years.

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