Canada: TSX Implements Rule Changes To Benefit Interlisted Issuers

INTRODUCTION

The Toronto Stock Exchange (TSX) has implemented amendments (Amendments) to its Company Manual to modify and expand the exemptions available to TSX issuers listed on one or more other exchanges (interlisted issuers) where the primary market is an exchange other than the TSX. The Amendments came into effect on September 10, 2015.

The TSX will defer to the regulatory authority of specified exchanges or jurisdictions for an expanded number of transactions and corporate governance issues. The purpose of the Amendments is to alleviate the regulatory burden on eligible interlisted issuers (defined below) and to facilitate foreign issuer listings on the TSX.

HISTORICAL EXEMPTIONS

Previously, the TSX granted exemptions to interlisted issuers from rules relating to security holder approval, private placements, unlisted warrants, acquisitions and security-based compensation arrangements (e.g. option and performance right plans). Certain interlisted issuers could also apply to the TSX for relief from corporate governance requirements on a discretionary basis.

RATIONALE FOR THE AMENDMENTS

The number of issuers that are interlisted on the TSX and one or more international exchanges has grown significantly (as of November 20, 2015, interlisted issuers totalled 338) and the TSX expects this trend to continue. Further, the TSX recognizes that, despite the differing corporate statutes and market requirements of each jurisdiction and exchange, the TSX's policy objectives may, in certain cases, be achieved through compliance with the policies of another exchange or jurisdiction.

The TSX implemented the Amendments to reduce unnecessary duplication through the introduction of a broader deference model in instances where other jurisdictions have appropriate corporate statutes and market requirements. The Amendments are an incremental change to the exemptions that were already available, but provide increased transparency as to when the TSX will defer to other exchanges and jurisdictions.

HOW DO INTERLISTED ISSUERS QUALIFY FOR EXEMPTIONS?

The Amendments specify that the transaction and corporate governance exemptions are available to issuers interlisted on the New York Stock Exchange, NYSE MKT, NASDAQ, London Stock Exchange Main Board, AIM, Australian Securities Exchange, Hong Kong Stock Exchange Main Board and any other exchange that the TSX may approve from time to time (each, a Recognized Exchange).

In addition, the transaction and corporate governance exemptions will only apply to interlisted issuers on a Recognized Exchange that had less than 25 per cent of their trading volume on Canadian marketplaces in the last 12 months (Eligible Interlisted Issuer). Prior to the Amendments, the exemptions were available if an interlisted issuer had at least 75 per cent of its trading volume and value over the last six months on an exchange other than the TSX and the other exchange was reviewing the transaction.

The transaction exemptions are available to Eligible Interlisted Issuers that are incorporated or organized in Canada and in foreign jurisdictions. In its request for comments dated January 22, 2015, the TSX provided illustrative scenarios of how the Amendments would apply. In one scenario, the TSX explained that a Canadian-based Eligible Interlisted Issuer could rely on the rules of another exchange to complete a transaction, provided that such other exchange has not exempted the issuer from its rules. An Eligible Interlisted Issuer must therefore be subject to the rules of another jurisdiction in order to be eligible for a transaction exemption from the TSX.

The corporate governance exemptions are only available to Eligible Interlisted Issuers that are incorporated or organized in Australia, England, Hong Kong, the State of Delaware, a jurisdiction with a substantially similar corporate statute to these jurisdictions or any other jurisdiction that the TSX may approve from time to time (each, a Recognized Jurisdiction). The corporate governance exemptions will not be available to Canadian-based interlisted issuers unless the TSX grants a discretionary exemption.

NEW EXEMPTION REGIME

The Amendments expand the scope of the exemptions to the TSX rules available to Eligible Interlisted Issuers, as follows:

Transaction exemptions: subject to prior approval from the TSX and provided that a transaction is completed in accordance with the requirements of a Recognized Exchange, an Eligible Interlisted Issuer is exempt from the TSX rules regarding special requirements for non-exempt issuers, security holder approval, prospectus offerings, private placements, unlisted warrants, convertible securities, acquisitions, securities issued to registered charities, security-based compensation arrangements and rights offerings

Corporate governance exemptions: subject to prior approval from the TSX, an Eligible Interlisted Issuer from a Recognized Jurisdiction is exempt from the TSX corporate governance rules, including director election requirements and annual meetings

An Eligible Interlisted Issuer that wishes to rely on a transaction exemption must apply to the TSX for approval and provide evidence that the transaction has been approved by its primary exchange or regulator or provide confirmation from legal counsel that the transaction is legally compliant with the laws of its primary jurisdiction. Reliance on the transaction exemption must also be disclosed in a news release issued in connection with the transaction.

An Eligible Interlisted Issuer from a Recognized Jurisdiction that wishes to rely on a corporate governance exemption must apply to the TSX for approval and upon acceptance, must send confirmation to the TSX on an annual basis that it will continue to rely on the exemption.

DISCRETIONARY EXEMPTIONS FROM CORPORATE GOVERNANCE RULES

If an interlisted issuer is not incorporated or organized in a Recognized Jurisdiction, is not listed on a Recognized Exchange, or does not meet the necessary trading thresholds, it can apply to the TSX for a discretionary exemption from the corporate governance rules on an annual basis. In determining whether to grant a discretionary exemption, the TSX will consider the issuer's level of activity in Canadian markets and whether the corporate governance framework of the issuer's primary market achieves the same policy objectives as the Canadian corporate governance regime.

Canadian-based interlisted issuers can also apply to the TSX for a discretionary exemption from the corporate governance rules. However, the TSX does not generally believe it is appropriate to grant such exemptions to Canadian-based interlisted issuers, as the stated purpose of the TSX's director election requirements is to align Canadian corporate governance practices with those of its international peers.

IMPACT ON FOREIGN ISSUER LISTINGS IN CANADA

The Amendments will exempt a number of foreign interlisted issuers from the transaction and corporate governance rules in the TSX Company Manual and reduce more of the regulatory burden associated with a dual listing on the TSX. By deferring to one set of exchange requirements, the Amendments will allow for a more efficient transaction process and resolve potential irreconcilable conflicts between the requirements of different jurisdictions and exchanges. While foreign interlisted issuers are still subject to Canadian securities laws, the Amendments reduce the complexity and cost of compliance with multiple exchange rules and should make it easier for foreign interlisted issuers to undertake or maintain listings on the TSX.

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