The Toronto Stock Exchange (TSX) has adopted new rules regarding
dividend/distribution reinvestment plans (DRIPs) which are
effective for new DRIPs and DRIP amendments adopted on or after
September 1, 2016. Existing DRIPs are not subject to the new rules
until they are amended and require TSX approval. The new rules also
apply only to DRIPs that provide for the issuance of additional
listed securities from treasury, and do not apply to DRIPs that
provide for payment of dividends or distributions solely with
securities purchased on the secondary market.
DRIPs have been widely adopted by dividend-paying TSX-listed
issuers. They allow issuers to preserve cash resources, while
offering an issuer's existing security holders a convenient and
efficient means to reinvest (or receive) cash dividends or
distributions in additional securities, often at a discount to the
prevailing market price and without incurring typical brokerage
commissions. Some DRIPs also provide security holders the option to
purchase additional securities in excess of the dividend or
Before these rules were adopted, the TSX did not have specific
rules relating to DRIPs, and instead considered the approval of
securities issued under DRIPs in the same manner it considered
general issuances of securities. The proposed DRIP rules are
intended to set out a transparent set of standards and practices
applicable to DRIPs to expedite the process of adopting DRIPs. The
new rules generally codify the TSX's historical practices
relating to DRIPs and substantially implement the proposals
initially published by the TSX on April 28, 2016 and described in
our April 29, 2016 Update TSX Proposes DRIP Rules and Allows
Four-Letter Stock Symbols. Highlights of the new rules include
TSX approval will be required for all
DRIPs and DRIP amendments.
The price at which securities can be
issued under a DRIP must not be lower than the market price, less a
5% discount. Market price for these purposes may be based on the
volume-weighted average trading prices of the listed security for a
period of between five and 20 trading days preceding the relevant
All security holders resident in
Canada must be eligible to participate in the DRIP.
Issuers must list a sufficient number
of securities to cover issuances under the DRIP, such number of
securities being either (a) a sufficient number of securities to
cover issuances for a two-year period, provided such number of
securities does not exceed 10% of the listed issuer's
securities that are issued and outstanding, on a non-diluted basis,
at the time approval of the DRIP is sought, or (b) a fixed number
of securities equal to 5% of the listed issuer's securities
that are issued and outstanding, on a non-diluted basis, at the
time approval of the DRIP is sought. However, these limitations are
not intended to restrict the number of listed securities that may
be issued under the DRIP, and further applications to list
additional securities under the DRIP are permitted.
Securities distributed under a DRIP
may be of a different class than the securities in respect of which
the dividend or distribution is paid. However, if non-listed
securities are eligible to participate in the DRIP, the TSX's
private placement rules will generally apply unless the unlisted
securities are economically equivalent to the listed securities
(e.g., exchangeable securities).
Issuers wishing to suspend,
terminate, resume or reinstate a DRIP must notify the TSX and
advise their security holders by way of a news release.
Please contact any member of our Corporate Securities Group to
discuss the new DRIP rules or the potential adoption or amendment
of a DRIP.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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