On May 10, 2018, the Toronto Stock Exchange (TSX) issued a staff notice providing guidance on pricing prospectus and private placement offerings (in either case, an offering) following the release of material information by an issuer. The staff notice confirms that the TSX is willing to consider abbreviated timelines to determine the market price of an offering following the dissemination of material information.
The staff notice builds on the TSX's previous guidance regarding pricing an offering when an issuer possesses undisclosed material information, as is the case when an issuer plans to undertake an offering to finance an undisclosed acquisition (see, staff notice 2016-0006). In such circumstances, the TSX will permit an offering to be priced prior to the release of material information if it is satisfied that the proposed acquisition would not have been approved by the issuer's board of directors, but for the concurrent agreement in respect of an offering to finance the acquisition. By contrast, the current staff notice focuses on pricing an offering immediately following the release of material information.
Determining Market Price
The TSX generally requires offerings to be priced at a "market price" less a permitted discount. Market price is determined using the volume-weighted average trading price of an issuer's listed securities for the five trading days immediately preceding the relevant date (the 5-Day VWAP), in accordance with the definition of "market price" under Part I of the TSX Company Manual.
Market price should reflect all material events, changes or announcements respecting an issuer (collectively, material information). However, where material information is released during the five trading days immediately preceding the relevant date, the 5-Day VWAP may not be appropriate to determine market price of an issuer's securities.
What is Material Information?
Section 410 of the TSX Company Manual sets out specific examples of what the TSX will likely consider material information, including what the TSX will consider "material" in any event which relates to the business and affairs of a TSX-listed issuer that would reasonably be expected to:
- significantly affect the market price or value of the TSX-listed issuer's securities; or
- have a significant influence on a reasonable investor's investment decisions.
Upon management becoming aware of information that meets the above standard, an issuer must normally disclose the material information forthwith. While material information includes material events, changes and announcements, what is material to a specific issuer will vary based on factors like an issuer's profits, assets, capitalization and nature of operations.
Market Price Following the Release of Material Information
The release of material information will often cause abnormal price fluctuations on an issuer's listed securities. This is problematic if the material information is released within the 5-Day VWAP period, as such fluctuations may skew the market price determined using the 5-Day VWAP. The staff notice reminds issuers that, in such exceptional circumstances, the 5-Day VWAP may not accurately reflect an issuer's business and affairs.
Accordingly, the TSX usually expects market price to be determined using five clear trading days following the dissemination of material information. However, offerings are frequently time sensitive and the delay caused by using five clear trading days may result in a level of risk that is problematic for some issuers in certain circumstances. Where such time sensitivities exist, the staff notice confirms that the TSX may consider an abbreviated period for calculating market price following the release of material information. In considering an abbreviated timeline, relevant factors include:
- the liquidity and volume of the issuer's listed securities before and after the release of the material information;
- the period of time proposed to be used as a reference for market price;
- the rationale for pricing a financing immediately after disseminating material information; and
- the participation of insiders in the offering.
Impact on Issuers
Pricing an offering and the disclosure of material information require thorough consideration. While the staff notice is encouraging, such considerations often requires careful consultation directly with the TSX. Bennett Jones has significant experience in assisting issuers with TSX communications, including with respect to pricing offerings and disseminating material information in unique situations. If you have any questions regarding the staff notice, material information or pricing an offering, one of our Corporate Finance and Capital Markets lawyers would be happy to speak with you.