Written by Jon C. Truswell and Annie M. Alport
On September 10, 2015, the Toronto Stock Exchange (TSX) published a Notice of Amendments to the TSX's Company Manual. The Amendments modify, expand and formalize certain exemptions available to issuers listed on the TSX which are also listed in another market (Interlisted Issuers).
Previously, the TSX granted exemptions from its rules to certain Interlisted Issuers for a limited number of transactions pursuant to Subsection 602(g) of the Manual. This has had the effect of reducing the regulatory burden on Interlisted Issuers, but the exemptions were only available to Interlisted Issuers where (i) at least 75 percent of the issuer's trading volume and value over the six months preceding notification of the transaction occurred on another exchange (the Trading Threshold); and (ii) the other exchange was reviewing the transaction.
Certain Interlisted Issuers were also granted discretionary relief from the TSX's corporate governance requirements.
The Amendments will result in the TSX deferring to other exchanges or jurisdictions for certain transactions and certain corporate governance matters. In adopting the Amendments, the TSX has acknowledged that while corporate statutes and market requirements in other jurisdictions may differ from those in Canada, they address similar policy objectives. The TSX will defer to those jurisdictions where exchange and corporate laws have appropriate requirements and the TSX has a clear minority of trading.
Amendments to Trading Threshold
Eligibility for exemptions is still based on the Trading Threshold but the test has been recast based on: (i) less than 25 percent of trading occurring in Canada, rather than more than 75 percent occurring outside Canada; (ii) the trading over a period of 12 months preceding the application, rather than six months; and (iii) trading volume only, rather than value and volume (the Amended Trading Threshold).
The new provisions for exemptions from transactions requirements are provided in a new Section of the Manual, Section 602.1.
Eligible Interlisted Issuers - issuers which are listed on a Recognized Exchange (NYSE, NYSE MKT, NASDAQ, London Stock Exchange Main Board, AIM, Australian Securities Exchange, Hong Kong Stock Exchange Main Board and others, as may be determined by the TSX from time to time) and which meet the Amended Trading Threshold may apply for an exemption from the following requirements for transactions:
(1) Exemptions which were available prior to the Amendments:
- Security Holder Approval (Section 604);
- Private Placements (Section 607);
- Unlisted Warrants (Section 608);
- Acquisitions (Section 611); and
- Security based Compensation Arrangements (Section 613);
(2) New exemptions:
- Special Requirements for Non-Exempt Issuers (Section 501);
- Prospectus Offerings (Section 606);
- Convertible Securities (Section 610);
- Securities Issued to Registered Charities (Section 612); and
- Rights Offerings (Section 614).
An Eligible Interlisted Issuer seeking an exemption must obtain the usual TSX acceptance of the proposed transaction by notifying the TSX as required under Subsections 602(a) or 501(b) of the Manual.
As a condition of acceptance the Eligible Interlisted Issuer will also be required to provide evidence that the Recognized Exchange or relevant regulator has accepted the transaction, or confirmation from qualified legal counsel in the local jurisdiction that the proposed transaction is in compliance with the rules of the other exchange and applicable laws. It must also disclose that it intends to or has relied on the exemption in the press release issued in connection with the transaction.
Corporate Governance Exemptions
The new provisions for exemptions from corporate governance requirements are provided in a new Section of the Manual, Section 401.1.
Eligible International Interlisted Issuers - issuers which are incorporated or organized in a Recognized Jurisdiction (Australia, England, Hong Kong, the State of Delaware or other jurisdictions with corporate statutes substantially modelled after these jurisdictions, or as determined by the TSX from time to time), which are listed on a Recognized Exchange and which meet the Amended Trading Threshold may apply for exemptions from the following corporate governance requirements:
- Director Election Requirements (Sections 461.1-461.4 of the Manual); and
- Annual Meeting (Section 464 of the Manual).
These exemptions will not be available to Canadian-based Interlisted Issuers unless the TSX grants a discretionary waiver from its requirements.
Eligible International Interlisted Issuers who receive an exemption in a given year are not required to re-apply in subsequent years if they continue to be Eligible International Interlisted Issuers. However, they must provide prior notice to the TSX that they will continue to rely on such exemption. If an exemption is granted, the relief granted and the reasons for requesting the relief must be disclosed by the issuer in its annual meeting circular.
Staff Notice 2015-002
In connection with the above amendments, the TSX published Staff Notice 2015-002 for International Interlisted Issuers who do not do not qualify as Eligible International Interlisted Issuers (issuers who are not incorporated or organized in a Recognized Jurisdiction or who are not listed on a Recognized Exchange, or both). Such International Interlisted Issuers may apply to the TSX for an exemption from the Director Election Requirements (Sections 461.1-461.4 of the Manual) and the Annual Meeting Requirements (Section 464 of the Manual) on an annual basis. Staff Notice 2015-002 provides updated guidance in respect of making such applications. It replaces Staff Notice 2013-002 in its entirety.
Unlike exemptions for Eligible International Interlisted Issuers, exemptions for International Interlisted Issuers who are not Eligible International Interlisted Issuers are not renewable on an annual basis. As such, International Interlisted Issuers who receive an exemption in a given year are required to re-apply in subsequent years.
International Interlisted Issuers are not required to meet the Director Election Requirements in Section 461.1-461.4 of the Manual at the time of listing. These requirements will apply when the issuer mails its materials for its first annual general meeting after listing on the TSX, provided that the issuer has been listed on the TSX for at least 12 months at that time.