On December 17, 2015, the TSX Venture Exchange (TSXV or the Exchange) published a White Paper on its proposed broad-based reforms to various TSXV rules, policies and strategies aimed at fostering renewed interest in the Exchange and its services in the wake of ongoing sluggish capital markets conditions for junior issuers. The White Paper, Revitalizing TSX Venture Exchange: Canada's Public Venture Market, was the result of a lengthy consultative process, during which more than 130 clients and key stakeholders from many of the TSXV's most important industry sectors (including natural resource, science and technology and financial services) provided feedback to the Exchange that was then examined by various advisory committees across Canada. The White Paper synthesizes their recommendations into a three-pronged strategic reform program aimed at: (1) reducing the financial burden of compliance for listed issuers; (2) attracting new and more diverse capital to the Exchange; and (3) broadening and diversifying the base of listed issuers on the Exchange. The proposed initiatives within each prong range from general to specific and from conceptual to technical, but the TSXV has indicated its intention to implement these initiatives on an "aggressive timeline", subject in certain cases to regulatory approval.
The White Paper identified the financial requirements of ongoing compliance with Exchange rules as a key growth constraint for existing listed issuers in difficult market conditions. While many of the compliance obligations derive from securities laws applicable to venture companies, as opposed to from the Exchange itself, the perception that the red tape of audit compliance, resource sector compliance (such as technical reports in the mineral and oil and gas sector) and general disclosure compliance is too burdensome may be slowing the growth of listed issuers and discouraging potential Exchange clients from seeking a listing in the first place. To combat this perception and to ease the financial burden on junior issuers, the Exchange proposes to implement a series of rule changes, many of which will require significant amendments to the TSX Venture Exchange Corporate Finance Manual, including:
By implementing the initiatives listed above, the TSXV hopes to meaningfully reduce the cost of compliance for existing and potential issuers and change the perception that such costs are too restrictive for market participants and new entrants. At the same time, the Exchange is not of the view that the reforms are so dramatic as to undermine the Exchange's reputation for credibility and market integrity that is essential to the other two prongs of the White Paper strategy.
The White Paper notes that the flow of capital to early-stage public issuers has been noticeably reduced in recent years, both due to market trends, such as sector rotation away from areas in which Exchange listings have historically been concentrated, as well as shifts in strategy within the investment brokerage and securities dealer community. While the Exchange is keen to highlight the number of TSXV graduates that subsequently list on the Toronto Stock Exchange and become mature public companies with fully-developed capital structures as a means of downplaying the speculative component of public venture capital, the White Paper does grant that strategic measures are needed to restore and bolster interest in TSXV-listed issuers within the investment community. Though the initiatives proposed are less technical and less defined than the proposed compliance policy changes noted above, the Exchange has proposed:
The proposals above are a mix of concrete and more conceptual initiatives and, particularly in the case of investing in new research products and financial literacy education, the results and benefits are likely to be borne out over a much longer period of time, but the TSXV hopes that they will serve to position the Exchange as an attractive destination for capital in a wider segment of the investing community.
The third prong of the White Paper's strategy is to increase the number of Exchange issuers by combating the perception that the TSXV is primarily a natural resources-focused market and promoting its services across a wider array of industries. While maintaining its reputation as the premier market for junior mining and junior oil and gas issuers, the TSXV seeks to broaden its client base by:
The proposed initiatives clearly express the Exchange's desire to expand its client base primarily into the innovation, science and technology sector, where private capital currently dominates the investment landscape. Nearly 500 non-resource companies currently list on the TSXV and the growth of this figure in the medium term is likely to be a key metric of success for this third prong.
The Exchange has yet to propose any specific rule changes or publish any specific amendments, draft policies or program guidelines, however it is likely that many of these will be seen following a series of town hall meetings the Exchange proposes to host in the early part of 2016, at which the Exchange will entertain feedback on the White Paper's strategy and proposed initiatives. Existing issuers and those other stakeholders who stand to benefit significantly from these reforms should continue to monitor these developments in the coming months.