On January 15, 2016, the Toronto Stock Exchange (TSX) issued Staff Notice 2016-0001 (the Staff Notice) which answers questions on the application of sections 628 and 629 of the TSX Company Manual (the Manual) to normal course issuer bids (NCIBs) by listed issuers. While some of the guidance underscores information from the Manual, a number of points have been helpfully clarified.
Intersection between TSX and ATS purchases
Notably, the TSX has drawn a clear distinction between securities purchased through the facilities of the TSX and those purchased on other exchanges or alternative trading systems (ATSs). Issuers and their buying brokers making purchases on ATSs or any other marketplace must satisfy themselves that they are properly relying on, and in compliance with, an exemption from the issuer bid rules under applicable securities laws. In particular, under the Securities Act (Ontario) and under Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, separate exemptions from the issuer bid rules are found for purchases made through the facilities of a “designated exchange”, which includes the TSX, and for purchases made on a “published market”, which would generally include an ATS, and the requirements of these exemptions differ. The Staff Notice further reminds issuers that they must properly disclose in their notice to the TSX and press release where securities are being purchased, including that purchases may be made on ATSs, if applicable. Where an issuer has publicly disclosed that NCIB purchases will only be made through the facilities of the TSX, the issuer should ensure that its buying broker is aware of the limitation, particularly as many brokers may use smart order routers which direct purchases to multiple marketplaces. Purchases made on other marketplaces and ATSs will not be subject to TSX rules. However, such securities will be included for the purposes of calculating an issuer’s annual NCIB limit under the TSX rules.
As a related matter, the Staff Notice confirms that interlisted issuers who wish to repurchase securities on a marketplace outside of Canada may appoint two buying brokers, provided that the buying broker appointed for the purchases on the other marketplace outside of Canada cannot directly place orders on the TSX.
Automatic purchases under NCIB
The Staff Notice also provides guidance with respect to automatic securities purchase plans (ASPPs), reminding issuers that automatic NCIB purchase arrangements must comply with Ontario Securities Commission Staff Notice 55-701 – Automatic Securities Disposition Plans and Automatic Securities Purchase Plans(55-701), be precleared by the TSX and be publicly disclosed. As we have previously discussed, for an automatic plan to be truly “automatic” it must meet certain criteria, including that the trading parameters and other pertinent instructions be set out in a written plan document. The Staff Notice remains consistent with 55-701 and notes that the issuer and broker must enter into a formal agreement covering the NCIB (pre-cleared with the TSX) and that an issuer cannot provide any instructions to the broker during a trading blackout period during which the ASPP is operating, including with regard to block purchases. Where an issuer amends its ASPP, a press release is only required if the amendment constitutes material information.
Calculation and other technical matters
With regard to calculating daily and annual purchase limits, securities that are not freely tradable, for example, securities subject to resale restrictions or escrow provisions, cannot be included in the public float but can be included in the number of issued and outstanding securities. Where an issuer is proposing an NCIB for its common shares, only issued and outstanding securities of the class subject to the NCIB are to be included in the calculation (i.e., non-diluted). However, the TSX will make an exception if the issuer has two classes of listed securities that are automatically interconvertible without any action on the part of the issuer or security holder. Where the maximum number of securities permitted by the TSX pursuant to the NCIB or otherwise have been purchased before the expiry of the bid period, the issuer cannot undertake a new NCIB until such 12-month period has expired.
Among other topics covered, the Staff Notice provides prescriptive guidance as to the timing and filing requirements for documents required by the TSX for the commencement of an NCIB, including the Form 12- Notice of Intention to Make an NCIB and the press release, and provides an illustrative timetable of the NCIB process; clarifies how to calculate average daily trading volume; notes that block purchases are to be naturally occurring large blocks; explains that non-independent trustees are subject to the NCIB annual and daily purchase limits; and outlines trading rules applicable to NCIBs.
See Staff Notice 2016-0001 for complete details and for additional information with respect to NCIBs and the TSX, please also refer to the following staff notices:
- Staff Notice 2008-001 dated July 21, 2008 – Section 628 (Calculating Securities acquired under a normal course issuer bid)
- Staff Notice 2008-0003 dated September 29, 2008 – Section 629 (Special Rules Applicable to Normal Course Issuer Bids) Non-Independent Trustees
- Staff Notice 2012-0002 dated June 8, 2012 – Normal Course Issuer Bids Section 628 and 629