TSX Venture Exchange (TSXV), Canada’s public venture market, has published an initial progress report on its “Revitalizing TSX Venture Exchange” initiative. This follows from its December 17, 2015 white paper which announced plans to revitalize Canada’s public venture market through a series of targeted initiatives aimed at addressing current challenges in the marketplace. The initial progress report issued on March 23, 2016 fine-tunes priorities to improve Canada’s public venture market.
Gowling WLG Focus
Through the white paper and consultative process, TSXV is making a genuine effort to identify and address challenges that TSXV stakeholders have been facing in difficult market conditions. The progress report shows that TSXV is listening to feedback from its customers and that it has flexibility to adapt to a range of issues. This includes taking action to try to tackle the complex issue of reducing barriers for U.S. investors wishing to access the capital markets in Canada.
As an international law firm, we support TSXV’s efforts to evolve as a marketplace that is welcoming to investors and issuers around the world and share a global vision towards the Canadian capital markets.
Background on TSXV White Paper
The initiatives set out in the white paper aim to address a combination of near-term issues as well as seeking to provide long-term benefits for market participants. In substance, TSXV is attempting to address challenges in Canada’s public venture market by making or proposing changes in three key areas:
- reducing administrative and compliance costs for issuers;
- expanding the investor base to finance TSXV companies and enhance liquidity; and
- growing and diversifying its list of issuers by appealing to emerging non-resource companies, such as tech, financial services, clean tech and renewable energy companies.
Feedback from stakeholders
Since releasing the white paper, TSXV has held 12 public consultation meetings across Canada with stakeholders. This has included 5 town hall meetings (Vancouver, Calgary, Toronto, Montreal and Halifax) in which participants were given the opportunity to participate by way of live online polling on various proposals relating to the revitalization efforts. The progress report summarizes the responses on specific poll questions taken from the town hall meetings.
Fine-tuning the priorities
The progress report notes that as a result of gathering feedback from stakeholders, TSXV has made adjustments to certain of its revitalization plans, including elevating the priority of two specific initiatives:
- examining TSXV filing procedures with a goal of improving the client experience to create efficiencies that will save issuers time and money; and
- addressing concerns relating to market structure and short selling rules.
It is of particular interest that this second initiative has surfaced as a priority issue, given that the white paper did not address short selling rules as an action item. As TSXV explains it, these matters relating to market structure and short selling were not among the initiatives set out in the white paper as they are not within TSXV’s authority. However, as a result of listening to concerns raised at the town halls and through other consultations with stakeholders, TSXV has committed to working with regulators and the trading community to “influence discussions” regulating short selling.
The progress report notes that 57% of respondents in the town hall online polls indicated that they believe short selling has a material negative impact on the market and are in favour of reintroducing the uptick rule. The uptick rule, which prohibited trading a stock that is trading down, was eliminated in 2012 due to difficulty in enforcing the rule given the existence of trading through Alternative Trading Systems (ATS) which create real-time transparency issues. Since the rule has been removed, anyone can short a stock regardless of whether it is trading up or down. Such “shorting” of a TSXV stock with limited liquidity can create significant downward pressure on a company’s stock, which can present a significant challenge for a company seeking to do a financing.
Although not specified in the progress report, instead of lobbying to reintroduce the uptick rule, a more effective measure to combat this issue may be to seek complete prohibition on short selling on TSXV. It will be interesting to see how this development plays out.
Issues that will not be acted upon
The progress report also notes that certain issues raised in the white paper will not be acted upon, due to feedback from the town halls and other consultations. This would include not proceeding with an aggressive campaign to delist companies that have had a “challenging time” in the current market cycle. The white paper had originally suggested that TSXV would introduce more stringent criteria for maintaining a listing on NEX (NEX is a separate board of TSXV that provides a trading forum for listed companies that have fallen below TSXV's ongoing listing requirements).
The inference from the progress report is that it will not be an immediate priority of TSXV to enhance the standards for inactive companies to remain listed on NEX. As such, it does not appear that there will be any wholesale plan to purge inactive companies and such companies can continue to trade on NEX indefinitely provided the companies meet the basic listing requirements. The policy behind this division between TSXV and NEX is that TSXV companies benefit from this division by having more active companies trade on TSXV, while NEX provides a platform for companies with little or no business activity to operate with simplified exchange regulatory policies while these companies take the time needed to focus on refinancing and reactivating their businesses.
Reducing barriers to access U.S. capital
Another priority from the white paper is to expand the investor base to finance TSXV companies and enhance liquidity. A key part of this priority is to reduce barriers for U.S. investors wishing to participate in the Canadian capital markets. At one of the town hall meetings, TSXV President John McCoach commented that reducing barriers for American investors is among the most difficult and complicated issue on TSXV’s agenda. However, McCoach noted that dismantling some of the obstacles to attracting investors from the largest market in the world could have a material impact on TSXV market liquidity.
The progress report notes that an action team has now been set up with the goal of reducing barriers to U.S. investors wishing to participate in the Canadian capital markets, and that such team has identified specific issues and will begin developing solutions.
On a related matter of attracting new listings from U.S. companies, the progress report indicates that TSXV will begin recruiting representatives for three U.S. regions to help bring new companies from diverse industries to list in Canada. These regions include U.S. Pacific Northwest, Boston/New York and San Francisco/Silicon Valley.
As part of the action item of facilitating more direct communication between issuers and investors, the white paper announced the launch of TSX investinit (http://www.tsx.com/tsx-company-services/targeting-the-investment-community/tsx-investinit), a new website and app to stream summaries of current financings of both TSXV and TSX listed issuers. The site is organized into four separate sections for public offerings, private placements, flow through and debt financings. Each current financing has a drop down menu that has details for the amount to be raised, type of financing, description of the securities and contact information. In some respects, this has similarity to the new crowdfunding portals, with the difference being that TSX investinit is not limited to crowdfunding but rather is a broader listing of all types of financings taking place by listed issuers - public offerings and private placements.
TSXV has further consultation meetings planned for Kitchener, Edmonton, Victoria and St John’s. TSXV has committed to receiving further feedback from stakeholders and will be sharing additional information and progress updates with the investment community throughout the year.
As well, the Revitalizing TSX Venture Exchange initiative has its own website landing page in which you can keep up-to-date and track the progress of the initiative as well as connect to social media links to provide feedback: www.revitalizingtsxv.ca.