The Toronto Stock Exchange (TSX) has adopted – and the Ontario Securities Commission has approved – public interest rule amendments to the TSX Company Manual (Manual), which (i) provide an expanded exemption to security holder approval requirements for certain security-based compensation arrangements adopted in the context of an acquisition and (ii) broaden the scope of transactions that may be considered “backdoor listings.”

These amendments were originally published by the TSX for public comment on November 28, 2013 and came into effect on October 1, 2014 for all TSX-listed issuers (listed issuers).


The Manual provides that, subject to limited exceptions, any security-based compensation arrangement (Arrangement) adopted by a listed issuer must be approved by its security holders. One exception provides that, in the case of an acquisition by a listed issuer of a target issuer, the listed issuer may, without security holder approval, assume the target issuer’s existing Arrangements. However, prior to the amendments, without the approval of its security holders, the listed issuer could not grant new awards under these Arrangements and any cancelled awards could not be re-allocated or used for any other purpose. In connection with acquisition transactions, the TSX has previously exercised its discretion to permit listed issuers to grant new incentive awards to target issuer employees under such Arrangements without requiring approval of the awards by the listed issuer’s security holders.

The recent amendments formalize this discretionary exemption from the requirement that a listed issuer’s security holders approve new awards issuable to employees of a target issuer in instances where an acquisition by the listed issuer includes the assumption of an Arrangement of the target issuer, or the creation of an Arrangement for employees of the target issuer, provided that:

  • The new awards are issuable by the listed issuer to employees of the target issuer in connection with the listed issuer’s acquisition of the target issuer.
  • The aggregate number of securities issuable under the Arrangement does not exceed 2% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the acquisition transaction.
  • The employees of the target issuer are not insiders or employees of the listed issuer prior to the acquisition.

In addition, any securities issuable pursuant to such Arrangement shall be included in determining whether security holder approval is required as a result of the securities issued or issuable in payment of the purchase price for the acquisition exceeding 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis.

Any awards given under the exemption will be subject to annual disclosure requirements and be considered part of the insider participation limit of a listed issuer. 


Issuers applying to list on the TSX – whether by initial public offering, listing from other markets or a backdoor listing (also referred to as a reverse takeover or reverse merger) – are required to meet certain original listings requirements. Prior to the amendments, the Manual provided that a transaction would be considered a backdoor listing if the transaction would or could result in the existing security holders of a listed issuer holding less than 50% of the securities or voting power of the entity resulting from the transaction, and if the transaction resulted in a change in effective control of the listed issuer.

The recent amendments broaden the scope of transactions that may be considered backdoor listings by taking into account a variety of factors, including giving the TSX discretion to consider transactions where a listed issuer continues to own 50% or more of the securities or voting power of the entity resulting from a transaction, among others. The Manual now also provides for a more comprehensive approach to determine the 50% threshold by including all securities issued or issuable upon a concurrent financing that is contingent upon or otherwise linked to a transaction.

It is the TSX’s view that these amendments will support investor protection and maintain the integrity of the exchange by ensuring that all issuers meet the original listing requirements in order to list on the TSX.