On September 17, 2015, the Toronto Stock Exchange (TSX) published final amendments (Amendments) to the TSX Company Manual which introduce formal listing requirements for Closed-end Funds, Exchange Traded Products and Structured Products. The Amendments that relate to matters other than original listing requirements generally codify the TSX’s existing practice with respect to Closed-end Funds, Exchange Traded Products and Structured Products.
The Amendments became effective on September 17, 2015 and followed the TSX’s publication of proposed amendments (Proposed Amendments) on January 15, 2015 and a public comment process. As a result of the public comment process, the TSX made certain non-material changes to the Amendments, some of which are described below.
Any Closed-end Fund, Exchange Traded Product and Structured Product listed before September 17, 2015 will continue to be listed in the category under which it was originally listed.
Background to the Amendments
The TSX is introducing the Amendments in order to respond to the ongoing evolution in the structure and nature of listed issuers from traditional corporate issuers. In the last ten years, Closed-end Funds and ETFs have become more common in Canada. Additionally, while there were only six Structured Products listed on the TSX or other Canadian exchanges at the beginning of 2015, the TSX believes that there may be benefits to public listings of such products — the market for which is dominated by the six major Canadian banks — in the future.
For purposes of the Amendments:
- “Closed-end Fund” has the same meaning as “non-redeemable investment fund” as found in the Securities Act (Ontario). This is a change from the Proposed Amendments which contemplated that “Closed-end Fund” would mean an investment fund, mutual fund, split share corporation, capital trust or other similarly formed entity that is managed in accordance with specific investment goals and strategies.
- “Exchange Traded Product” or “ETP” means redeemable equity securities or debt securities offered on a continuous basis under a prospectus, which give an investor exposure to the performance of specific indices, sectors, managed portfolios or commodities through a single security.
- “Structured Product”means securities generally issued by a financial institution under a base shelf prospectus and pricing supplement where an investor's return is contingent on, or highly sensitive to, changes in the value of underlying assets, indices, interest rates or cash flows (including securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates). For purposes of the Amendments, a “financial institution” means a financial institution regulated by the Office of the Superintendent of Financial Institutions (OSFI) or, if a foreign financial institution, by a regulatory body equivalent to OSFI with not less than $150 million market capitalization.
The TSX will have discretion in each case to determine whether or not an issuer is classified as a Closed-end Fund, or a security of an issuer is an ETP or a Structured Product.
Highlights of the Amendments
The Amendments introduce the following requirements for Closed-end Funds and/or issuers of ETPs or Structured Products, as applicable:
- Minimum offering size/market capitalization – A minimum initial public offering size or market capitalization for Closed-end Funds of $10 million (which is a change from the $20 million minimum for Closed-end Funds included in the Proposed Amendments), for ETPs of $1 million and for Structured Products of $1 million.
- Minimum initial distribution for Closed-end Funds – Closed-end Funds must have an initial minimum distribution of 1,000,000 freely tradeable securities and 300 public board lot holders (there will be no such minimums for ETPs or Structured Products).
- On-going minimum market capitalization and minimum distribution for Closed-end Funds – Closed-end Funds must have an on-going minimum market capitalization of $3 million and 150 public board lot holders (there will be no such minimums for ETPs or Structured Products).
- Website and publication of NAV – Closed-end Funds, ETPs and Structured Products must have and maintain a publicly accessible website and make available on that website any applicable net asset value (NAV), which will be calculated daily for ETPs, weekly for Structured Products and as frequently as required under applicable securities laws for Closed-end Funds (i.e. in accordance with National Instrument 81-106 –Investment Fund Continuous Disclosure, generally: (i) for Closed-end Funds that do not use specified derivatives or sell securities short, once a week; and (ii) for Closed-end Funds that use specified derivatives or sell securities short, once every business day). The Proposed Amendments contemplated that any applicable NAV for Closed-end Funds would need to be calculated weekly.
- Management – Closed-end Funds and ETPs (other than ETPs issued by a financial institution) or their manager must have a CEO, a CFO (who is not the CEO), a Secretary and an independent review committee. If a Structured Product is not issued by a financial institution, the issuer or the manager must have at least two independent directors, a CEO, a CFO (who is not the CEO) and a Secretary. In each case, the manager must have adequate experience in the asset management industry and with listed issuers, as determined by the TSX.
- Additional listings by Closed-end Funds and Structured Products – The issuance of additional securities must yield net proceeds per security to the issuer of not less than 100% of the most recently calculated NAV per security (similar to the requirements in National Instrument 81-102 – Investment Funds) prior to the pricing of the issuance (other than distributions to all of the issuer’s securityholders on a pro rata basis).
- Notice of termination – Closed-end Funds, ETPs and Structured Products without a fixed termination date must provide 30 days’ notice to securityholders prior to termination. In addition, an extension beyond the originally contemplated termination date will require securityholder approval unless holders have been given (i) the opportunity to redeem their securities at NAV within 3 months of the originally contemplated termination date and (ii) notice of the extension at least 30 days prior to the deadline for exercising the redemption right. The Proposed Amendments contemplated that extensions beyond the originally contemplated termination date would require securityholder approval unless holders were given an opportunity to redeem their securities at NAV on the originally contemplated termination date.