Effective September 1, 2016, the Toronto Stock Exchange adopted new rules governing dividend / distribution reinvestment plans, which apply to new plans, and amendments to existing plans.
Effective September 1, 2016, the Toronto Stock Exchange (“TSX”) adopted new rules governing dividend / distribution reinvestment plans (“DRIPs”). The new rules are reflected in amendments to Section 6.17.1(c) of the TSX Company Manual.
Prior to the amendments coming into effect, there were no specific requirements applicable to DRIPs in the TSX Company Manual; instead companies and their legal counsel would reach out to the TSX on an ad hoc basis for guidance on implementing a DRIP. The new rules formalize the process.
Application of the New Rules
The new rules apply to all new DRIPs that allow existing securityholders to either: (1) reinvest their cash dividends or distributions by purchasing additional TSX-listed securities, or (2) elect to receive additional TSX-listed securities in lieu of cash dividends or distributions. The new rules do not apply to DRIPs that provide for the payment of dividends or distributions solely with securities purchased on the secondary market.
The new rules only apply to existing DRIPs that were implemented prior to September 1, 2016 if and when such DRIPs are amended. The mere listing of additional securities under an existing DRIP, without an amendment to the DRIP, does not constitute an amendment.
New and existing DRIPs continue to be governed by Canadian securities laws.
Key Features of the New Rules
Under the new rules:
- securities cannot be issued under a DRIP for a price lower than the market price (i.e. the volume weighted average trading price for a period of between 5 and 20 trading days), less a 5% discount;
- fractional securities that may result from a DRIP must be addressed;
- all of a company’s Canadian securityholders must be permitted to participate in the DRIP;
- new DRIPs, and amendments to existing DRIPs, must be submitted to the TSX (along with certain ancillary documentation, including an opinion of legal counsel) for approval by the TSX at least 5 business days prior to when the DRIP or the amendments are intended to be effective;
- a company must apply to list a sufficient number of securities to cover securities to be issued under the DRIP, and pay the listing fees in connection therewith; and
- the TSX must be notified, and a press release must be issued, each time a company proposes to suspend, terminate, resume or reinstate its DRIP.
Implementing a DRIP can be beneficial to both a company and its securityholders. It can allow a company to preserve cash and encourage long-term investment in the company’s securities. However, prior to implementing a DRIP, TSX-listed companies should understand their obligations under the new rules, as well as under Canadian securities law requirements.