As of November 30, 2014, of the over 1500 issuers listed on the Toronto Stock Exchange (the "TSX"), 332 were listed on another exchange or marketplace. On January 22, 2015, the TSX announced proposed amendments (the "Amendments") to the TSX Company Manual (the “Manual”) to modify, expand and formalize the exemptions currently available to issuers that are listed on two or more exchanges or marketplaces ("Interlisted Issuers").
According to the TSX, Interlisted Issuers are generally subject to at least two sets of exchange requirements that often address the same policy objectives, causing duplication and sometimes contradiction in the requirements imposed upon them. The purpose of adopting a broader deference model is to increase transparency and to reduce the regulatory burden on eligible Interlisted Issuers by allowing the TSX to defer to other exchanges or jurisdictions for certain transactions and corporate governance matters.
The Amendments contain four key proposals:
1. Recognized Exchange
To be eligible for the exemptions, the Amendments require that the issuer be interlisted on a "Recognized Exchange" (New York Stock Exchange, NYSE MKT, NASDAQ, London Stock Exchange Main Board, AIM, Australian Securities Exchange, Hong Kong Stock Exchange Main Board and others, as may be determined by the TSX from time to time), rather than on "another exchange", as currently mandated.
2. Expanding the trading threshold
The TSX currently grants exemptions from its rules to Interlisted Issuers based on a trading threshold where more than 75% of the issuer's trading volume and value over the six months preceding notification of the transaction occurs on another exchange. The Amendments continue to base the transactions on the trading threshold (the "Proposed Trading Threshold"), but expand the test to allow the exemptions to listed issuers that are also listed on a Recognized Exchange where less than 25% of the issuer's overall trading volume over the 12 months preceding the application occurs across all Canadian marketplaces ("Eligible Interlisted Issuers").
3. Exemptions related to transactions
The Amendments introduce additional exemptions and allow for Eligible Interlisted Issuers to apply to the TSX on a transaction-by-transaction basis for exemption from the following sections of the Manual:
The existing exemptions:
- Security holder approval;
- Private placements;
- Unlisted warrants;
- Security based compensation arrangements;
and the following new exemptions:
- Special requirements for non-exempt issuers;
- Prospectus offerings;
- Convertible securities;
- Securities issued to registered charities; and
- Rights offerings.
The exemptions would be available to Eligible Interlisted Issuers where the transaction is completed in accordance with the standards of a Recognized Exchange.
4. Exemptions related to corporate governance
The Amendments allow "Eligible International Interlisted Issuers" to apply to the TSX for annual exemptions from the requirements in the Manual for director elections (Section 461.1-461.4) and annual meetings (Section 464). An "Eligible International Interlisted Issuer" is an Eligible Interlisted Issuer that is incorporated or organized in a recognized jurisdiction (Australia, England, the State of Delaware and other jurisdictions with corporate statutes substantially modelled after these jurisdictions, as may be determined by the TSX from time to time). The corporate governance exemptions will not be available to Canadian-based Interlisted Issuers unless the TSX grants a discretionary waiver from its requirements.
Which rules apply?
Where the trading volume of any Interlisted Issuer is more than 25% across all Canadian marketplaces over the 12 months preceding the application, the Interlisted Issuer is subject to the TSX's rules for transactions and corporate governance, regardless of the issuer's jurisdiction of incorporation.
Where the trading volume of a Canadian-incorporated Interlisted Issuer is less than 25% across all Canadian marketplaces over the 12 months preceding the application, the Interlisted Issuer may rely on the rules of a Recognized Exchange for transactions, but will not be exempt from the corporate governance rules unless the TSX grants a discretionary waiver.
An Eligible International Interlisted Issuer meeting the parameters of the Proposed Trading Threshold is eligible for an exemption from the TSX's rules for transactions and corporate governance rules.
An Interlisted Issuer incorporated in a non-recognized jurisdiction that is not interlisted on a Recognized Exchange is subject to the TSX's rules for transactions and corporate governance, but a discretionary waiver from the corporate governance rules may be granted.
The TSX is accepting public comments regarding the Amendments until March 9, 2015, after which time and upon approval of the Ontario Securities Commission, the Amendments will become effective.