The Toronto Stock Exchange (the “TSX”) has adopted, and the Ontario Securities Commission has approved, amendments (the “Amendments”) to Parts I, III, IV and VI of the TSX Company Manual (the “Manual”), to modify, expand and formalize certain transactional and corporate governance exemptions available to issuers listed on two or more exchanges or marketplaces (“Interlisted Issuers”).
The Amendments allow the TSX to defer to other exchanges or jurisdictions for an expanded number of transactions, as well as on certain corporate governance matters, as they apply to eligible Interlisted Issuers incorporated or organized outside of Canada. While the TSX recognizes that corporate statutes and market requirements of other jurisdictions may differ from those in Canada, they may still address similar policy objectives. According to the TSX, the Amendments are intended to provide greater transparency regarding the transactions for which the TSX will defer to other exchanges or jurisdictions and to reduce the regulatory burden on eligible Interlisted Issuers without impacting the quality of the market.
The Amendments are comprised of four key parts:
1. Recognized Exchange
The Manual previously provided that an Interlisted Issuer would be eligible for the exemptions if the issuer was interlisted on “another exchange.” The Amendments have narrowed the scope of eligibility in this regard, requiring instead that the Interlisted 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 TSX from time to time).
2. Trading Threshold
The TSX formerly granted exemptions based on a minimum required trading threshold where at least 75% of the Interlisted Issuer’s trading volume and value over the six months preceding notification of the transaction occurred on another exchange, provided that the other exchange was reviewing the transaction.
The Amendments modify the scope of eligibility by allowing the exemptions to Interlisted Issuers where less than 25% of trading volume occurs in Canada over the twelve months preceding notification of the transaction, provided that the other exchange is reviewing the transaction (“Eligible Interlisted Issuers”).
3. Transactional Exemptions
Eligible Interlisted Issuers may apply for the pre-existing exemptions from the following sections of the Manual:
- Security holder approval (Section 604);
- Private placements (Section 607);
- Unlisted warrants (Section 608);
- Acquisitions (Section 611); and
- Security based compensation arrangements (Section 613);
and from the following new exemptions introduced in the Amendments:
- Special requirements for non-exempt issuers (Section 501);
- Prospectus offerings (Section 606);
- Convertible securities (Section 610);
- Securities issued to registered charities (Section 612); and
- Rights offerings (Section 614).
As a condition of acceptance, the TSX requires evidence that the Recognized Exchange or relevant regulator has accepted the transaction or, alternatively, confirmation from qualified legal counsel in the local jurisdiction that the proposed transaction is in compliance with applicable rules of the other exchange or marketplace and all applicable laws. In addition, the Eligible Interlisted Issuer must also disclose in its news release, issued in connection with the exempt transaction, that the issuer intends to or has relied on the exemption from the TSX rules.
4. Corporate Governance Exemptions
The Amendments allow “Eligible International Interlisted Issuers” or “Other International Interlisted Issuers” to apply to be exempted from the following corporate governance requirements:
- Director Election Requirements (Sections 461.1 – 461.4); and
- Annual Meeting (Section 464).
An “Eligible International Interlisted Issuer” is an Eligible Interlisted Issuer that is incorporated or organized in a “Recognized Jurisdiction” (Australia, England, Hong Kong and the State of Delaware, other jurisdictions with corporate statutes substantially modelled after these jurisdictions, and other jurisdictions as may be determined by the TSX from time to time). If the TSX approves the application for exemption of the above-listed requirements, then in subsequent consecutive years the Eligible International Interlisted Issuer may continue to rely on this exemption if it provides prior notice to the TSX within the prescribed time period.
An “Other International Interlisted Issuer” is an issuer incorporated or organized outside of Canada but not in a Recognized Jurisdiction and, therefore, does not qualify as an Eligible International Interlisted Issuer. An Other International Interlisted Issuer may apply to the TSX for an exemption from these sections on an annual basis. In considering these applications, the TSX will assess the trading volume of the Other International Interlisted Issuer in Canada and whether the broader corporate governance framework to which the Other International Interlisted Issuer is also subject demonstrates a comparable commitment to specific policy objectives.
Eligible International Interlisted Issuers and Other International Interlisted Issuers are required to disclose the requirement from which they have been exempted for the year and their reliance on the exemption available in Section 401.1 in a news release issued in connection with their annual meeting or in the materials sent to holders of listed securities in connection with a meeting at which directors are being elected, as applicable.
The corporate governance exemptions continue to be unavailable to Canadian-based Interlisted Issuers unless TSX grants a discretionary waiver from its requirements. According to TSX, the exemption will only be granted to Canadian-based Interlisted Issuers in exceptional circumstances.
The Amendments became effective on September 10, 2015.