Exchanges release paper on emerging market issuers

Ivan T. Grbešić -

The TSX and TSX-V issued a joint consultation paper earlier this week intended to identify the potential risks associated with listing emerging market issuers and provide preliminary guidance to issuers with respect to applicable listing considerations.

Specifically, the paper identifies a number of risks applicable to emerging market issuers, including with respect to (i) management and corporate governance concerns due to management's potential lack of familiarity with Canadian regulatory requirements or a lack of familiarity with the laws and requirements of the jurisdiction in which the issuer carries on business; (ii) unsatisfactory financial reporting as a result of auditors lacking sufficient expertise in the applicable jurisdiction; (iii) non-traditional corporate/capital structures due to foreign ownership restrictions in certain jurisdictions; and (iv) legal concerns relating to title and the ability to conduct operations.

The consultation paper thus asks for stakeholder input on a number of specific questions concerning the issues identified above, as well as with respect to the definition of "emerging market issuer", other potential risks not identified in the paper and related party transactions. Feedback is also requested on the issues of sponsorship requirements (which the paper suggests will not be waived in the case of emerging market issuers listing on the TSX) and potential supplemental ongoing requirements, which may ultimately include pre-clearance of a change of auditors, new board members or new senior management.

The paper suggests that stakeholder feedback may ultimately result in new guidance or requirements from the TSX or TSX-V. Further, the TSX-V is also soliciting feedback on a proposed policy document, Listing of Emerging Market Issuers, which sets out proposed guidance in respect of the procedures and requirements applicable to the listing of emerging market issuers on the TSX-V.

Of particular note, issuers with "significant connections" to an emerging market jurisdiction are also encouraged to arrange a pre-filing meeting with the applicable exchange in order discuss potential issues or areas of concern.

Comments on the consultation paper are being accepted until February 28, 2013. As we recently discussed, the Ontario Securities Commission also provided governance guidance for emerging market issuers in a staff notice released last month. The consultation paper thus appears to be the next step by regulators in establishing specific regulations and guidelines applicable to the unique challenges facing emerging market issuers.

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