Canadian Securities Law : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) released a report earlier this week that reviews "the conflicts of interest that arise when exchanges that are commercial businesses also act as regulators and supervisors of issuers." Specifically, the report contends that the TSX is the only major exchange reviewed that has failed to implement specific measures to manage its conflicts of interest in regulating listed companies. According to FAIR Canada, other major exchanges have addressed such conflicts through changes in corporate governance, organizational structure, corporate policies and internal procedures.

Ultimately, the report provides three regulatory alternatives for the TSX to consider, being: (i) transferring most listings regulation responsibilities to another regulator; (ii) establishing a regulation subsidiary company with independent governance to perform listing regulation; and (iii) establishing a listings regulation department that is separate from the business operations of the exchange to perform listings regulation. While an Ontario legislative committee recently recommended that the OSC review the potential for conflicts of interest between the regulatory and commercial functions of the TSX, it is not yet clear whether any regulatory changes will be made.

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The Ontario Securities Commission (OSC) today published a revised version of OSC Staff Notice 21-703 - Transparency of the Operations of Stock Exchanges and Alternative Trading Systems. Staff Notice 21-703 sets out the process of OSC Staff for reviewing changes to certain operations of exchanges and alternative trading systems. The Notice has been revised in order to apply to the notice and filing process relating to the initial operations of an ATS seeking to carry on business in Ontario.

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As discussed in our post of November 18, 2009, the Toronto Stock Exchange proposed changes last year with respect to security holder approval in the case of investment fund acquisitions. The proposals followed changes to the TSX Company Manual requiring approval of security holders of an aquiror for the issuance of securities as consideration for an acquisition where the number of securities exceeds 25% of the issued and outstanding securities of the aquiror. The proposed amendments were intended to exempt investment funds from this requirement provided certain conditions were satisfied and would also require security holder approval by investment funds that are the subject of an acquisition unless certain conditions are satisfied.

Today, the TSX announced the adoption of the amendments with certain changes made in response to comments from the public and the OSC. Specifically, the final amendments clarify that the requirement for security holder approval of an investment fund which is the subject of an acquisition (unless certain conditions are met) applies to acquisitions of funds or assets. Other changes to the original proposal were made, including requiring the fund manager to make certain determinations rather than the Independent Review Committee.

The amendments will become effective on August 16, 2010. While not retroactive, the TSX stated that it will consider applications by investment funds made prior to the effective date for discretionary exemptions.

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On May 3, TMX Group Inc., released a letter written to the Canadian Securities Administrators (CSA) outlining its position on the regulation of short sales in Canada in light of recent U.S. amendments on the subject.

Specifically, TMX recommended against adopting SEC-style amendments incorporating a price test trigger and stated that the "additional regulation of short sales in Canada is not warranted." In support of its views, TMX outlined findings from an analysis it performed on securities inter-listed on the TSX and a U.S. exchange. TMX found that on average, at least one inter-listed security would have triggered the SEC-style short sale circuit breaker every day. According to TMX, however, "it is highly unlikely that manipulative shorting occurs every day in one of the inter-listed securities." Thus, TMX urged the CSA "to take a decision on short sales that is contrary to the SEC's politically driven amendment to Reg SHO". Citing UMIR amendments to address failed trades and the strong real-time surveillance and enforcement capabilities of IIROC, TMX further outlined its support for "the removal of the short sale price test for all exchange-listed securities in order for Canadian participants to operate under one rule."

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The Ontario Securities Commission (OSC) has approved amendments to the Rules of the Toronto Stock Exchange to eliminate the indicative calculated closing price feature on the TSX's Market On Close facility. The amendments were originally published for comment on May 30, 2008.

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Individuals with criminal records that are filing Form 4 - Personal Information Form will now have to be fingerprinted due to new procedures being implemented by the Ontario Provincial Police (OPP). According to a TSX notice released today, effective immediately, the OPP will no longer provide the TSX with information regarding the positive results of criminal record checks without fingerprint verification from the individual. An RCMP Records Release Form, which will be provided by the TSX on an as-needed basis, will have to be signed and submitted at the time of fingerprinting to give the OPP permission to release the information to the TSX.

Thus, the TSX is recommending that individuals that have pled, or have been found guilty of an offence as defined by the Form, be digitally fingerprinted at an RCMP-accredited agency providing such services. The TSX has also advised that the OPP will only accept criminal consent forms submitted within 90 days from the date the consent was signed.

Similar consideration to the new procedures should be given by those filing Form 2A respecting TSX-Venture companies.

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On December 7, the TSX published a staff notice providing guidance on: (i) acceptable standards for anti-dilution provisions for convertible securities; (ii) recent amendments to the TSX Manual respecting security-based compensation arrangements that provide for cashless exercises; and (iii) the application of the uptick prohibition for purchases made pursuant to normal course issuer bids (NCIBs).

Anti-dilution provisions for convertible securities

Convertible securities, such as warrants, options, debentures and preferred shares typically contain anti-dilution provisions designed to compensate holders of convertible securities for changes in a listed issuer's capital. The notice clarifies the standards that the TSX applies in considering such changes. Specifically, the notice states that the TSX generally does not accept downward adjustments to the exercise or conversion price of a convertible security when a listed issuer completes a subsequent issuance of securities at a lower subscription price unless:

1. in the case of warrants and options, the exercise price is not lower than the market price at the time the convertible security as issued; and
    
2. in the case of a convertible instruments (such as debentures and preferred shares) the adjustment results in a conversion price that is not lower than the market price at the time the convertible security was issued, less the maximum discount allowed under the TSX Manual.

Where an adjustment results in the issuance of additional securities rather than a change to the subscription or conversion price, the TSX will consider the effect on the effective subscription or conversion price in order to apply the above rules. If the above pricing conditions are not satisfied, disinterested security holder approval will be required.

In addition, the notice clarifies that adjustments to the number of securities due to stock splits and consolidations must be proportionate and adjustments to the exercise or conversion price of securities to compensate security holders for the loss of value where there is a rights offering or special distribution are generally acceptable, but anti-dilution provisions for dividends or distributions in the ordinary course of business are not. According to the notice, participation of convertible security holders in regular distributions to shareholders is subject to the TSX's prior consent, and amendments to conversation or exercise prices under  “basket” clauses (which permit the board to amend the exercise or conversion price at its discretion in the event of a dilutive event not specifically contemplated in the anti-dilution provisions) are subject to the prior consent of the TSX. The notice also states that instruments governing the terms of convertible securities should provide that any amendments shall be subject to the prior consent of the TSX. The notice also clarifies that not all of the guidance provided in respect of convertible securities will apply to exchangeable securities.

Addition of a cashless exercise feature to security compensation arrangements

Currently, security holder approval is required to add a cashless exercise feature to a fixed maximum plan where there is not a corresponding full deduction of the underlying securities. The notice clarifies that the TSX considers such an amendment "to be equivalent to an increase in the maximum number of securities issuable" under the arrangement. As such, security holder approval is required according to section 613(i)(iv) of the Manual, even where the compensation arrangement contains detailed amendment provisions.

NCIBs

Section 629(l)(1) of the Manual prohibits listed issuers making an NICB from purchasing its securities at a price higher than the last independent trade of a board lot (the “uptick prohibition”) in order to prevent it from "abnormally influenc[ing] the market price of its security." The TSX, however, has recognized the difficulty in complying with this prohibition and states in the notice that it will not consider trades to be a violation of the uptick prohibition where:

1. the independent trade occured no more than one second before the NCIB purchase that created the uptick;
    
2. the independent trade is a down tick to the previous trade and the NCIB purchase would not have created an uptick to the trade prior to the last independent trade; and
    
3. the price difference between the independent trade and the NCIB purchase was not more than $0.02.

Issuers will be expected to provide evidence that the above conditions were met where trades appear to violate the prohibition.

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On November 13, the TSX published for comment proposed changes to Part VI of its Company Manual proposing specific requirements and exemptions with respect to security holder approval in the case of investment fund acquisitions. These proposed amendments relate to the impact on investment fund acquisitions of recent changes to the TSX Company Manual requiring approval of security holders of an aquiror for the issuance of securities as consideration for an acquisition where the number of securities exceeds 25% of the issued and outstanding securities of the aquiror. The proposed amendments would exempt investment funds from this requirement provided certain conditions were satisfied. The proposed amendments would also require security holder approval by investment funds that are the subject of an acquisition unless certain conditions are satisfied.

Specifically, acquiror investment funds would be exempted from the new requirement to obtain security holder approval for acquisitions over the 25% dilution threshold under section 611(c) of the Manual where:

1. the issuer being acquired is an investment fund that calculates and publishes its net asset value (NAV) at least once a month;
2. the consideration being offered for the acquisition does not exceed the NAV of the investment fund that is the subject of the acquisition;
3. the independent review committee of the acquiring listed issuer has: (i) determined that the investment objectives of the listed issuer and the issuer being acquired are substantially the same; and (ii) approved the acquisition; and
4. the number of securities issued or issuable in payment of the purchase price for the acquisition does not exceed 100% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis.

With respect to investment funds subject to an acquisition, under the amendments, a target investment fund would have to obtain security holder approval for the acquisition unless the following conditions are satisfied:

1. the listed issuer has a permitted merger clause in its constating documents which permits the acquisition of the listed issuer without security holder approval;
2. the consideration offered to security holders of the listed issuer for the acquisition has a value that is not less than NAV;
3. the independent review committee of the listed issuer being acquired has: (i) determined that the investment objectives, valuation procedures and fee structure of the listed issuer and the acquiring issuer are substantially the same; and (ii) approved the acquisition; and
4. the listed issuer is providing its security holders with a redemption right for cash proceeds which are not less than its NAV, together with adequate notice and description of such redemption right and the acquisition.

In its request for comments, the TSX has set out specific concerns relating to investment funds subject to an acquisition as investment funds are not subject to protections of a corporate statute which may generally require target security holder approval and may have a “permitted merger” clause in their constating documents that allows for acquisitions without approval. As a matter of practice, while such a permitted merger clause has been allowed by the TSX, it has typically required investment funds to provide a redemption right to its security holders for cash proceeds based on NAV unless security holder approval is sought. The proposed amendments are an attempt to codify this practice and provide additional protections to target security holders in an acquisition.

Comments on the proposed amendments are being accepted until December 14, 2009. The TSX will determine whether or not to implement the proposed amendments based on comments that it receives.

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As described in our earlier post, on October 9, the Ontario Securities Commission (OSC) introduced a new process for reviewing changes to certain operations of exchanges and ATSs. According to the notice, OSC Staff believe that proposals to operational changes to exchanges and ATSs should be subject to an appropriate degree of transparency. Thus, the OSC intends to apply new publication requirements in the case of proposed changes to order types or features/characteristics of orders, procedures regarding order entry, display and execution, and changes to procedures relating to special facilities or marketplace sessions. The OSC may also request that other changes be published if regulatory concerns are raised.

Generally, under the new procedures, exchanges and ATs must file with the OSC and publish a notice in the OSC Bulletin describing, among other things, the proposals, rationale and expected impact of the proposed changes. The OSC will review the proposals and market participants will be afforded 30 days to provide feedback. Absent any regulatory concerns, the proposed changes would become effective 45 days after publication of the notice. In the case of regulatory concerns, the OSC would work with the exchange or ATS to resolve the issues, but implementation may be delayed in such a case.

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Pursuant to amendments to the Bankruptcy and Insolvency Act and Companies' Creditors Arrangement Act that took effect on September 18, 2009, an automatic stay of proceedings initiated on the filing of a proposal or notice of intention does not apply to regulatory bodies acting strictly as regulators. As such, the Toronto Stock Exchange (TSX) announced yesterday that it intends to continue to investigate and take action against listed issuers that are insolvent or have made an assignment for the purposes of enforcing the continued listing requirements in section 708 of the TSX Company Manual. The TSX also confirmed that the temporary relief respecting the Remedial Review Process would expire as planned at the end of this month.

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The Toronto Stock Exchange (TSX) announced today that the Ontario Securities Commission has approved amendments to Part VI of the TSX Company Manual respecting the acquisition of public companies. While section 611(c) of the Manual currently requires shareholder approval for the issuance of securities as full or partial consideration for an acquisition where the securities to be issued exceed 25% of issued and outstanding securities, an exception exists where the acquiree has 50 or more beneficial shareholders, excluding insiders and employees (a public company).

The amendments announced today will remove the exception for public companies, thereby applying the dilution threshold of 25% to all acquisitions. These amendments follow two separate rounds of requests for comments published by the TSX in October 2007 and later in April 2009.   In the April 2009 Request for Comments, the TSX proposed to require shareholder approval at the dilution level of 50% but decided, consistent with the majority of those that commented on the proposals, that the threshold dilution level should be lower than that proposed. In its Notice of Approval, however, the TSX notes that while it strives “not to rely on discretion” to alter its rules other than in "extraordinary circumstances or where the rules do not apply to the circumstances”, the TSX Manual does provide discretion to impose or exempt issuers from requirements in the Manual in “appropriate circumstances.” It further notes that the “exercise of discretion by TSX is, and should be, limited, particularly where there is a bright line test that applies.” It will therefore continue to apply s. 611(c) (which requires securityholder approval for transactions above the 25% threshold) in this manner.

The amendments become effective on November 24, 2009 but will not have retroactive effect. Any transaction of which the TSX has been notified in writing prior to such date will not be subject to the new rules, regardless of whether or not TSX conditional approval has been granted.

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The Toronto Stock Exchange (TSX) announced today that it has adopted and the Ontario Securities Commission (OSC) has approved amendments to the TSX Company Manual respecting, among other things, shareholder approval of changes to security-based compensation plans. Proposed amendments were originally published for comment on January 26, 2007. Those proposed amendments have been approved and adopted as of September 18, 2009 with only non-material changes having been made (in response to comments provided by the public and the OSC) to the original proposals.

Specifically, with respect to security-based compensation arrangements (such as stock option plans), the amendments clarify the circumstances in which shareholder approval will be required when such arrangements are amended (notwithstanding that a plan may contain provisions allowing the board to make changes without approval). These circumstances include changes that: (i) reduce the exercise price or extend the term of options held by insiders; (ii) remove or exceed the insider participation limit; (iii) increase the fixed maximum number or percentage of securities issuable pursuant to a plan; or (iv) change the amendment provisions of a plan. The amendments also clarify that with respect to an amendment to reduce the price or extend the term of options held by insiders or to remove or exceed the insider participation limit, votes held directly or indirectly by insiders benefiting from the amendment must be excluded. With respect to the remaining prescribed types of amendments, votes held directly or indirectly by insiders entitled to receive a benefit under the plan must only be excluded if the plan is not subject to an insider participation limit. The term extension restrictions, in particular, could create issues for companies that, as part of a package, wish to allow a departing officer a longer period of time in which to exercise stock options than the often short standard period provided for in plans, and may suggest that plan amendments in this regard may be desirable.

Section 602(g) of the TSX Company Manual, meanwhile, was also amended to add "acquisitions" (under section 611) to those circumstances under which the TSX will not apply its standards where at least 75% of trading occurs on another exchange.

The amendments become effective today, September 18, 2009.

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The TSX announced last week that the temporary relief granted with respect to the Remedial Review Process will not be extended beyond the end of this month. As described in our post of March 26, the relief was initially granted on November 3, 2008 and, after providing for an extension, is set to expire on September 30, 2009. The relief, initiated in response to the "extraordinary market conditions" prevalent late last year, extends from 120 to 210 days the maximum time period that an issuer has to remedy deficiencies that triggered a delisting review.

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On August 26, the Ontario Securities Commission released a decision refusing to intervene in a case where the TSX allowed a private placement of units of a real estate investment trust without unitholder approval. The application to review the TSX decision was brought by NorthWest Value Partners, which objected to, among other things, the placement proceeding without being put to a vote of unitholders. The placement represented approximately 49% of outstanding units of InterRent Real Estate Investment Trust.

The OSC noted that it was entitled to intervene in cases where (i) the TSX proceeded on an incorrect principle; (ii) the TSX erred in law; (iii) the TSX overlooked material evidence; and (iv) new and compelling evidence was presented to the OSC that was not presented to the TSX. It stated, however, that it would do so "only in the rare case" where an applicant met the "heavy burden of proving such intervention is justified" in accordance with the above principles or some other acceptable ground. In the immediate case, the OSC found that the TSX considered all the relevant information, assessed relevant considerations, followed the appropriate process and carefully articulated its reasons. As such, the application to review the decision was dismissed.

The OSC ruling was released on an expedited basis and full reasons are expected in the near future.

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In an open letter to TSX-listed companies released in July, RiskMetrics Group criticizes the slate ballot system for director elections and warns listed companies that beginning in 2010, "a vote recommendation to withhold from the entire slate of directors may be issued solely on the basis of the bundled election format." According to the letter, "[s]late ballots tend to insulate specific director nominees from focused shareholder action and work against director accountability." Further, RiskMetrics states that such elections "prevent institutional shareholders from effectively implementing corporate governance policies" through proxy votes.

While it does not appear from the letter that RiskMetrics has officially formalized a policy recommending that votes for slates be withheld as a general rule, it has made it clear that it is taking a definite step in that direction. The letter, thus, recommends that companies review their proxy for 2010 shareholder meetings and urges that they "present director election resolutions individually".

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The Ontario Securities Commission has approved amendments to TSX Rule 4-403 of the Toronto Stock Exchange Rule Book and Policies. The amendments, originally published for comment on March 27, 2009, update the order marking requirements of the rule and introduce a requirement for participating organizations to mark orders entered for the account of an issuer pursuant to a normal course issuer bid.  

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On June 23, OPTI Canada Inc., a Calgary-based oil company announced the filing of a preliminary short form prospectus in connection with a public offering of shares. While the TSX will "generally accept notice of distributions by way of prospectus", under Section 606 of the TSX Company Manual, the TSX may apply the provisions respecting private placements, such as requiring securityholder approval, if the offering price of the shares falls below a certain discount to the market price. In deciding whether to apply the private placement provisions, the TSX will consider factors such as: the method of distribution; the participation of insiders; the number of placees; the offering price; and the economic dilution.

On June 25, OPTI announced that the TSX had decided to exercise its discretion to apply the private placement rules as the offering price fell below the permissible discount. While OPTI believed it impractical to conduct a shareholders meeting, it was successful in going forward with the public offering subsequent to an increase in the offering price, coupled with a decrease in the market price of its shares.

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On June 5, the CSA announced that, commencing July 1, 2009 and continuing for a period of five years, TSX Inc. (TSX) will act as an information processor for exchange-traded securities other than options under NI 21-101 Marketplace Operation. As described by the CSA, an information processor "provides consolidated data to investors and market participants, facilitating compliance with regulatory requirements." The CSA also published a "Questions and Answers" supplement to their notice respecting the role of the TSX.

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On May 8, the TSX published a staff notice respecting the additional information required to be submitted in the case of changes and new appointments in directors, officers and trustees of listed issuers. The additional information now required on Form 3 - Change in Officers/Directors/Trustees includes a ten-year address history, citizenship and previously used names. According to the TSX, the additional information "will permit TSX to conduct a meaningful media review" on new appointees. The expanded Form 3 is expected to be available on May 15 and once operational, non-exempt issuers will no longer be required to file a Form 4 - Personal Information Form for new appointees. Form 4 will still be required, however, for original listings and on the TSX's request.

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The Toronto Stock Exchange (TSX) recently issued a staff notice providing listed issuers with guidance on submissions in connection with the use of the financial hardship exemption under subsection 604(e) of the TSX Company Manual.  Subsection 604(e) provides an exemption from securityholder approval for certain transactions and was adopted to provide listed issuers with the opportunity to improve their financial situation in a timely manner when in serious financial difficulty.

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On April 20, 2009, the TSX published a notice providing guidance on amendments to securityholder rights plans after a take-over bid has been announced or initiated. The notice reminds issuers that they must obtain written consent of the TSX prior to adopting amendments to a plan. In cases where a plan amendment is reasonably perceived to have been proposed in response to a take-over bid, the TSX will treat the amendment as a new plan and will normally defer its decision to consent until the relevant securities administrator has decided whether or not to intervene. If the regulator does not intervene, the TSX will generally not object subject to securityholder approval. The notice also reminds issuers that any plan filed for acceptance must be accompanied by a letter that states, among other things, whether the plan treats any existing securityholder differently from other securityholders. The notice reminds issuers that the TSX will require securityholder approval as set out in s. 636(b) of the TSX Company Manual notwithstanding such provisions. Any such provisions that purport to exclude votes of certain securityholders must be specifically identified in the issuer's application to the TSX for approval of the plan amendments.

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On April 3, 2009, the TSX released proposed amendments to its Company Manual with respect to requiring security holder approval "in those instances where the number of securities issued or issuable in payment of the purchase price for an acquisition exceeds ... 50% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, for an acquisition of a reporting issuer (or equivalent status) having 50 or more beneficial security holders, excluding insiders and employees."

The TSX is accepting comments on the amendments until May 4, 2009.

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On March 26, 2009, the TSX published a notice continuing temporary relief to listed issuers with respect to the Remedial Review Process. Originally granted on November 3, 2008 due to "extraordinary market conditions", the relief extends the maximum time period that an issuer has to remedy deficiencies that triggered a delisting review from 120 to 210 days. Unless further extended, the relief continues until September 30, 2009.

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The TSX announced today that it has adopted and the OSC has approved amendments to add Part X - Special Purpose Acquisition Corporations to the TSX Company Manual and make ancillary amendments to Parts I and III and to Appendix C Escrow Policy Statement.

As previously announced, the TSX decided to propose rules for the listing of SPACs, having observed the popularity of the use of SPACs in the United States. In the US, a growing number of issuers have gone public with the intention of later completing a qualifying acquisition by merging with or acquiring an operating company with the proceeds of such offering.

The TSX has also published Staff Notice 2008-007 to provide guidance on SPAC-related disclosure and administrative matters.

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The TSX Venture Exchange recently announced that given current market conditions, it will consider granting issuers temporary relief from certain policies on a case-by-case basis until March 31, 2009. Specifically, the Exchange may refrain from downgrading an issuer if it fails to meet continued listing requirements; capital pool companies may apply for an extension to complete a Qualifying Transaction; and issuers may be able to issue shares at a price of less than $0.05 per share under certain circumstances. The Exchange also announced that it would be making changes to a number of its policies in order to streamline them and to remove certain differences between Tier 1 and Tier 2 issuers. The latter changes are effective December 15, 2008.

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On November 24, 2008, the TSX published a staff notice to provide guidance on (i) the adoption by listed issuers of securityholder rights plans with triggering thresholds of less than 20% and (ii) special year-end distributions by trusts.

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Following its annual review of its Listing Fee Schedule, the TSX has made certain adjustments to its listing fees effective January 1, 2009. The fee review included a consideration of the difficult market environment currently facing many TSX-listed issuers and the need to be competitive with other major exchanges. 

The amendments to the Listing Fee Schedule include changes to:

• the base and maximum sustaining fees for corporate issuers (variable fee rates remain unchanged);
• the fees payable for corporate reorganisations, which includes income trust conversions; and
• the maximum fees payable for security-based compensation arrangements (minimum fees and the variable fee rates remain unchanged).

Original listing and additional listing fees (other than for security-based compensation arrangements) remain unchanged.

As the revised Listing Fee Schedule will be effective as of January 1, 2009, the new listing fees will apply to applications, transactions and notices filed on or after January 1, 2009.

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On November 3, 2008, the TSX issued Staff Notice 2008-0005 relating to the following provisions of the TSX Company Manual: Section 628, relating to normal course issuer bids (NCIBs), Section 707, relating to the Remedial Review Process, Part 1, relating to the definition of “market price” and Section 604, respecting securityholder approval requirements for issuers experiencing a financial hardship.

With respect to NCIBs, the Staff Notice grants temporary relief from the daily purchase restrictions to increase the amount that an issuer can purchase under an NCIB from 25% of the average daily trading volume to 50% of the average daily trading volume. Similar relief has also been granted to participating organizations from corresponding provisions of the TSX Trading Rules. The Staff Notice also provides temporary relief to issuers subject to a remedial review by extending the time period that an issuer has to remedy deficiencies that triggered a delisting review from 120 to 210 days. The temporary relief relating to NCIBs and remedial reviews will be effective from November 3, 2008 through to March 31, 2009.

The Staff Notice also clarifies that while the TSX Manual defines “market price” as the 5 day volume weighted average trading price of listed securities, it also provides that this 5 day period may be adjusted based on relevant factors if such price does not accurately reflect the current market price of securities. Given current market conditions, the Staff Notice clarifies that the TSX may be willing to use a shorter time period for making this calculation on a case-by-case basis for the purposes of pricing securities for private placements, including warrants.

Finally, the Staff Notice also reminds issuers that Section 604(e) of the TSX Manual provides an exemption from securityholder approval requirements for issuers experiencing serious financial hardship, which exemption may be more relevant to issuers under current market conditions.

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Today, the OSC extended its prohibition on short sales of certain TSX-listed financial companies that are interlisted in the U.S. or have outstanding securities that are interchangeable into shares of a financial company listed in the similar SEC Order. The prohibition expires on October 8, 2008, which corresponds to the expiration of the SEC Order, now that the "bailout" bill has been signed. The original Temporary Order, implemented September 19 and amended on September 22, was set to expire today.

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On October 1, the SEC announced that it is extending its Emergency Order of September 18 temporarily broadening the safe harbour from liability for issuers repurchasing securities. The extended Order will now terminate at 11:59 p.m. on October 17, 2008.

Update: The TSX has taken a similar course of action, extending its previous notice to October 17.

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Following the recent announcement by the U.S. SEC that issuers listed on a U.S. exchange would be temporarily exempt from certain share repurchase rules, the TSX has announced that it is taking similar action for interlisted issuers. Until (and including) October 2, 2008, for issuers that are listed on the TSX and also listed on a U.S. exchange, the time of purchase condition in s. 629(l)8 of the TSX Company Manual with respect to NCIB purchases at the opening and closing of a trading session is suspended and the volume of purchases condition in s. 628(a)(ix)(a) of the Manual is modified so that the amount of NCIB purchases must not exceed 100% of the ADTV for the security. Participating organizations acting on behalf of interlisted issuers will receive similar benefit. The SEC Order expires at the same time.

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On August 26, 2008, the OSC approved amendments to the TSX Rules. The amendments remove from the TSX Rules the fixed opening and closing times of the TSX's trading sessions and instead authorize the Board of Directors of TSX Inc. to determine the opening and closing times. Certain minor changes to the amendments were made following their publication for comment on September 7, 2007 and the amendments take effect on September 12, 2008.

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The purpose of this notice is to publish for comment a proposed new Part X to the Toronto Stock Exchange Manual (the Manual), which would result in the introduction of Part X -- Special Purpose Acquisition Corporations (referred to as "SPACs”) to the Manual.

The TSX has decided to propose rules for the listing of SPACs, having observed the popularity of the use of SPACs in the United States, with a growing number of issuers going public with the intention to later complete a qualifying acquisition by merging with or acquiring an operating company with the proceeds of such offering. While similar to reverse takeovers, the TSX notice observes that unlike reverse takeovers, SPACs generally offer: i) a clean public company shell; ii) more experienced management teams; iii) greater certainty of financing; and iv) a readily available retail and institutional securityholder base.

The TSX notice also observes that while SPACs bear some similarity to capital pool companies (CPCs) in that both involve the creation of publicly-traded shell companies that later acquire an operating business using the initial proceeds raised, the proposed SPAC rules differ from the CPC rules, particularly because SPACs are much larger than CPCs and, therefore, involve more stringent investor protections. The proposed SPAC rules take into account SPAC rules recently adopted by the New York Stock Exchange and currently proposed by NASDAQ, while also attempting to incorporate best commercial practices observed in the SPAC market in the United States.

As a result of the growing market acceptance of SPACs in the United States, and building on the CPC concept, the TSX is proposing Part X to provide a framework for the listing of SPACs on TSX. The proposed Part X of the TSX Manual sets out: i) the original listing requirements that must be met by the SPAC; ii) the continued listing requirements that a SPAC must meet prior to the completion of a qualifying acquisition; and iii) the process relating to the completion of a qualifying acquisition, or failing that, liquidation distribution of the SPAC.

Part X will be effective upon approval by the Ontario Securities Commission following public notice and comment and is open for comments until Monday, September 15, 2008.

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Amendments included as sections 628 and 629 of the TSX Company Manual and contain new filing and reporting forms

Ramandeep Grewal and Alex Colangelo

Effective June 1, 2007, changes to the TSX Company Manual amended the policies on Normal Course Issuer Bids (NCIB) and Debt Substantial Issuer Bids (DSIB). Meanwhile, proposed changes relating to the use of derivatives and accelerated buy backs in connection with NCIBs have been postponed due to the number of comments received by the TSX.

Summary of new NCIB Provisions

 The following is a summary of key points of the new provisions:

• The rolling 2% restriction on the repurchase of shares within any 30 day period has been eliminated for issuers that are not investment funds. The new limit is now the greater of 25% of the average daily trading volume (ADTV) and 1000 securities per trading day. This limit will only apply to purchases made through the TSX. The rolling 2% limit for investment funds remains.
   
• The ADTV is defined as the trading volume on the TSX for the most recently completed six calendar months preceding the date of acceptance of the notice of NCIB by the TSX, divided by the number of trading days for the relevant six months. The calculation excludes any purchases made by the listed issuer through the TSX under its NCIB during these preceding six months, and also excludes purchases made through the facilities of another exchange.
   
• The 12-month limit remains the same, and issuers are still entitled to repurchase the greater of 10% of the public float on the date of acceptance of the NCIB by the TSX or 5% of the class of securities issued and outstanding on the date of acceptance of the NCIB by the TSX, excluding securities held by or on behalf of the listed on the issuer on such date.
   
• The definition of “public float” now also excludes securities that are pooled, escrowed or non-transferable, in addition to those that are owned or over which control or direction is exercised by the issuer, a senior officer or director or a principal security holder of the issuer.
   
• A listed issuer may make one block purchase per calendar week that exceeds the daily repurchase restrictions, subject to the maximum annual aggregate limits. A “block” is defined as a quantity of securities that either (1) has a purchase price of $200,000 or more; (2) consists of at least 5,000 securities and has a purchase price of at least $50,000; or (3) consists of at least 20 board lots of the security and totals 150% or more of the ADTV for that security; and are not owned, directly or indirectly, by an insider of the listed issuer. Once the block purchase exception has been relied upon, the listed issuer may not make any further purchases under the NCIB for the remainder of that calendar day. 

Implementation and transition

The amendments were effective as of June 1, 2007. As of the effective date, all new notices of intention to make an NCIB or DSIB are required to follow the new rules and any issuer bids whose commencement date was prior to June 1, 2007, or for which TSX had accepted notice in writing prior to June 1, 2007 but had not yet commenced, were permitted to comply with either the old rules or the new rules.

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Ramandeep Grewal and Simon Romano

 

On October 12, 2007, the TSX issued a request for comments to determine whether it should revisit its practice of exempting listed issuers from the requirement to obtain security holder approval for share exchange acquisitions of other public entities. The request for comments includes a summary of some of the material considerations for or against such a proposal and a comparison to similar requirements in other jurisdictions.

The TSX Manual currently requires shareholder approval for acquisitions where the number of securities issued or issuable as consideration exceeds 25% of the issued and outstanding securities of a listed offeror. Prior to January 1, 2005, the TSX generally applied its historical practice of exempting listed issuers from this requirement for acquisitions of other public entities. Amendments that were effective on that date expressly added this exemption as Section 611(d) of the TSX Manual. In response to concerns raised by some market participants, the TSX has decided to review whether it is appropriate to continue to make this exemption available to its listed issuers.

The TSX's notice summarizes a number of policy and other considerations relevant to its review. Some of the considerations discussed by the TSX include:

• Whether such securityholder approval is in line with proper governance, given the potential for significant dilution, or whether such matters are better left to the directors to decide, in line with their fiduciary obligations;
• The fact that some type of securityholder approval requirement is imposed by other comparable exchanges;
• Whether the requirement might disadvantage offerors in a competitive bid situation or may disproportionately affect resource issuers or those with a smaller market capitalization; and
• The impact such a requirement may have on the structuring of M&A transactions.

In its notice, the TSX has also asked for comments on a number of specific issues, including whether imposition of an approval requirement might discourage acquisitions or make them more difficult to complete. As well, the TSX is interested in feedback on other unintended consequences of imposing such a requirement and whether an exemption should continue to apply to issuers with a smaller market capitalization. In the event that the security holder approval requirement is imposed, the TSX is also interested in views on whether approval should be required where insiders receive 10% or less of the securities issued as consideration, whether approval by a majority of the securityholders is appropriate, and what other factors might come into play to warrant continued exempt treatment for a transaction.  The TSX has also asked whether 25% dilution is an appropriate threshold (to trigger the approval requirement). In this regard the TSX notes that the threshold imposed by the Johannesburg, London and Hong Kong Stock Exchanges is 25% or higher, whereas the threshold imposed by NASDAQ, NYSE and AMEX is 20%.  Both the AIM and the Australian Stock Exchange impose no approval requirement or have exemptions similar to those made available by the TSX.

The proposal is open for comments until December 12, 2007. Based on the responses received to this request for comments the TSX will determine whether further action is required.  Any proposed rule changes will then be published for further comment and review. 

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