TSX issuers asked to review majority voting policies after spot-check finds flaws

Majority voting policies of Toronto Stock Exchange (TSX) listed issuers are under the spotlight following a TSX review of 200 randomly selected policies. In a Staff Notice published on March 9, 2017, the TSX pinpointed a number of issues that TSX considers are deficiencies in the reviewed policies, including:

  • The identification of factors as “exceptional circumstances” in a manner inconsistent with TSX’s stated policy objectives of majority voting;
  • A failure to require immediate director resignation and/or to establish a time frame within which resignation must be accepted; and
  • The inclusion of additional language that serves to circumvent the policy objectives of majority voting.

In response to these deficiencies, the Staff Notice outlines the TSX’s expectations as to how listed issuers are to comply with the majority voting requirement:

  • Issuers are expected to ensure that majority voting policies have the effect of requiring a director to tender his or her resignation immediately if he or she is not elected by a majority of votes cast.
  • Majority voting policies must state that the issuer’s board will accept the resignation within 90 days, absent exceptional circumstances (and only reference to “exceptional circumstances” is acceptable by the TSX).
  • “Exceptional circumstances” are not reoccurring events and do not include a director’s length of service, qualifications, attendance at meetings, experience or contributions to the issuer.
  • Where the TSX Company Manual requires that a director who has tendered his or her resignation abstain from participation in any meeting of the board where that resignation is considered, the director should not be in attendance at such meeting (except where necessary to satisfy quorum requirements).

As previously discussed, the TSX adopted amendments to the TSX Company Manual in 2014 that require TSX-listed issuers to adopt majority voting policies requiring that each director be elected by a majority of votes cast with respect to his or her election, other than at a contested meeting. The Staff Notice suggests that TSX-listed issuers assess their existing majority voting policies against the Company Manual requirements and rectify any non-compliance as soon as practicable and sufficiently in advance of their next shareholder meetings at which directors are to be elected.

For further information about the Staff Notice, please see TSX Staff Notice 2017-0001 (March 9, 2017).

TSX Company Manual amended to reflect decrease in use of physical share certificates

Amendments to the TSX Company Manual pertaining to the requirements for evidence of security ownership have been adopted by the TSX and approved by the OSC.  The amendments reflect the decrease in the use of physical share certificates in favour of electronic book-keeping.  The amendments, which are categorized as “housekeeping amendments” which do not require publication for comment, are made to Parts I, III, IV and VI and Appendix D of the TSX Company Manual, among other areas.

The most significant amendments are made to Appendix D to the TSX Company Manual which sets out the TSX’s requirements for issuers in respect of providing security holders with evidence of security ownership.  These amendments reflect the following additional forms of evidence of security ownership: certificated and uncertificated book-entry only services agreements with CDS; non-certificated inventory in which the listed securities are held by registered owners through a CDS approved transfer agent; and the direct registration system which allows listed securities to be held in electronic form with no physical security certificate.  A second key amendment was made to Section 347 of the TSX Company Manual which provides that a TSX listed issuer may appoint a transfer agent and registrar with a principal office in any of Vancouver, Calgary, Montreal or Halifax, in addition to Toronto.

For complete details on all of the amendments to the TSX Company Manual, please consult the TSX Notice of Housekeeping Rule Amendments (May 21, 2015).

TSX updates NCIB and dividend/distribution declaration forms

The Toronto Stock Exchange yesterday announced that it is adopting various housekeeping amendments to the TSX Company Manual in respect of Form 14A (monthly reporting for NCIBs for investment fund issuers), Form 14B (monthly reporting for NCIBs for non-investment fund issuers) and Form 5 (Dividend/Distribution Declaration).

According to the TSX, Forms 14A and 14B have not historically adequately addressed situations where listed issuers are interlisted on other markets, where purchases are made off exchange through private agreements and where purchases were made on the TSX under the block purchase exemption. As such, amendments to the forms will break out certain information into separate tables with the intention of enhancing the visibility of monthly trading activity and to ensure the required trading details are being reported. Amendments are also being implemented to make the forms more user friendly.

In respect of Form 5, the TSX is amending the notification requirement for the value of the distribution as a percentage of the value of the security from 10% to 25%. The change will harmonize the notification requirement with the general rule that the TSX will use due bills when the value of the distribution per listed security represents 25% or more of the value of the listed security on the declaration date.

While the amendments are effective today, the TSX will accept Forms 14A and 14B in the previous form until April 1.

TSX proposes additional listing exemptions for interlisted issuers

Jonah Mann - 

The Toronto Stock Exchange yesterday proposed amendments to its Company Manual that would adopt a broader deference model in respect of certain exchange requirements where an interlisted issuer is subject to the rules and regulation of another exchange or jurisdiction.

An "interlisted issuer" is an issuer listed on two or more exchanges or marketplaces. According to the TSX, as at November 30, 2014, there were 322 interlisted issuers on the TSX. Of these, 273 (82%) are Canadian-based issuers, while 59 (18%) are foreign incorporated. Currently, the TSX waives certain of its requirements applicable to a transaction where at least 75% of the issuer's trading volume and value over the six months preceding notification of the transaction occurs on another exchange and the other exchange is reviewing the transaction.

Under the proposed amendments, the scope of matters that could be deferred to the other exchange where the bulk of trading takes place would be expanded. Specifically, the proposed amendments would provide new exemptions in respect of, among other things, prospectus offerings, convertible securities and rights offerings. Certain qualifying interlisted issuers could also apply for exemptions from certain TSX corporate governance requirements. 

While expanding the range of matters that may be exempt, the TSX is also proposing to make the deference model available in respect to an enumerated list of “recognized” exchanges and to require the issuer to disclose via press release its reliance on the exemption. According to the TSX, such an expansion of the current exemptions would reduce the regulatory burden imposed on interlisted issuers. 

Comments are requested on the proposal in general as well as in response to specific questions such as the propriety of the proposed trading threshold (being less than 25% of trading occurring on all Canadian marketplaces in the year preceding the application) and the choice of recognized exchanges in respect of which the exemptions will apply. Comments on the proposed changes are being accepted until March 9, 2015.

Meanwhile, the TSX also published proposed amendments that would generally require security holder approval in cases where an issuer submitted an application to voluntarily delist from the TSX.

Security holder approval would not, however, be required where (i) an acceptable alternative market existed or would exist for the listed securities on or about the proposed delisting date; (ii) security holders had a near term liquidity event for which all material conditions had been satisfied and the likelihood of non-completion was remote; or (iii) the listed issuer was under delisting review for failure to comply with any of the delisting criteria in Part VII of the Manual and it was unlikely that the TSX would be satisfied that the deficiencies would be cured within the prescribed period.

According to the TSX, these amendments would protect security holders and preserve marketplace integrity. Comments on the proposed changes are being accepted until February 23, 2015.

UK Stamp Duty on the transfer of most AIM shares abolished

Jeffrey Keey and Kate DaSilva -

Stamp taxes on the purchase of most shares admitted to trading on “recognised growth markets” such as the London Stock Exchange’s AIM market have been abolished. UK Stamp duty and stamp duty reserve tax (SDRT) are normally chargeable at the rate of 0.5% of the purchase price of chargeable securities.

Finance Act 2014

The new stamp taxes exemption is set out in Clause 108 (Abolition of stamp duty and SDRT: securities on recognised growth markets) and Schedule 20 of the Finance Act 2014. The exemption took effect from 28 April 2014 and stamp taxes on the purchases of securities listed on “recognised growth markets”, which includes the London Stock Exchange’s AIM market, were abolished provided that those securities are not also listed on a “recognised stock exchange”.

Recognised Growth Market

To qualify as a “recognised growth market”, a market must be an HMRC “recognised stock exchange” and satisfy one of the following two requirements:

  1. A majority of companies traded on that market must have a respective market capitalisation below £170mn; or
  2. The market’s rules require that companies seeking admission demonstrate at least 20% compounded annual growth in revenue or employment over the 3 years prior to admission.

At present, five markets have been recognised by HMRC; AIM, ISDX and the "LSE High Growth Sector" in the UK, and the Dublin ESM and GXG Markets. HMRC will publish and maintain a list of recognised growth markets.

The LSE has released an exemption form to be certified by the issuer for Euroclear to enable settlement in CREST to occur without deducting stamp duty. Companies whose securities will no longer be eligible for the exemption are required to give at least 2 business days’ notice of the same in advance to Euroclear.

Dual Listed AIM Companies

The exemption will not be available in relation to securities which are also listed on a “recognised stock exchange”, a list of which is maintained by HMRC and includes many overseas stock exchanges such as the TSX and TSXV (Tiers 1 & 2). It is likely that most overseas companies on AIM will not benefit from this new exemption if they are dual listed. However, this will not disadvantage such companies where they are dual listed on a “recognised stock exchange” transactions in the depositary interests representing their shares (which are what is technically traded through CREST are already exempt from stamp taxes.

As a result, in practice only UK incorporated AIM companies who are dual listed on an overseas recognised stock exchange will remain within the scope of the stamp taxes.

TSX-V provides guidance regarding waivers of minimum pricing requirement

The TSX-V issued guidance yesterday regarding the specific circumstances in which the exchange will consider waiving the $0.05 minimum pricing requirement generally applicable to financings. According to the TSX-V, while the exchange is not generally amenable to waiving the requirement, it will consider waiver requests on a case-by-case basis, treating certain circumstances more favourably, such as rights offerings and pending share consolidations.

TSX adopts previously proposed amendments to director elections and majority voting

Kevin Smyth and Laura Levine

The TSX today announced that it has approved amendments to its Company Manual that will require that each director of a TSX listed issuer be elected by a majority of the votes cast with respect to his or her election other than at contested meetings (the Majority Voting Requirement).

The TSX defines a “contested meeting” as a meeting at which the number of directors nominated for election is greater than the number of seats available on the board. Pursuant to the amendments, issuers will be required to adopt a majority voting policy unless the issuer otherwise satisfies the Majority Voting Requirement in a manner acceptable to the TSX, such as through applicable statute or constating documents. The amendments build on amendments to the Company Manual announced in October 2012 that introduced among other things, an obligation to disclose whether an issuer had adopted a majority voting policy. As we previously discussed, as a result of these further amendments, security holders will now effectively be required to vote “for” or “against” each individual board nominee, rather than “for” or “withhold”.

As part of the amendments, the TSX will now require that an issuer’s majority voting policy provide that (i) a director immediately tender resignation to the board if he or she is not elected by at least a majority (50% + 1 vote) of the votes cast with regard to his or her election; (ii) the board determine whether to accept the resignation within 90 days of the shareholders’ meeting, which resignation should be accepted absent exceptional circumstances; (iii) the resignation become effective when accepted by the board; (iv) a director who tenders a resignation will not participate in board or committee meetings at which the resignation is considered; and (v) the issuer promptly issue a news release with the board’s decision including, in the case of a board not accepting the resignation, the reasoning behind such decision. If an issuer adopts a majority voting policy, the policy must be fully described on an annual basis in the issuer’s proxy materials in connection with a meeting at which directors are elected.

As previously required, following an uncontested shareholders’ meeting where directors are elected, an issuer must issue a press release disclosing the results of voting for the director election. However, in such circumstances, the TSX will now require issuers to disclose one of the following in their news release: (i) the percentages of votes received “for” and “withheld” for each director; (ii) the total votes cast by ballot with the number that each director received “for”; or (iii) the percentages and total number of votes received “for” each director. Furthermore, the amendments note that if no formal count has occurred that would meaningfully represent the level of support received by each director, for example where a vote is conducted by a show of hands, the TSX expects the disclosure in the post-meeting press release to, at a minimum, reflect the votes represented by proxy that would have been withheld from each nominee had a ballot been called, as a percentage of votes represented at the meeting.

Issuers that are majority controlled are exempt from the Majority Voting Requirement but are required to disclose such exemption annually in their proxy materials along with their reasons for non-adoption. Furthermore, majority controlled issuers with more than one class of securities may only rely on this exemption with respect to the class that is majority controlled.

The amendments will become effective for listed issuers on June 30, 2014 and issuers with fiscal years ending on or after June 30, 2014 are expected to comply with the amendments at their first annual meeting following such date. Unless exempted, all TSX listed issuers are expected to be in compliance with the amendments by June 30, 2015, after which point any issuers who have not complied will be considered in breach of the Company Manual.

Applicants for listing on the TSX following June 30, 2014 as well as those with a listing application in progress at such time will be expected to explain whether they are in compliance with the amendments, and if not, to describe their plan for compliance.

TSX-V extends relief related to private placement pricing

In mid-December, the Toronto Venture Exchange extended temporary relief from certain pricing requirements related to private placements. Under the relief, issuers conducting private placements may, under certain conditions, offer shares at a price below the regulated minimum of $0.05 per share, or convertible debentures below the regulated minimum of $0.10 per share.

In order to rely on the relief, an issuer must, among other things, demonstrate immediate or imminent financial hardship and that it does not have the time or resources necessary to complete a share consolidation prior to closing of the private placement, disseminate a news release providing an itemized breakdown of the use of proceeds and provide the TSX-V with a certificate in prescribed form, signed by the CEO or CFO attesting to the need for relief. At least 75% of the private placement must be subscribed for by parties that are not related to the issuer, and up to $50,000 of the gross proceeds raised in reliance on the relief may be used for general working capital purposes.

The relief, initially issued in August 2012 will expire on April 30, 2013.

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.

Further thoughts on TSX changes to director elections and majority voting

Andrew Bozzato and David Weinberger -

The Toronto Stock Exchange recently announced proposed amendments to the TSX Company Manual that would require all TSX-listed issuers to elect directors by majority vote (the “Proposed Amendments”). If the Proposed Amendments are adopted, security holders will effectively be required to vote “for” or “against” each individual board nominee, in contrast to the default plurality voting under Canadian corporate law whereby security holders voting by proxy either vote “for” or “withhold” when electing directors.

Under the Proposed Amendments, the TSX would require that all listed issuers adopt majority voting for uncontested director elections.1 This could be implemented by the board’s adoption of a majority voting policy, as opposed to formally amending an issuer’s constating documents. Where a majority voting policy is adopted, security holders voting by proxy would still vote “for” or “withhold” for each individual board nominee, as required by corporate law. However, “withhold” votes would be considered “against” votes and counted as part of the total votes cast. The type of majority voting policy described in the Proposed Amendments would require that (i) a director who received a majority of “withhold” votes tender his/her resignation immediately following the meeting, to be effective upon acceptance by the board; and (ii) the board consider whether to accept the resignation and disclose its decision within 90 days of the receipt of such resignation. Under the existing voting regime, even if a director receives a majority of “withhold” votes in an uncontested election, the director is still elected under corporate law for the ensuing term.

Why the Need to Mandate Majority Voting?

Shareholders of Canadian public companies who vote by proxy have no automatic right under corporate law to vote "against" individual directors nominated for election to the board. Instead, shareholders who vote by proxy have only two options: to vote “for” nominees or to effectively abstain from voting by withholding their vote. In practice, since most shareholders of Canadian public companies vote by proxy, directors are elected so long as any affirmative votes are received, regardless of the number of votes withheld. This has two implications: i) a minority of shareholders voting “for” director nominees has the power to elect those directors; and ii) even an overwhelming majority of votes withheld will not block the election.

Some Concerns with Majority Voting

Corporate laws allowing shareholders to vote proxies “for” or “withhold” were adopted largely to avoid complications arising from a failure to elect the requisite number of directors. Critics of majority voting proposals often cite, among other concerns, the minimum number of total director nominees or qualified members of certain board committees not being elected (putting the issuer offside corporate and securities laws), the added resources and time required to have subsequent shareholder meetings to elect new directors to replace those forced to resign, disruptions and a general destabilizing effect caused by a failure to re-elect key directors, difficulties in fulfilling the board’s mandate absent a full board, the negative impact on potential candidates, and potential increased influence by special-interest shareholders, who may be able to defeat a nominee in a situation where, due to low shareholder participation, withheld votes constitute a majority of the votes cast at a meeting but significantly less than a majority of the total outstanding shares.

Recognizing some of these concerns, the TSX is proposing that its listed issuers adopt a non-binding policy which would functionally allow directors to resign at a later time, giving the board adequate time to reconstitute and reorganize if necessary, without being offside corporate or securities laws or requirements. While it is open for an issuer to adopt a stricter policy that requires that the board accept the director’s resignation immediately without affording the board any discretion to determine whether the resignation should or should not be accepted, these are generally less common due to the lack of flexibility to address the types of complications discussed above. Regardless of the type of policy adopted, a director who receives a majority of “withhold” votes would still be elected as a matter of corporate law. The purpose of the majority voting policy is to ensure that only those directors who receive a majority of votes in their favour remain on the board, with the differences among majority voting policies determining if, how and when a defeated director is replaced. In the Canadian Coalition for Good Governance’s suggested form of majority voting policy, for example, boards choosing to accept the resignation of a director who received a majority of “withhold” votes generally have three options: i) leave the seat unfilled until the next annual meeting; ii) appoint a new director the board considers to “merit the confidence of the shareholders”; or iii) call a special meeting to elect a new director.

Practically, our experience has been that a majority of “withhold” votes is not a common occurrence among companies that have adopted voluntary majority voting policies. In fact, directors may opt to withdraw from the election process in advance of the meeting in order to avoid potential embarrassment or negative publicity if the preliminary proxy voting results indicate an unfavourable outcome. In cases where a majority of “withhold” votes has been received, the response by company boards varies. Often, director resignations pursuant to majority voting policies are not accepted or, if accepted, clear reasons as to why the board came to that decision are often not provided. Evidence from the U.S. suggests that defeated directors may often not resign, but will not have their names put forward for election the following year. In this respect, the TSX has asked for comments on whether it would be useful for the TSX to provide specific guidance stating that it expects that the board of directors will typically accept the resignation of a director that receives a majority of “withhold” votes, absent exceptional circumstances.


As shareholders of public entities and regulators continue to take a growing interest in matters of corporate governance, one issue of rising prominence is the process by which those in charge of governance, directors and officers, are elected or appointed. Shareholder participation in the election of directors has gained significant attention in recent years. Although this is a significant issue for Canadian shareholders, as evidenced by recent shareholder proposals and initiatives of institutional investors and shareholder interest groups, such as the Canadian Coalition for Good Governance, the Proposed Amendments represent the first time a Canadian regulator has undertaken any formal initiatives to address these issues. (It should be noted that the Ontario Securities Commission indicated in Staff Notice 54-701 Regulatory Developments Regarding Shareholder Democracy Issues, in January of 2011, that it was considering a number of related issues, including amending securities laws to require individual voting and majority voting for directors).

While the importance or relative impact of the concerns raised by critics of majority voting can be debated, they are not without merit and should be considered alongside the competing interest of providing shareholders with greater access to director elections. Despite the potential concerns, a number of TSX-listed issuers have already voluntarily adopted majority voting policies. The experience of these issuers is indicative of the fact that most, if not all, of these concerns appear manageable with a well-drafted majority voting policy that takes into account the specific circumstances of a particular issuer.

The Proposed Amendments are open for public comment until November 5, 2012. If adopted, they are not expected to be implemented before the 2014 proxy voting season. As we discussed in our post earlier this month, these amendments complement recent changes to the TSX Company Manual requiring annual director elections, individual voting (as opposed to slate voting) and requirements to disclose votes received for director elections and whether or not a majority voting policy has been adopted, which are scheduled to go into effect on December 31, 2012.

1While the Proposed Amendments do not define the term “uncontested”, it is generally understood to refer to a director election where the number of nominees for election is equal to the number of directors to be elected. Majority voting policies adopted by issuers can express this in different ways, including by having the policy apply only to elections where all of the nominees for election to the board are supported by the current board of directors and disclosed in the company’s management proxy circular.

TSX to clarify rules regarding appeals of listing decisions

The TSX last week published proposed amendments to its Company Manual and to the TSX Rules to clarify matters related to appeals of listing-related decisions, and to ensure consistency between the Manual and the Rules with respect to appeals.

Specifically, the proposed changes would (i) address the composition of appeal panels; (ii) codify the existing practice of requiring written requests for appeals and submissions; (iii) clarify that certain decisions may be delegated to listing managers; (iv) clarify the time frame for appeals; and (v) clarify the rules regarding suspension and termination of participating organizations.

Comments on the proposals are being accepted until November 12.

TSX adopts changes to director elections and majority voting

David Weinberger -

The TSX today published notice that it is adopting amendments to its Company Manual that would require issuers to (i) elect directors annually; (ii) elect directors individually; (iii) publicly disclose the votes received for the election of each director; (iv) disclose whether a majority voting policy has been adopted and if not, explain the practices for electing directors and the reason for not adopting a majority voting policy; and (v) disclose to the TSX if a director receives a majority of "withhold" votes in the case that the issuer does not have a majority voting policy.

An earlier version of the proposals was published for comment in September 2011 and, according to the TSX, a majority of commenters supported the changes. The final amendments, which have been approved by the OSC, will come into force on December 31, 2012. Security holder meetings that have already been set and for which proxy materials have already been approved will be unaffected by the amendments.

The TSX also published for comment further proposed amendments to its Company Manual that would require issuers listed on the TSX to have majority voting for director elections at uncontested meetings. Issuers would be able to comply with the requirement by adopting a majority voting policy. A typical majority voting policy would provide that, while security holders could generally still vote "for" or "withhold" for each board nominee, a director who receives a majority of "withhold" votes would be required to tender his/her resignation, and the board would generally accept that resignation.

According to the Canadian Coalition for Good Governance, 61% of the listed issuers in the S&P/TSX Composite Index have adopted majority voting. The comment period closes on November 5, and the TSX anticipates that the amendments would become effective, subject to OSC approval, as of December 31, 2013.

TSX proposes providing "post order" functionality to dark orders

The Toronto Stock Exchange yesterday proposed providing optional "post only" order functionality for dark orders on the TSX. Currently, the post only feature is only offered for visible orders. According to the TSX, the expanded feature will "encourage all potential liquidity providers to post price improved liquidity to the benefit of retail, institutional or dealer order flow."

TMX migrating to IIROC's STEP surveillance platform

Earlier this week, IIROC announced that it has reached an agreement with the TMX Group to employ its Surveillance Technology Enhancement Platform (STEP) to provide single-market monitoring services to the TSX and TSX-V. The platform, launched in 2010, provides IIROC with a comprehensive multi-market surveillance system. IIROC's agreement with the TMX Group is effective April 1, 2012.

Quebec's AMF intends to approve Maple transaction

Quebec's Autorité des marchés financiers (the AMF) announced last week that it intends to approve Maple Group's proposed acquisition of the TMX Group. As we discussed in an October 2011 post, the AMF requested comments on the proposed acquisition last year. According to the AMF, it is satisfied that the proposals and undertakings to be finalized with Maple will "maintain the integrity and efficiency of the financial markets" as well as the continuity of derivatives operations in Quebec.

The AMF's notice specifically sets out a number of undertakings that Maple will be required to provide, including ensuring the maintenance and development of Maple's derivatives trading and related products operations in Montreal. The AMF also intends to approve Maple's proposed acquisition of Alpha Trading Systems and CDS subject to certain conditions pertaining to corporate governance, barriers to access, fee structure and the fairness of the structure for market participants.

TSX adopts Due Bill initiative

The Toronto Stock Exchange announced today that it has adopted amendments to its Company Manual to introduce a Canadian Due Bill tracking system. As we discussed in an earlier post, the TSX proposed a Due Bill system, intended to "improve the accuracy and timeliness of the valuation reporting of client's (sic) holdings when securities undergo certain material corporate events", in December 2011. No changes were made to the proposed amendments, and the amendments have now been approved by the OSC.

TSX amends rules relating to market making

The OSC has announced that it has approved amendments to TSX rules and policies to repeal rules relating to "anti-scooping" and those setting out minimum capital and stabilization requirements for market makers. The amendments also allow market makers to fill booked odd-lot orders at the order's limit price rather than the prevailing bid and ask, and codify TSX requirements for the minimum guaranteed fill and odd lot facilities. As we discussed in a post last year, the amendments were first published for comment in September 2011. No changes were made to the proposed rule.

TSX proposes Due Bill tracking system

The Toronto Stock Exchange proposed amendments to its Company Manual today to implement a Due Bill tracking system for listed issuers. A Due Bill is defined by the proposal to mean "an instrument used to evidence the transfer of title to any dividend, distribution, interest, security or right to a listed security contracted for, or evidencing, the obligation of a seller to deliver such dividend, distribution, interest, security or right to a subsequent purchaser." Comments on the amendments, which must still be approved by the OSC, are being accepted until January 23, 2012.

TSX and TMX Select to implement Cancel on Disconnect functionality

As we discussed in October, TSX Inc. and TMX Select Inc. recently proposed the implementation of cancel on disconnect functionality that would provide the automatic cancellation of orders in the event of involuntary loss of connectivity between TMX and a client site. The TSX and TMX Select received no comment letters on their proposal and have now stated that they will publish a notice setting out the implementation date of the functionality.

TSX and TMX Select propose "Cancel on Disconnect" functionality

TSX Inc. and TMX Select Inc. published a notice today proposing the introduction of "Cancel on Disconnect" functionality that would provide the automated cancellation of orders in the event of involuntary loss of connectivity between TMX and a client site. According to the notice, the functionality would assist in mitigating the risks associated with having open orders during a loss of connectivity. Comments on the proposal are being accepted until November 14.

AMF requests comments on TMX acquisition

On October 7, the Autorité des marchés financiers (AMF) issued a notice of public consultation related to the application filed with the AMF on October 3 by Maple Group Inc. in connection with its proposed acquisition of TMX Group, and the subsequent proposed acquisitions of Alpha Trading Systems Limited Partnership, Alpha Trading Systems Inc. and the Canadian Depository for Securities Limited. The notice outlines the basis of Maple Group's application to the AMF, describes the proposed transactions, considers potential issues raised by the proposed transactions and requests comments on specific questions. Comments are being accepted until November 7. The AMF plans to hold public consultations in connection with the application at the end of November 2011.

OSC requests comment on TMX acquisition

The Ontario Securities Commission today issued a notice and request for comment related to the proposed acquisition by the Maple Group Inc. of TMX Group, Alpha Trading Systems Limited Partnership and Alpha Trading Systems Inc., the Canadian Depository for Securities Limited and, indirectly, CDS Clearing and Depository Services Inc. The OSC's notice summarizes the Maple Group's proposal, considers the potential issues raised and requests responses on specific questions. Comments are being accepted until November 7. The OSC also plans to hold policy hearings to consider the proposal in December 2011.

TSX codifies guidance for delisting after going private

In a blog post last week, we discussed the recent announcement by the TSX that it was consolidating its Personal Information Form and Declaration with those of the TSX-V. The announcement, however, also included information on a number of other changes to the TSX Company Manual intended to clarify existing definitions, improve the instructions for filers and reduce or eliminate common filing deficiencies. To that end, amendments to two particlar provisions may be of specific interest to issuers.

Section 627

The amendments introduced section 627(c) to the Manual in order to import guidance found in Staff Notice 2005-0002 to deal with the delisting of issuers that are subect to a going private transaction. The new section describes the procedure the TSX will follow in delisting an issuer and provides an example of factors that may be taken into account in the application of the procedure in the going private context, including with respect to interlisted securities.

Section 466

Section 466 of the Manual, which requires issuers to concurrently file a copy of all written securityholder correspondence with the TSX's Listed Issuer Services, has also been amended to remove the provision that permits concurrent filings through SEDAR. On this point, the TSX stated that since notices sent to holders of listed securities may contain time sensitive information, filing on SEDAR alone was insufficient. Issuers must now concurrently file correspondence by email. The TSX has, however, included an exception from the requirement for annual reports, financial statements and annual meeting materials. 

TSX seeks to strengthen market making system

Last week, the Toronto Stock Exchange announced that it had approved amendments to its rules to assist TSX market makers in light of the emergence of multiple marketplaces and an increasingly electronic trading environment.

Specifically, the proposed amendments, which still require the approval of regulators, would eliminate the rules relating to market maker capital requirements, stabilization and anti-scooping, and allow market makers to execute booked oddlots at their limit price. New requirements would also be introduced on the use of the Minimum Guaranteed Fill and oddlot facilities.

Ultimately, the proposed amendments are intended to support market making as a "viable business model" and continue to enhance liquidity on market makers' securities of responsibility. Comments on the amendments are being accepted until October 17, 2011.

TSX and TSX-V now using harmonized PIF and Declaration

On September 9, the Toronto Stock Exchange announced the adoption of amendments to its Company Manual to create a harmonized Personal Information Form and a harmonized Declaration to be used by it and the TSX Venture Exchange. Changes to the forms are not considered material, and consist of minor drafting changes. The amendments have been approved by the OSC and came into force on September 9.

The TSX will, however, continue to accept PIFs and Declarations in the previous form until December 31, 2011, provided that all of the required information, identification and notarization are included. After that date, the new forms will be required.

TSX proposes changes to majority voting and director elections

The Toronto Stock Exchange today published proposed amendments to section 461 of the TSX Company Manual regarding shareholders' meetings and proxy solicitation. Specifically, the proposed amendments would require issuers listed on the TSX to elect directors individually, hold annual elections for all directors, disclose annually whether they have adopted a majority voting policy and if not, explain why not, and advise the TSX if a director receives a majority of "withhold" votes.

As set out in the TSX notice, according to the Canadian Coalition for Good Governance, fifty-seven per cent of issuers in the S&P/TSX Composite Index have adopted majority voting policies, and Canada is one of the few major jurisdictions that still has plurality voting (which results in a director or slate being elected even if only one vote is cast "for" the director or slate, since securityholders are only entitled to vote for or withhold their votes).

The proposed amendments are open for comment until October 11, 2011.

TSX Company Manual changes introduce new listing category for oil & gas development stage listing requirements, make other amendments

As we discussed in February, the TSX proposed various changes to its Company Manual earlier this year. The TSX has now announced that it is adopting the proposals, with non-material revisions, and that the OSC has provided its approval.

Changes effective July 29 include the creation of a new subcategory of minimum listing requirements for oil & gas development stage companies. Requirements under this new category include having contingent resources of $500 million and a minimum market value of the issued securities to be listed of $200 million. Effective on the same date, the TSX removed the requirement that a rights offering be unconditional.

Effective August 29, meanwhile, amendments have been made to three sections of the Company Manual to require aggregation of transactions over a six-month period for the purposes of determining whether certain prescribed thresholds have been met. The new six-month aggregation applies for the purposes of calculating whether consideration to be received by insiders or other related parties exceeds 2% or 10% of the market capitalization under s. 501 (relating to transactions involving insiders or related parties which to do not involve the issuance of securities but materially affect control of the issuer), and the 10% limit for consideration received by insiders in connection with a private placement under s. 604 or securities issuable to insiders in connection with an acquisition under s. 611.  

Amendments have also been made to clarify that the 2% that applies to the exemption from securityholder approval for compensation arrangements that are used as employment inducements is to be calculated over a twelve month period.

TSX issues guidance regarding when effective decrease in conversion price of convertible securities will be considered new private placement

On August 8, the Toronto Stock Exchange issued guidance stating that it considers any arrangement or agreement that decreases the effective conversion price of a previously issued convertible security to be subject to section 610(c) of the TSX Company Manual. Thus, any such agreement, including inducement payments in cash or securities to convert the securities, will be required to be submitted to the TSX for approval and will be reviewed as a new private placement.

The TSX also reminded listed issuers of their responsibility under section 602 of the Company Manual to promptly notify it of any changes to the material terms of a transaction whether or not such an amendment includes a further issuance of securities. The TSX thus stated that it must be promptly notified in advance of any transaction that may have the effect of decreasing the effective conversion price of previously issued convertible securities.

For more information, see TSX Staff Notice 2011-0003.

TSX proposes prioritizing dark orders with minimum size conditions

Earlier this month, the TSX released proposed amendments to its Rules that would allow dark orders with a minimum size condition to have trading priority over dark orders without such a condition, as long as the dark orders were at the same price. Dark orders were launched on the TSX and TSX-V in March and the proposed amendments are intended to provide an incentive to encourage dark orders of a larger size. Comments on the proposed amendments are being accepted until August 8.

OSC considering mandatory business continuity testing

The OSC released a staff notice this week regarding business continuity planning and, specifically, the industry-wide test scheduled by IIROC for September 10, 2011. While the testing is voluntary, OSC staff

encourage all dealers, marketplaces and clearing agencies to participate in the September 2011 market-wide exercise organized by IIROC. Participation in this exercise may facilitate the discovery of any potential communication issues, points of failure between industry participants within and across different jurisdictions or other issues with services provided by third-party service providers.

Notably, the notice states that the OSC is also considering whether to make such testing mandatory "through rule proposals or additional requirements in the recognition orders of various entities." For more information, see OSC Staff Notice 11-764.

TSX proposes new listing category for resources companies; broader application of insider participation aggregation and tightening of 2% limit on compensation arrangements used as employment inducements

The Toronto Stock Exchange today released proposed changes to its Company Manual for public comment that would, among other things, create a new subcategory for oil and gas issuers in the development stage. Listing requirements under this subcategory would include contingent resources of $500 million and a minimum market value of the issued securities to be listed of $200 million.

The proposed changes to the Manual also include : (i) amendments intended to pre-empt avoidance of security holder approval requirements in the case of insider transactions regarding private placements; (ii) an exemption from security holder approval for employment inducements where the aggregate number of securities issued to officers under the exemption in the preceding year is no more than 2% of the outstanding securities; and (iii) removing the requirement that rights offerings must be unconditional.

Comments on the proposals are being accepted until March 7, 2011.

TMX publishes listing fee schedule for 2011

The TMX Group yesterday published its new TSX Listing Fee Schedule effective as of January 1, 2011. While original listing and sustaining fees remain unchanged, the minimum base fee for additional listings for corporate issuers is increasing by $3,000 across all capitalization levels. By way of example, this increase raises the minimum base fee for additional listings from $2,000 to $5,000.

TMX announces alternative trading system

The TMX Group announced yesterday that it intends to begin operating a new alternative trading system (ATS) in 2011. The new platform, known as TMX Select, is expected to feature expanded trading hours, continuous trading of board lots only and strict price-time priority for visible orders. According to today's Globe and Mail, the TMX Group expects that the new ATS will attract orders from competing platforms, which reportedly now handle an estimated 30 to 35 per cent of trading volume in Canada.

TMX Group issues paper on meeting G-20 OTC objectives

The TMX Group Inc. issued a paper today providing its unique perspective on issues deriving from the financial crisis and discussing how the core competencies of a combined regulated exchange and clearing house are designed to meet G-20 objectives respecting improving over-the-counter (OTC) derivatives markets. The TMX Group has obviously given considerable thought on how Canada should respond to prevent similar crises from recurring, in particular with respect to the operation of less-regulated OTC derivatives markets.

Specifically, TMX Group discussed how its core competencies respecting trading, clearing, data warehousing and regulatory services can be mapped onto G-20 requirements, which include strengthening prudential oversight, improving risk management, increasing transparency, promoting market integrity, protecting against market abuse, mitigating systemic risk and reinforcing international cooperation. TMX Group also stated that its core competencies achieve the business requirements of market participants. As such, the paper recommended that Canadian regulators utilize domestic facilities with international linkages to provide the regulatory oversight of OTC derivatives markets.

FAIR Canada releases report on TSX profit/regulation conflict

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.

OSC revises notice regarding exchange and ATS transparency

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.

TSX adopts amendments to Manual regarding security holder approval for acquisitions

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.

TMX outlines objection to US-style short sale regulation

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."

OSC approves TSX rule amendments to eliminate calculated closing price feature

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.

New OPP procedures may affect TSX Form 4 filings

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.

TSX provides guidance on acceptable anti-dilution provisions for convertible securities, adding a cashless exercise feature to security compensation arrangements and compliance with NCIB price restrictions

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.


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.

TSX publishes proposals regarding security holder approval requirements and exemptions for investment fund acquisitions

 PDF Version

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.

OSC publishes staff notice regarding the transparency of stock exchange and ATS operations

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.

TSX to continue enforcing listing requirements

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.

TSX to require shareholder approval of public company acquisitions effective November 24, 2009

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.

TSX Manual amended to require shareholder approval for changes to security-based compensation arrangements

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.

TSX announces end of temporary relief for listed issuers

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.

OSC declines application to overturn TSX decision allowing private placement without unitholder approval

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.

RiskMetrics publishes open letter to TSX companies regarding director elections

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".

OSC Approves Amendments updating TSX Order Designation Rules

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.  

TSX exercises discretion in application of private placement rules

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.

TSX Inc. to act as an information processor for exchange-traded securities other than options

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.

TSX publishes notice regarding information required for changes in directors, officers and trustees

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.

TSX provides guidance on financial hardship exemption submissions

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.

TSX publishes guidance on amendments to securityholder rights plans after take-over bid

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.

TSX publishes proposed changes to Company Manual respecting security holder approval for acquisitions

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.

TSX extends temporary relief with respect to remedial review process

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.

TSX adopts Part X - Special Purpose Acquisition Corporations of the TSX Company Manual

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.

TSX Venture announces temporary relief for issuers

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.

TSX provides guidance on securityholder rights plans and special year-end distributions by trusts

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.

TSX announced amendments to Listing Fee Schedule effective January 1, 2009

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.

TSX issues notice of temporary relief relating to NCIB purchases and issues reminder of other TSX rules

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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.

OSC extends short selling Temporary Order

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.

SEC extends share repurchase Order

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.

TSX notice on NCIB rules

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.

Amendments to TSX Opening and Closing Times

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.

Request for Comment for Public Interest Amendments to the TSX Company Manual

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.

TSX adopts amendments to NCIBs and rules relating to DSIB policies

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.

TSX revisits exemption from securityholder approval for share exchange acquisitions of public entities

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.