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Notice 2021-005 - Request for Comments - Proposed Policy Amendments

December 9, 2021

PDF icon CSE Notice 2021-005 - Request for Comments - Proposed Policy Amendments

CNSX Markets Inc. (“CSE” or the “Exchange”) is publishing, in accordance with the schedules to its recognition orders, as amended (the “Protocol”), proposed amendments (“Amendments”) to its policies and related forms for listed issuers (“Policies” and “Forms”). The proposed amendments are comprehensive, including significant changes subject to public comment and extensive housekeeping and consequential revisions.  The public comment period will be 60 days.

In addition to general comments on the Amendments the Exchange is seeking specific comments on a number of the proposed significant changes, as well as other matters for which changes have not been proposed but are under consideration for future implementation.  Please see Comments section for details.

Description of the Public Interest Rule

These Amendments will introduce qualifications and requirements and financial reporting obligations that reflect requirements for non-venture issuers. The designation as “NV Issuer” and requirements would apply to Listed Issuers (Venture Issuers as defined in National Instrument 51-102 Continuous Disclosure Requirements) as if those issuers were listed on the Toronto Stock Exchange or NEO Exchange (i.e., a “non-venture” exchange).  While it is the intention of the CSE to seek amendments to the relevant instruments to exclude these issuers from the definition of “venture issuer”, the Exchange requirements would apply to designated issuers upon implementation.  These requirements would be imposed over and above those set out in applicable securities law.

The Policies and CSE’s Recognition Orders[1] permit listing of securities of reporting issuers in Canada. The Amendments include the introduction of requirements and provisions for listing Special Purpose Acquisition Corporations (“SPAC”), and Exchange Traded Funds including Closed End Funds.

The Amendments also introduce additional corporate governance requirements for listed issuers, including security holder approval requirements.  These additional requirements are consistent with requirements of other Canadian exchanges for venture issuers and non-venture issuers.

The significant changes include:

1)       Listing qualifications and specific reporting requirements for “NV Issuers”

2)       Listing criteria and requirements for closed end funds and exchange traded funds

3)       Listing criteria and requirements for Special Purpose Acquisition Corporations

4)       Explicit requirements for restricted securities and Take-over Bid Protections

5)       New requirement for securityholder approvals of certain transactions or developments

6)       Exchange Reviews of certain transactions

7)       New requirements for Normal Course Issuer Bids (“NCIB”)

8)       Filing requirements for Shareholder Rights Plans

9)       Shareholder approval and policy requirements for Security Based Compensation plans

Background

Launched as a quotation and trade reporting system in 2003, CSE was recognized as an Exchange in 2004.  Comprehensive amendments to the CSE listing policies (“Policies”) were completed in 2008, and additional significant changes have been made in recent years to introduce new requirements for listed issuers.  The CSE model for regulation has historically been based primarily on public disclosure by the listed issuers, rather than “review and approval” by the Exchange.   The model has been referred to a “reliance model” and incorporates applicable corporate and securities law by reference into the Policies; the Policies are intended to provide specific listing requirement that supplement the legal obligations for public companies that are set out under applicable securities and corporate law.

CSE has listed almost 800 companies since launching, and there has been a significant increase in the listing of more established businesses over the past several years.  It has become evident that certain regulatory principles and guidance would be more effectively applied at the exchange level.  Some of these additional requirements are applicable to more established issuers which could be distinguished from the entrepreneurial enterprises for which the CSE model was originally intended. 

IIROC’s requirements regarding margin eligibility (Rule 100.2(f)) require that “Positions in securities “listed on markets or market tiers with initial or ongoing financial listing requirements that do not include adequate minimum pre-tax profit, net tangible asset and working capital requirements, as determined by the Corporation [IIROC] from time to time, may not be carried on margin”.  The criteria for the proposed NV Issuer tier are intended to be similar to the “senior” or non-venture exchanges in Canada and the Exchange anticipates that IIROC will confirm margin eligibility for CSE listed securities with the NV designation. 

Housekeeping Rule Amendments

Extensive typographical, formatting, renumbering and other non-material changes support the significant changes and provide consistency and simplification throughout.

New Forms

Several new forms have been introduced to support new requirements.

Details of the Changes

The amendments are described in order in which they appear in the existing policies with descriptions intended to provide context for both housekeeping and significant changes. 

Comparison of Proposed Significant Changes:  All CSE Listed Issuers vs. NV Issuers

 


[1] OSC CSE Recognition Order varied and restated on August 31, 2020; and BCSC CSE Recognition order dated April 25th 2019.

 

POLICY 1 - INTERPRETATION AND GENERAL PROVISIONS

No Significant changes to Policy 1

POLICY 2 - QUALIFICATIONS FOR LISTING

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Eligibility Review – Issuers applying for listing concurrently with or immediately following the filing of a prospectus must first confirm listing eligibility with the Exchange

 

Applies to all applicants

 

Treasury Orders – Every Listed Issuer must require that its transfer agent provide to the Exchange, a copy of each treasury order.

 

Applies to all applicants

APPENDIX 2A – EQUITY SECURITIES

Pursuit of Objectives and Milestones

Applies to all applicants

Initial Listing Requirements

No change to existing qualifications

 

Proposed additional criteria are included in chart “Key Initial Listing Criteria”.

 

NOTE: The Exchange is seeking specific comment on certain existing initial requirements and the proposed requirements for NV Issuers.  Please see “Comments” for details.

 

Restricted Securities

Applies to all applicants, however the Exchange will generally object to the distribution of Superior Voting Securities of a Listed Issuer that is not an NV Issuer

Applies to all applicants

Introduction of Closed end Funds & ETFs

N/A

Proposed float and reporting requirements, issuers will be designated as NV Issuers.

Continued Listing Requirements

No change to existing requirements

Proposed additional requirements for NV issuers.

APPENDIX 2B: DEBT SECURITIES

There are no significant changes to Appendix 2B

NEW APPENDIX 2C: SPECIAL PURPOSE ACQUISITION CORPORATIONS

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

SPAC requirements are intended to be in all material aspects the same as existing requirements on other Canadian exchanges

N/A –

SPAC Issuers will be designated as NV Issuers.

POLICY 3 – SUSPENSIONS AND INACTIVE ISSUERS

There are no significant changes to Policy 3

POLICY 4 - CORPORATE GOVERNANCE AND MISCELLANEOUS PROVISIONS

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Securityholder Approvals

 

 

Issuance of Securities

Approval required for greater that 50% with a new control position, or issuance of 100%.

Approval required for greater than 25%.

Acquisitions

Approval required if the number of securities to be issued is greater than 50% of outstanding accompanied by the creation of a new Control Person, or 100% of the outstanding.

Approval required if the number of securities to be issued is greater than 25% of outstanding or if related person has 10% or greater interest in assets and securities to be issued are greater than 5% of outstanding.

Dispositions

Security holders must approve a disposition that is more than 50% of the assets, business or undertaking of the Listed issuer

Approval Required

Approval Required

 

NOTE: The Exchange is seeking specific comments on the thresholds for Exchange or security-holder approval for share issuances, acquisitions, and dispositions.  Please see “Comments” for details.

 

Shareholder Rights Plans

Approval Required

Approval Required

Rights Offering

approval is required where securities offered by way of rights offering are offered at a price greater than the Maximum Permitted Discount to the market price

Approval Required

Approval Required

Security based compensation plans

Approval Required

Approval Required

Consolidations

Approval required for ratio greater than 1 new for 10 old.

Approval Required

Approval Required

Majority Voting Requirement for election of directors

N/A

Required

POLICY 5 - TIMELY DISCLOSURE, TRADING HALTS AND POSTING REQUIREMENTS

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Annual Form 2A Listing Statement

Option of posting proposed CSE Form 5A Annual Listing Summary or Form 51-102 F2 Annual Information Form

Must file Form 51-102 F2 Annual Information Form

Form 7 Monthly Progress Report

No change to requirement

Form 7 not required

Deadlines for filing Quarterly Listing Statement and Annual Listing Summary or AIF

No changes to requirements

Quarterly Listing Statement and unaudited interim financial statements and MD&A required no later than 45 days from the last day of the relevant quarter.

AIF to be filed no later than 90 days from the NV Issuer’s financial year end.

POLICY 6 – DISTRIBUTIONS AND CORPORATE FINANCE

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Advance (5-day) public notice of financing or acquisition

Applies to all Listed Issuers

Applies to all Listed Issuers

Requirements for financings below 5 cents (consistent with current practice, will require Exchange approval rather than exemption)

Applies to all Listed Issuers

Applies to all Listed Issuers

Control Block Distributions

Additional guidance and specific filing requirements that are consistent with other exchanges

Applies to all Listed Issuers

Applies to all Listed Issuers

Shareholder Rights Plans introduces specific filing and Posting requirements, including public disclosure, shareholder approval and certain restrictions, similar to existing requirements of other exchanges

Applies to all Listed Issuers

Applies to all Listed Issuers

Takeover Bids and Issuer Bids introduces guidance, filing and disclosure requirements intended to align with securities law and the existing requirements on other exchanges

Applies to all Listed Issuers

Applies to all Listed Issuers

Normal Course Issuer Bids includes reporting requirements and specific trading restrictions and allowances that are consistent with other exchanges.

Applies to all Listed Issuers, block exemption not available.

Applies to all Listed Issuers

Exchange Traded Fund Unit Creation and Redemption requires an ETF to file a Notice of Creation or Redemption, within 10 days of the end of each month or more frequently in a format acceptable to the Exchange

Not applicable, issuers will be designated as NV Issuers

Applies to ETF issuers.

POLICY 7 – (renamed) INVESTOR RELATIONS, PROMOTIONAL ACTIVITY, AND OTHER SIGNIFICANT TRANSACTIONS

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Compensation – to be paid in cash rather than shares.  Options permitted if permitted by law, up to 2%.

Applies to all Listed Issuers

Applies to all Listed Issuers

Disclosure Requirements - Specific disclosure requirements have been added to emphasize existing CSE Form and Timely Disclosure requirements

Applies to all Listed Issuers

Applies to all Listed Issuers

POLICY 8 – FUNDAMENTAL CHANGES AND CHANGES OF BUSINESS

There are no significant changes to Policy 8

POLICY 9 – (renamed) CORPORATE ACTIONS

There are no significant changes to Policy 9

POLICY 10 – SPECIALIST SECURITIES

Proposed Significant Changes

Description of Change Applicable to Existing CSE Issuers

Description of Change Applicable to NV Issuers

 

Section 1 is amended to “where the securities to be listed are held out as being in compliance with specific, non-exchange mandated requirements, the Listed Issuer must disclose how compliance has been established and, if germane to the compliance determination, who has established that the securities are in compliance with the stated requirements.  The Exchange proposes to repeal the remining sections.

Applies to all Listed Issuers

Applies to all Listed Issuers

 

Complete details including the following appendices are in the attached Notice.

Appendix A – Details of the Housekeeping Changes

Appendix B – Blacklined Text of the Policies

Appendix C – Proposed Policies

Appendix D – Proposed New Forms

PDF icon CSE Notice 2021-005 - Request for Comments - Proposed Policy Amendments

 

Comments should be in writing and submitted no later than February 7, 2022 to:

Mark Faulkner

Vice President, Listings and Regulation

CNSX Markets Inc.

100 King Street West, Suite 7210,

Toronto, ON, M5X 1E1

Fax: 416.572.4160

Email: Mark.Faulkner@thecse.com

A copy of the comments should be provided to:

Market Regulation Branch

Ontario Securities Commission

20 Queen Street West, 22nd Floor

Toronto, ON, M5H 3S8

Fax: 416.595.8940

Email: marketregulation@osc.gov.on.ca

Larissa M. Streu

Senior Legal Counsel, Corporate Finance

British Columbia Securities Commission

701 West Georgia Street

P.O. Box 10142, Pacific Centre

Vancouver, BC, V7Y 1L2

Email: lstreu@bcsc.bc.ca

Questions

Questions about this Notice or CSE Policy may be directed to Listings@thecse.com or:

Mark Faulkner

Vice President, Listings and Regulation

CNSX Markets Inc.

100 King Street West, Suite 7210, Toronto, ON, M5X 1E1

Email: Mark.Faulkner@thecse.com

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