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In brief

On 3 April 2023, significant amendments to the Canadian Securities Exchange (CSE) listing policies (“Amendments“) came into force. (The amended and restated CSE Policies 1-10 may be found here.) Notably, the Amendments are comprehensive in that they revise each of the CSE’s ten policies and create greater consistency between the policies of the CSE and other Canadian stock exchanges such as the Toronto Stock Exchange and the TSX Venture Exchange.

The Amendments introduce, among other things: an eligibility review process for all listing applications; increased public float requirements; a senior tier for senior issuers (“NV Issuers“); requirements for listing special purpose acquisition corporations and exchange traded funds; and additional corporate governance and securityholder approval requirements for all CSE listed issuers. This Alert highlights briefly the new senior listing tier created by the Amendments and comments on the broader implications of these revisions to the CSE policies.


In depth

“NV Issuers” – A new senior listing tier (Policy 2)

This senior listing tier is designed to accommodate larger issuers and imposes more stringent reporting standards, including shorter deadlines for compliance. Under revised CSE Policy 2, NV Issuers must meet, in addition to the CSE’s standard listing requirements, one of the following four standards:

1. Equity Standard: (i) shareholders’ equity of at least CAD 5,000,000, and (ii) expected market value of public float of at least CAD 10,000,000

2. Net Income Standard: (i) net income of at least CAD 400,000 from continuing operations in the most recent fiscal year or in two of three of the most recent fiscal years, (ii) shareholders’ equity of at least CAD 2,500,000, and (iii) expected market value of public float of at least CAD 5,000,000

3. Market Value Standard: (i) market value of all securities, including the class(es) to be listed, but excluding warrants and options, of at least CAD 50,000,000; (ii) shareholders’ equity of at least CAD 2,500,000 including the value of any offering concurrent with listing; and (iii) expected market value of public float of at least CAD 10,000,000 

4. Assets and Revenue Standard: (i) total assets and total revenues of at least CAD 50,000,000 each in the most recent fiscal year or in two of three of the most recent fiscal years; and (ii) expected market value of public float of at least CAD 5,000,000.

NV Issuers are also required to have: (i) a public float of at least 1,000,000 freely tradeable securities and (ii) at least 300 public holders (instead of 150 public holders, for other issuers of equity securities), each holding at least a board lot, with the public float being at least 20% of the total issued and outstanding of that security. NV Issuers may not sell securities in an initial public offering for less than CAD 2.00 per share or unit (instead of CAD 0.10 per share or unit for other CSE listed issuers). NV Issuers with equity securities must also annually meet other criteria: (a) 500,000 shares in the public float with a value of CAD 2,000,000 and (b) subject to certain exceptions, net income from continuing operations of CAD 100,000 or market value of listed securities of at least CAD 3,000,000. NV issuers are subject to enhanced securityholder approval requirements, such as for certain securities offerings and acquisitions involving an issuance of securities.

Although NV Issuers are still considered “venture issuers” under Canadian securities laws, the Amendments effectively impose on NV Issuers certain reduced timing deadlines and documents applicable to non-venture issuers under Canadian securities laws. For example, NV Issuers must post (in electronic format to the CSE website) their quarterly listing statement concurrently with interim financial statements within 45 days of the quarter end and an annual information from within 90 days of year end.

Implications 

When considering the implications of the new NV Issuer tier, it is important to note: (i) the CSE’s original utility as an exchange for micro/small/mid-cap companies, (ii) the (generally) reduced regulation to which venture issuers are subject (compared to their non-venture issuer counterparts), and (iii) the regulatory gap that previously existed under the CSE’s policies which allowed certain senior companies to list on the CSE (instead of Canada’s other exchanges) and thus, benefit from reduced reporting and other regulatory standards. Against this backdrop, the revisions to CSE Policy two are likely intended to eliminate the potential for regulatory arbitrage by subjecting senior listed issuers to standards similar to those that would be applicable if they were listed on other exchanges. 

While it is impractical within this Alert to consider the entirety of the Amendments, we anticipate that the greater consistency in capital markets regulation for issuers will also benefit investors. For more information regarding the Amendments, please contact us.

Special thanks to Amalan Thiageswaran for his contributions to this article.

Author

David Palumbo is a partner and head of the Corporate and Securities Practice Group in Baker McKenzie's Toronto office. David is Chair of the Toronto Diversity and Inclusion Committee and a member of the North American Capital Markets Steering Committee. He serves as Vice-Chair of the Executive Board of the You Can Play Project, a non-profit organization dedicated to ensuring the inclusion of all in sports, and co-chair of the Toronto legal community's largest annual fundraiser, AIDSbeat, in support of the Canadian Foundation for AIDS Research (CANFAR).

Author

Grace Kim-Cho is a member of the North America Corporate and Securities Group. Ms. Kim-Cho’s experience encompasses various public and private capital market transactions including public financings, private placements, corporate acquisitions and reorganizations on behalf of Canadian and international issuers and securities dealers.

Author

Haran Viswanathan is a partner in the Corporate Transactions Practice Group in Baker McKenzie’s Toronto office. Haran is a member of the Student Recruitment Committee for the Toronto office and an active participant in the Firm’s Pro Bono initiative.

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