TSX Calls for Comments on Proposed Amendments to the Pricing Rules for Prospectus Offerings

On December 1, 2022, the Toronto Stock Exchange (TSX) released its request for comments regarding proposed amendments to Section 606 – Prospectus Offerings of the TSX Company Manual (Proposed Amendments). The Proposed Amendments provide for refinements in the factors the TSX considers in determining whether to accept notice of a prospectus offering. They are expected to take effect in the first quarter of 2023, following public notice and comment and approval by the Ontario Securities Commission (OSC).

BACKGROUND

Section 606 of the TSX Company Manual sets out the rules for issuers that propose to distribute securities by way of a prospectus offering. These rules include the factors that the TSX uses to determine whether an offering is in fact a bona fide public offering, or whether the offering should instead be subject to review under Section 607 – Private Placements of the TSX Company Manual (Private Placement Rules). The TSX Company Manual does not, however, detail the role or relative importance of each factor in the TSX’s determination of whether a prospectus offering is a bona fide offering.
 
After consulting with various market participants, the TSX is considering the Proposed Amendments to reduce the burden that issuers and their agents face when raising capital via a prospectus offering by bringing clarity, predictability and greater transparency to its policies.

THE PROPOSED AMENDMENTS

The Proposed Amendments set out the following factors that the TSX intends to consider in determining whether a prospectus offering is a bona fide public offering:

(i) Broadly Marketed

The public offering must be “Broadly Marketed,” which the TSX proposes to define as an offering where the agent or underwriter either: (i) distributes the offered securities to at least 50 purchasers; or (ii) makes the offer known to the selling group and/or equity capital markets desks at all Canadian investment dealers. If a prospectus offering is not Broadly Marketed, the TSX will review the offering under the Private Placement Rules, regardless of insider participation. 

(ii) Offering Price

The TSX is generally of the view that deference should be given to an issuer's board of directors in fulfilling their fiduciary responsibilities when determining the price of securities to be distributed pursuant to a prospectus offering. As such, assuming that a prospectus offering is Broadly Marketed and there is no insider participation, the TSX will generally accept the offering price of the securities offered by way of prospectus, regardless of the discount amount.
 
Furthermore, the TSX proposes to use the closing price of the most recently completed trading session of the issuer’s listed securities as the reference price when analyzing discounts on prospectus offerings.

(iii) Insider Participation

Under the Proposed Amendments, if insiders of an issuer are participating in a prospectus offering, the TSX will review the offering as follows:

• If the offering is Broadly Marketed and is priced at less than, or equal to, a 15% discount to the closing price, the TSX will accept insider participation in the offering such that, as a maximum, insiders of the issuer may maintain their pro rata interest in the issuer. Any insider participation beyond pro rata will be reviewed under the Private Placement Rules. This resembles the TSX’s approach to insider participation in a prospectus offering that is priced when there is material undisclosed information, as outlined in TSX Staff Notice 2016-0006.

• If the offering price exceeds a 15% discount to the closing price, the TSX will review all insider participation in the offering under the Private Placement Rules, which may require shareholder approval of the offering. (The TSX will require security holder approval for private placements that result in more than 10% of the issued and outstanding shares of an issuer (on a non-diluted basis) being issued to insiders in a six-month period.) For example, if an issuer’s listed securities had a closing price of $1.00 and the proposed offering price was $0.80 (representing a discount of 20%), all insider participation would be reviewed under the Private Placement Rules.

CALL FOR COMMENTS

The TSX is soliciting public comments on the Proposed Amendments and has included a series of questions for respondents in its release of the Proposed Amendments available here.
 
Owing to the holiday season, the deadline to submit comments is extended from the traditional 30-day period to 60 days. Comments should be delivered in writing to the legal counsel of the TSX, and a copy provided to Market Regulation at the OSC, by January 31, 2023. All comments will be made publicly available unless confidentiality is requested.
 
If you have any comments or wish to discuss the Proposed Amendments, please contact:

Jeff Bakker                     +1-403-260-9682
Michael Hickey              +1-416-863-4318
Kathleen Keilty              +1-604-631-3318
Howard Levine              +1-514-982-4005
 
or any other member of our Capital Markets group.