On March 30, 2023 the Ontario Securities Commission and British Columbia Securities Commission published notices of approval for significant changes made by CNSX Markets Inc. (the “CSE“), to their listing policies and forms (collectively, the “Amendments“). The Amendments became effective on April 3, 2023. The Amendments introduce similar standards for listed companies as those required by the Toronto Stock Exchange (“TSX“), TSX Venture Exchange (“TSXV“) and NEO Exchange Inc. (“NEO“).
KEY CHANGES TO THE CSE POLICIES AND PROCEDURES
CSE Policy 2 — Qualification for Listing
Eligibility for Listing
An issuer intending to apply for listing on the CSE following the filing of a prospectus or by way of the filing of a CSE Form 2A — Listing Statement must first obtain confirmation from the CSE that the eligibility requirements set out in CSE Policy 2 have been met. Once the CSE has completed its review, it will provide confirmation of eligibility or identify any conditions to be met prior to listing, as well as providing confirmation to the securities commission staff that the issuer has in fact applied to and received comments from the CSE.
Float and Distribution
An issuer of equity securities must have a public float of at least 1,000,000 freely tradeable shares and consisting of at least 150 public holders holding at least a board lot each of the security. The public float must constitute at least 20% of the total issued and outstanding of that security. As for the Non-Venture Tier issuers, it must have: (i) a public float of at least 1,000,000 freely tradeable securities and (ii) at least 300 public holders each holding at least a board lot. The public float must constitute at least 20% of the total issued and outstanding of that security. It should be noted that the 20% public float threshold has been deleted from the substantial float criteria.
Non-Venture Tier
The Amendments created a new class of CSE-listed issuer, aimed at larger listed issuers, designated as non-venture issuers (the “Non Venture Tier“). The qualifying criteria for this distinct tier are intended to be similar to those of the TSX and NEO. Non Venture Tier issuers are required to file an Annual Information Form (where other CSE-listed issuer are not) and shorter deadlines for the filing of financial statements.
The distinction between venture and non-venture issuers under securities law is determined by the exchange on which an issuer is listed. Previously, this created a potential for “regulatory arbitrage” whereby an issuer could choose to list on the CSE and be subject to less stringent reporting requirements under National Instrument 51-102 — Continuous Disclosure Obligations. The introduction of the Non Venture Tier is intended to eliminate the regulatory gap by imposing similar regulatory requirements on senior issuers even when listed on the CSE.
Pursuant to the revised CSE Policy 2, which sets the enhanced standards for non-venture issuers, exchange traded funds and closed end funds, “non-venture issuers” must now meet at least one of the four following tests: (i) the equity standard which requires the issuer to have shareholders equity of at least $5,000,000 and expected market value of public float of at least $10,000,000; (ii) the net income standard which requires the issuer’s net income to be at least $500,000 from continuing operations in the last fiscal year or in two of the last three fiscal years, shareholders’ equity of at least $2,500,000, and expected market value of public float of at least $5,000,000; (iii) market value standard which requires the issuer’s market value of all securities, including the class(es) to be listed and any class convertible into the class(es) to be listed, but excluding warrants and options, of at least $50,000,000, shareholders’ equity of at least $2,500,000 including the value of any offering completed concurrently with listing, and expected market value of public float of at least $10,000,000; or (iv) assets and revenue standard which requires the issuer’s total assets and total revenues to be at least $50,000,000 each in the most recent fiscal year or in two of three of the most recent fiscal years, and expected market value of the public float of at least $5,000,000.
Industry-Specific Requirements for Natural Resource Issuers
The Amendments impose additional standards for mineral exploration issuers. First, an issuer must have title to a mineral property on which there has been at least $150,000 of qualifying expenditures (up from the previous amount of $75,000) in the last 36 months. Second, the issuer must have obtained a National Instrument 43-101 technical report that recommends further exploration on the property, with a budget for the first phase of at least $250,000 (up from the previous amount of $100,000). Third, issuers with a single exploration project must include disclosure of its objectives to pursue additional exploration projects or opportunities. Despite the revised thresholds noted above issuers may still qualify with $75,000 of qualifying expenditures and $100,000 on work programs, subject to additional restrictive escrow requirements.
Builder Shares & Low-Priced Shares
For issuers not yet generating revenue from business activities, the CSE will not consider an application where builder shares have been issued for less than $0.005 in the previous 24-month period, which is a departure from the previous threshold of 18 months.
CSE Policy 4 — Corporate Governance and Miscellaneous Provisions
Security Holder Approvals — General Requirements
Prior to the Amendments, CSE policies required shareholder approval for a limited subset of transactions. Under the Amendments, there are several transactions that will now require securityholder approval including certain financings, acquisitions and dispositions. The new requirements are intended to be consistent with the other Canadian stock exchanges. The requirements for securityholder approval may be satisfied by a written resolution signed by security holders holding more than 50% of the securities having voting rights.
Significant Change — Security Approval
Non-Venture Tier issuers must obtain securityholder approval for a proposed securities offering (other than an offering by way of prospectus) if the number of securities issuable in the offering is more than 25% of the total number of securities or votes outstanding. In addition, Non-Venture Issuers must obtain securityholder approval if the securities issuable to a related party, when aggregated to the securities issued to such related party in private placement or acquisition transactions completed in the previous 12 month period, is more than 10% of the total number of securities or votes outstanding.
For other CSE-listed issuers, securityholder approval is required if the issuance of securities in an offering: (i) is greater than 50% of the outstanding securities and a new control person is created; or (ii) if the issuance is great than 100% of the securities or votes outstanding.
In addition, securityholders of an issuer must approve (i) certain acquisition transactions, (ii) if the transaction price per security is lower than the market price less the maximum permitted discount, or (iii) if the issuer or the CSE otherwise determine that the offering will material affect control of the issuer.
Rights Offering
Security holder 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. Securityholder approval for a rights offering is not required where independent directors have determined that the rights offering, including the pricing thereof, is in the best interests of the issuer, and is reasonable in the circumstances.
Security Based Compensation Arrangements
The Amendments have imposed security holder approval requirements and additional filing, posting and reporting requirements similar to requirements of other stock exchanges with respect to security-based compensation arrangements, including securityholder approval every three years for “rolling” security-based compensation plans.
Majority Voting Policy
The CSE has adopted new requirements regarding majority voting policies similar to those that already exists on the TSX. Pursuant to the new requirements each director of a Non-Venture Tier issuer must be individually elected by a majority of the votes cast with respect to their election, other than at contested meetings.
CSE Policy 6 — Distributions
Private Placements
The Amendments have removed the minimum offering price requirement and permit issuers to complete a private placement at a price lower than C$0.05 if: (i) the proposed price is not less than the 20 day volume weighted average trading price less permitted discount; (ii) the proceeds will be used for working capital and/or settlement of a bona fide debt; and (iii) certain basic information about the offering is provided to the CSE. In addition, an issuer must issue a press release announcing its intention to complete a private placement at least five business days prior to closing.
Normal Course Issuer Bids
The Amendments have introduced new reporting requirements and specific trading restrictions and allowances that are consistent with other exchanges, with certain allowances for block purchases permitted only to Non-Venture Tier issuers.
Conclusion
The Amendments were designed to clarify the CSE Policies and bring them in line with the policies of other Canadian stock exchanges. We expect that the Amendments will provide clarity in the policy application of the CSE, which is advantageous to both issuer and investors.
This update provides a summary of the many changes set out in the Amendments. Issuers should contact Fogler, Rubinoff LLP to discuss how the changes may impact their operations and/or proposed transactions.
