The Toronto Stock Exchange (TSX) has issued new guidance for emerging-markets issuers designed to ensure they are prepared to address their unique risks and meet the exchange’s listing standards.
The guidance, which was contained in a TSX staff notice published earlier this week, comes in the wake of an Ontario Securities Commission (OSC) report issued in 2012 following the collapse of Sino-Forest Corp. and other high-profile corporate scandals involving foreign issuers. The TSX also issued a consultation paper of its own addressing its concerns with emerging-markets issuers.
See: OSC publishes guide for issuers operating in emerging markets
The new guidance is intended “to improve transparency” about the practices and procedures that may apply to emerging-markets issuers that are looking to list on the TSX or to companies that are already listed, the staff notice says.
A lack of knowledge of Canadian regulatory requirements, communications issues, such as a language barrier, and a possible lack of local business knowledge are among the risks that may be associated with emerging-markets issuers, the TSX guidance says. These could contribute to compliance failures, or a lack of adequate oversight, it adds.
In addition, the TSX staff notice cites concerns with auditors and audit committees, the adequacy of internal controls over financial reporting and the use of more complex corporate or capital structures. These companies may also face unique legal issues, such as uncertain title to certain assets and varying legal rights to operate in particular jurisdictions.
“For example, China may have requirements specific to a non-Chinese owned entity conducting business operations in China,” the guidance notes.
The TSX staff notice aims to explain how these potential risks may be mitigated when these firms seek listings on the TSX, and it “strongly recommends” that issuers contemplating listing on the TSX arrange a pre-filing meeting with the exchange to determine if any of the aforementioned concerns exist.
The guidance also details the factors the TSX will consider in determining whether a company’s management meets the requirements of its listing standards and for establishing that there is adequate oversight of management.
For example, it’s essential that there is at least one director with significant local knowledge and that, ideally, he or she is independent of the company and has public company experience, the guidance notes: “TSX believes this gives the board of directors an ability to better oversee management and identify key risks in the business.”
In cases in which there’s a language barrier or a firm’s management and board members are present in a similar time zone to the exchange, the TSX may require the company to present a communication plan to demonstrate how effective communication will occur, the guidance says.
In addition, the TSX may require emerging-markets issuers to have a policy on related party transactions, particularly if the issuer has a controlling shareholder, to ensure independent oversight, public disclosure and proper financial reporting of these sorts of deals, the guidance says.
Companies may also be required to adopt policies dealing with whistleblowing, anti-bribery, anti-corruption and ethical business conduct and governance.