The Toronto Stock Exchange (TSX) is proposing amendments to its listing rules that aim to give issuers more flexibility when making acquisitions, and improve the scrutiny of backdoor listings.
The proposed amendments, which are out for a 45-day comment period, aim to deal with two basic issues: the adoption of security-based compensation arrangements amid acquisitions; and, when the exchange will consider a transaction to be a backdoor listing, such as a reverse takeover, or reverse merger.
On the first issue, the proposed amendments will allow issuers to adopt compensation arrangements for employees of a target issuer, without shareholder approval, as long as the number of securities issuable under the arrangement doesn’t exceed 2% of the issued securities, and 25% of outstanding securities. This will formalize a practice that has been allowed on a discretionary basis in certain cases in the past.
In terms of reverse takeovers, the proposed amendments are intended to better define backdoor listings, in order to bolster investor protection, and preserve the quality of its listings and the quality of its marketplace.
It is proposing to consider a series of factors in determining whether there is a backdoor listing, including the businesses of the firms involved; changes in management and the board of directors; voting power; ownership; name changes; and the financial structure of the listed issuer. “We believe that these factors are all relevant indicia of whether a transaction results in an unlisted entity becoming listed by acquiring a listed issuer,” it says. It notes that these amendments will broaden the scope of transactions that may be considered as backdoor listings.
Among other things, the amendments would also clarify the discretion of the TSX to exempt a transaction from the requirement to meet original listing requirements that may otherwise constitute a backdoor listing; or, to consider a transaction as a backdoor listing even if it may not otherwise constitute a backdoor listing.
“The amendments are being proposed to clarify drafting and more fully and transparently support the policy objectives of the rules for backdoor listings,” it says. “We believe that transactions resulting in the listing of an issuer not previously listed on the exchange should be closely scrutinized and should generally be required to meet original listing requirements.”
The comment period ends January 13, 2014. The amendments will only become effective following approval of the Ontario Securities Commission (OSC).