On December 9, 2021, CNSX Markets Inc. (the "CSE" or the "Exchange") gave notice of proposed amendments to its current policies and related forms (the "Amendments"). The Exchange requested and received public comments for a 60-day period ending February 9, 2022.
The CSE proposed Amendments are comprehensive, with stricter disclosure and governance rules, subject to further review following public comments. There are also a number of extensive consequential revisions. In addition, there are a number of matters where changes are not being proposed at this time but are being considered for future implementation.
The CSE was recognized as an exchange in 2004, and since then has grown significantly, listing almost 800 companies. The popularity of the Exchange is due to its "reliance" model, which is based on public disclosure by the listed issuers, versus the typical "review and approval" model applied by other exchanges such as the Toronto Stock Exchange (the "TSX").
The CSE is also known for its lower fee payments. In addition, CSE listed companies can issue a minimum of 10% of their outstanding shares, versus 20% required by the TSX. The asset value requirement is also lower.
Due to its reliance model and consequently less strict listing requirements, over the past years, the CSE has also become popular among more established companies. However, the CSE's current policies and forms were designed more for entrepreneurial companies. This is the main reason why most of the Amendments are intended to apply to more advanced companies that require stronger disclosure and governance standards.
Similarly, the Amendments would allow exchange-traded funds ("ETFs") and special purpose acquisition companies ("SPACs") to be listed on the CSE. Currently, ETFs and SPACs cannot be listed on a "junior exchange". The CSE is a "junior exchange".
Accordingly, the CSE's published notice proposes the creation of a "senior tier". If approved, the new senior tier would apply to nearly 80 issuers currently listed with the Exchange. Under the proposed senior tier, issuers would have less time to report the quarterly and annual financial statements and would be under stricter disclosure requirements, such as timelines for reaching levels of market capitalization and revenue. The senior tier would require final approval by the regulators.
The CSE Notice provides the description of the proposed Amendments and a comparison against the current version of its policies and forms. The main changes are summarized below:
1) Listing qualifications and specific reporting requirements for "Non-Venture Issuers", as defined in National Instrument 51-102 Continuous Disclosure Requirements;
2) Listing criteria and requirements for ETFs;
3) Listing criteria and requirements for SPACs;
4) Explicit requirements for restricted securities and take-over bid protections;
5) New requirements for security holder approvals of certain transactions or developments;
6) Exchange reviews of certain transactions;
7) New requirements for Normal Course Issuer Bids ("NCIB");
8) Filing requirements for Shareholder Rights Plans; and
9) Shareholder approval and policy requirements for Security Based Compensation plans.
If approved, the Amendments would require extensive typographical, formatting, renumbering and other non-material changes to provide consistency and simplification, including the introduction of several new forms in support of the new requirements.
The CSE published another notice and request for comments on March 3, 2022, on its proposed amendments to the functionality and features of the trading system (the "Trading System Amendments"). The CSE proposes to implement enhancements to its trading system in response to issuers' feedback by introducing a second trading book ("Book 2") in Q3 of 2022. Book 2 proposes to offer an inverted pricing model, and the CSE will provide a rebate to the liquidity taker and assess a fee to the liquidity provider. The CSE is receiving comments on the proposed Trading System Amendments until April 4, 2022.
If you have any questions regarding the Amendments and the Trading System Amendments or if you want to know how the Amendments and the Trading System Amendments may affect your business, you can contact Eliane Leal da Silva or your securities lawyer contact at Gardiner Roberts LLP. A PDF version is available to download here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.