On April 20, 2023, the Toronto Stock Exchange (the “TSX”) adopted, and the OSC provided its notice of approval for, certain amendments (the “Amendments”) to more clearly define the factors that the TSX will now consider when determining whether a prospectus offering is a bona fide public offering or a private placement offering. The Amendments are effective immediately.
In connection with this, the TSX has issued TSX Staff Notice 2023-0002 (the “Staff Notice”), which replaces TSX Staff Notice 2018-0003 in its entirety, to provide updated guidance on the pricing of a prospectus offering or a private placement offering where there has been recent disclosure of material information.
Background
Section 606 of the TSX Company Manual (the “TSX Company Manual”) lays out the rules for issuers that distribute securities by way of a prospectus offering (the “Prospectus Offering Rules”). The Prospectus Offering Rules include the factors that the TSX uses to determine whether an offering can be considered a bona fide public offering, or whether it will instead be subject to review under the private placement rules in section 607 of the TSX Company Manual (the “Private Placement Rules”).
The Amendments
The Amendments set out the following factors that the TSX will now consider when determining whether a prospectus offering is a bona fide public offering:
Broadly Marketed
The TSX has defined a bona fide public offering as an offering whereby 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 substantially all Canadian investment dealers. If a prospectus offering is not broadly marketed within these parameters, the TSX will review that offering under the Private Placement Rules.
Offering Price
Because 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, assuming that a prospectus offering is broadly marketed and there is no insider participation, the TSX will accept the offering price of the securities offered by way of prospectus offering, regardless of the discount amount.
Insider Participation
Under the 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 the offering price is equal to or less than, 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 their pro rata interest will be reviewed under the Private Placement Rules.
- 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.
Related TSX Guidance
Pursuant to the Staff Notice, the TSX has provided the following guidance with respect to what it will consider for the pricing of a prospectus offering or private placement offering where there has been recent disclosure of material events, changes or announcements (collectively, “Material Information”).
| Normal course (absent any recent dissemination of Material Information) | Following the recent dissemination of Material Information | |
| Prospectus Offering | Closing price of the most recently completed trading session | Closing price of the most recently completed trading session |
| Privte Placement Offering | the five-day VWAP | the one-day VWAP |
The Staff Notice also notes that the TSX may use its discretion to determine an alternate formula in cases where the closing price or the single-day VWAP, respectively, does not appear appropriate – for example, in instances where the stock does not appear sufficiently liquid.
Listed Issuer Financing Exemption
In connection with TSX Staff Notice 2022-0003, the TSX has confirmed that it will continue to review applications relying on the listed issuer financing exemption (the “Listed Issuer Financing Exemption”) as a prospectus offering under the Prospectus Offering Rules. Absent exceptional circumstances, the TSX will deem using the Listed Issuer Financing Exemption to be a bona fide public offering.
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About the Authors:
Griffin Peloso is an associate in Dickinson Wright’s Toronto office. His practice focuses on general corporate and securities law matters for both public and private companies. He can be reached at 416-644-2843 or GPeloso@dickinson-wright.com and you can visit his bio here.
Andre Poles is a Partner in Dickinson Wright’s Toronto office. He has spent over 20 years advising clients in the financial services industry, focusing his practice on corporate finance for public and private companies. He can be reached at 416-777-4037 or APoles@dickinsonwright.com and you can visit his bio here.
A partner in Dickinson Wright’s Toronto office, Donald Sheldon focuses his practice on corporate law, including finance and securities. He can be reached at 416-777-4017 or DSheldon@dickinsonwright.com and you can visit his bio here.
Geoffrey Farr is a partner in Dickinson Wright’s Toronto Office. His practice has focused primarily on advising public companies, as both internal and external legal counsel, on all forms of financing and an extensive range of corporate transactions. He can be reached at 416-777-4005 or GFarr@dickinsonwright.com and you can visit his bio here.