Following a comment period and further review, CNSX Markets Inc. (the CSE) has received approval from the Ontario and British Columbia securities commissions to implement significant changes to its listing policies and forms. Effective April 3, 2023, the changes introduce the “Non-Venture Issuer” (NV Issuer) designation as well as additional listing and corporate governance requirements, including securityholder approvals and filing obligations.

Background

On December 9, 2021, the CSE published Notice 2021-005 - Request for Comments - Proposed Policy Amendments, seeking public comment on a number of proposed changes to its listing policies and forms. These changes included:

• qualifications, requirements and financial reporting obligations that reflect requirements for non-venture issuers and that would apply to CSE-listed issuers designated by the CSE as NV Issuers;
• requirements and provisions for listing Closed End Funds (CEFs), Exchange Traded Funds (ETFs) and Special Purpose Acquisition Corporations (SPACs); and
• additional corporate governance requirements for all CSE-listed issuers, including securityholder approvals and filing obligations related to acquisitions, restricted securities and take-over bid protections, normal course issuer bids (NCIBs), shareholder rights plans and security-based compensation plans.

The comment period ended on February 7, 2022, with 16 comment letters received. The CSE subsequently incorporated additional changes to, among other things, the public float requirements and the minimum listing requirements for mineral exploration companies. These changes were not published separately for comment, having been deemed consistent with principles described in the notice and comments received.

NV Issuer Designation

The introduction of the NV Issuer designation marks a substantial departure from previous CSE policies and forms. As the criteria for the NV Issuer tier are intended to be similar to those of the “senior” or non-venture exchanges in Canada, the designation would impose additional requirements on qualifying CSE-listed issuers. These requirements include:

• expanded initial listing criteria, which require NV Issuers to meet general CSE initial listing requirements as well as one of four listing standards (i.e., Equity, Net Income, Market Value or Assets and Revenue);
• public float requirements (i.e., a public float at the time of initial listing of at least 1,000,000 freely tradeable securities and at least 300 public holders each holding at least a board lot);
• expanded continued listing criteria, which require NV Issuers to meet general CSE continued listing requirements as well as other criteria specific to public distribution and listing standards;
• lower thresholds for determining when certain securityholder approval is required (as described below);
• expanded reporting requirements (e.g., the mandatory filing of Form 51-102F2 Annual Information Form (AIF)); and
• earlier filing deadlines (e.g., no later than 90 days following a NV Issuer’s financial year end, for the AIF; no later than 45 days following the relevant quarter, for the Quarterly Listing Statement, interim financial statements and associated Form 51-102F1 Management’s Discussion & Analysis (MD&A)).

It is worth noting that these and other requirements would be imposed over and above those in applicable securities laws, as CSE-listed NV Issuers would, at this time, still fall within the definition of “venture issuer” in National Instrument 51-102 Continuous Disclosure Obligations. The CSE has, however, expressed its intention to seek amendments to the relevant regulatory instruments to exclude NV Issuers from the definition of “venture issuer.”

Corporate Governance and Other Requirements

Securityholder approvals

The changes also introduce new corporate governance requirements for all CSE-listed issuers. Among these is the extension of securityholder approval requirements across a wider range of transactions, including sales of securities:

• for NV Issuers, where the number of securities issuable in the offering is more than 25% of the NV Issuer’s outstanding securities;
• for NV Issuers, where the number of securities issuable in the offering to a related person, when added to the number of securities issued to such person in private placements or acquisitions in the preceding 12 months, is more than 10% of the NV Issuer’s outstanding securities;
• for all other issuers, where the number of securities issuable in the offering is: (i) more than 50% of the issuer’s outstanding securities and a new control person is created; or (ii) more than 100% of the issuer’s outstanding securities; or
• for all issuers, where the price per security is lower than the market price less the maximum permitted discount.

Similarly, other transactions that require securityholder approval include:

• certain acquisitions (e.g., for CSE-listed issuers that are not investment funds, where the number of securities issuable is: (i) for NV Issuers, more than 25% of the NV Issuer’s outstanding securities; or (ii) for all other issuers, more than 50% of the issuer’s outstanding securities and a new control person is created; or more than 100% of the issuer’s outstanding securities);
• certain dispositions (i.e., of more than 50% of the assets, business or undertaking of a CSE-listed issuer);
• certain rights offerings (i.e., through which securities are offered at a price greater than the maximum permitted discount to the market price);
• the adoption of, or amendments to, security-based compensation and shareholder rights plans;
• certain consolidations of listed securities (i.e., where the consolidation ratio is greater than 10 to 1; or the consolidation ratio is greater than 10 to 1 when combined with any other consolidation in the previous 24 months that was not approved by securityholders); and
• transactions that would materially affect control of a CSE-listed issuer, in the opinion of the issuer or the CSE.

These and other related requirements and exemptions are addressed in Policy 4 - Corporate Governance, Securityholder Approvals and Miscellaneous Provisions.

Distributions

Notable changes were also made under Policy 6 - Distributions and Corporate Finance. The new requirements, applicable to all CSE-listed issuers, include:

• advance, 5-day public notice of an intention to complete a financing or acquisition;
• requirements for financings below $0.05 per security, which are generally consistent with current CSE practice;
• additional guidance and specific filing requirements for control block distributions, which are consistent with those of other exchanges;
• specific filing and posting requirements for shareholder rights plans, which are similar to those of other exchanges;
• guidance and filing and disclosure requirements for take-over and issuer bids, which are intended to align with securities law and the requirements of other exchanges; and
• reporting requirements and specific trading restrictions and allowances for NCIBs, which are consistent with those of other exchanges.

Implementation

On March 30, 2023, the CSE announced that the Ontario Securities Commission and the British Columbia Securities Commission had each approved the changes proposed. The new policies and forms were published on the CSE’s website, and the changes took effect on April 3, 2023, subject to the considerations discussed below.

NV Issuer designation

Although the changes are now in effect, CSE-listed issuers will not be designated as, or subject to requirements applicable to, NV Issuers without a review and notice from the CSE. Going forward, CSE-listed issuers will be reviewed annually, following the filing of audited financial statements. If applicable to a CSE-listed issuer, the NV Issuer designation will take effect for such issuer’s Q2 interim filings.

At present, the CSE expects to initiate reviews of CSE-listed issuers on or about April 30, 2023, for issuers with a financial year end of December 31, 2022. Otherwise, any CSE-listed issuer may request a review at any time, with such review to be based on the financial information available and the NV Issuer designation applied or removed as required. Accordingly, issuers may be designated as NV Issuers by the CSE in its discretion without their consent.

By contrast, a CSE listing applicant that qualifies as a NV Issuer will be designated as such at the time of listing, subject to adequate notice from the CSE.

Securityholder approvals

The new securityholder approval requirements will apply where the matter for approval is proposed or announced after April 3, 2023.

What’s Next?

If – or, more likely, when – the Canadian Securities Administrators pursue actions and/or amendments to treat CSE-listed NV Issuers as senior issuers rather than as venture issuers, we might expect some or all of the following effects:

• earlier filing deadlines for audited and interim financial statements and associated MD&A (e.g., 90 versus 120 days following the financial year end, and 45 versus 60 days following the relevant quarter);
• the requirement to file an AIF, and within 90 days of the financial year end;
• much lower thresholds for determining what constitutes a significant acquisition (e.g., 30% versus 100%), three significance tests as compared to two, greater associated financial statement requirements and earlier filing deadlines for business acquisition reports (e.g., 90 versus 120 days following the acquisition date);
• the requirement to file voting results after a meeting;
• more extensive executive compensation reporting requirements;
• more extensive CEO and CFO certifications, including regarding internal control over financial reporting and disclosure controls and procedures;
• more extensive corporate governance disclosure, including of board processes, mandates, position descriptions, orientation and continuing education, codes of conduct, nomination processes, board compensation, board assessments, term limits, board committees and diversity;
• more extensive audit committee composition, independence, financial literacy and disclosure requirements;
• more rules regarding issuer share buy-backs, as well as a higher NCIB level; and
• more strenuous applications of independent valuation and minority approval requirements regarding business combinations and related party transactions under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.

We continue to monitor these important developments and will keep our clients and readers apprised as they unfold. For more information, please review Notice 2023-005 - Amendments to CSE Listing Policies - Summary of Comments and Notice of Approval.