On March 30, 2023, the Canadian Securities Exchange (the “CSE” or “Exchange”) obtained final approval from the Ontario Securities Commission to revise its policies (the “Amendments”). The Amendments came into effect on April 3, 2023 and include significant revisions to the CSE’s existing policies, including the introduction of a new category of senior issuers, referred to as “NV Issuers” (or non-venture issuers), and a new program for Special Purpose Acquisition Corporations (“SPACs”), comparable to the TSX Venture Exchange’s (the “TSXV”) Capital Pool Company program.
This second part of Miller Thomson’s two-part series addressing the Amendments will be of particular interest to companies considering applying to list on the Exchange. Continuing from the previous article, this article will discuss the Amendments to the CSE’s initial listing requirements, including the initial listing requirements for NV Issuers and SPACs and provide an overview of recent amendments to the CSE’s Form 2A Listing Statement.
As part of the Amendments, the CSE has introduced an “eligibility review” process whereby companies must receive confirmation that the Exchange’s eligibility requirements have been satisfied when they intend to list on the CSE concurrently with or immediately following filing a prospectus. To assess eligibility for listing, companies must submit a document with sufficient detail, such as a draft of the prospectus, and in the case of natural resource issuers, must include a relevant technical report. Following the review, the CSE will either identify conditions that must be satisfied prior to listing, or provide confirmation of eligibility.
Public float requirements
As a part of the Amendments, the CSE’s minimum public float requirements now require an issuer of equity securities to have a public float of a minimum of 1,000,000 freely tradeable shares, constituting at least 20% of the total issued and outstanding class of that security. Previously, the requirement was a minimum 500,000 freely tradable shares, constituting 10% of the issued and outstanding class.
Natural resource issuers
The Amendments have revised the industry-specific listing criteria for natural resource companies. Mineral exploration companies are now required to have incurred “qualified expenditures” amounting to at least $150,000 (up from $75,000) over the preceding thirty-six months. Prospective listed issuers must also have obtained an independent report compliant with National Instrument 43-101 – Standards of Disclosure for Mineral Projects recommending further exploration on the property with a first-phase budget of at least $250,000.
Meeting the above listing requirements with a single exploration project triggers a new obligation to include disclosure of the issuer’s objectives to either pursue additional exploration projects or opportunities, or to otherwise remain in the mineral exploration business.
Despite the requirements outlined above, a prospective listed issuer may still be approved for listing as long as the following three requirements are met:
- Expenditures: qualifying exploration expenditures of at least $75,000;
- Budget: setting a first-phase budget of at least $100,000; and
- Escrow: agreement to be bound by certain additional escrow requirements stipulated in CSE Policy 2 including, but not limited to, (i) the escrow of all “builder shares,” (ii) the approval from the Exchange prior to the initial escrow release which shall be no earlier than 10 days following the announcement of the results of the first phase program and (iii) cancellation of all remaining escrowed shares upon delisting from the Exchange or upon a change of business or a definitive agreement for a transaction that would constitute a “Fundamental Change” under CSE Policy 8.
In addition to meeting the Exchange’s minimum listing requirements at the time of listing, a prospective listed issuer meeting the NV Issuer requirements set out in CSE Policy 2 may be considered by the Exchange to be an NV Issuer. NV Issuers are required to meet one or more of the following four listing standards:
- Equity Standard: Shareholders’ equity of at least $5,000,000 and expected market value of public float of at least $10,000,000;
- Net Income Standard: Net income of at least $400,000 from continuing operations in the most recent fiscal year or in two of three of the most recent fiscal years, shareholders’ equity of at least $2,500,000, and expected market value of public float of at least $5,000,000;
- Market Value Standard: Market value of all securities, excluding warrants and options, of at least $50,000,000, shareholders’ equity of at least $2,500,000 including the value of any offering concurrent with the listing, and expected market value of public float of at least $10,000,000; or
- Assets and Revenue Standard: Total assets and total revenues of at least $50,000,000 each in the most recent fiscal year or in two of three of the most recent fiscal years, and expected market value of public float of at least $5,000,000.
The CSE has the authority to classify a company as an NV Issuer if it considers the company as being highly capitalized or sufficiently developed in its operations near the thresholds of at least two out of the four tests mentioned above. The CSE may make this designation if it deems it beneficial for the public.
In addition to the new listing requirements, the minimum float qualifications of NV Issuers are also more extensive than required for other issuers. CSE Policy 2 requires an NV Issuer to maintain a public float of at least 1,000,000 freely tradable securities and at least 300 public securityholders each holding at least one board lot, rather than 150 public holders for non-NV Issuers. Annually, NV Issuers must adhere to specific minimum listing requirements, which include maintaining a public float of at least 500,000 shares valued at a minimum of $2 million. NV Issuers must also maintain net income from operations of at least $100,000, or alternatively, have listed securities with a market value of at least $3 million.
It is important to note that Canadian securities laws, such as National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”), define “venture issuer” as a reporting issuer that does not have securities listed on the Toronto Stock Exchange, NEO Exchange (now operating as Cboe Canada), a U.S.-based marketplace such as the NASDAQ or NYSE, or certain other marketplaces. This means that where a company is listed on the CSE as a NV Issuer, it would still be subject to the “venture issuer” requirements imposed by securities laws generally, unless the issuer is also listed on one of the previously mentioned exchanges. However, pursuant to CSE Policy 5, NV Issuers are required to file an Annual Information Form compliant with Form 51-102F2 – Annual Information Form no later than 90 days from the NV Issuer’s financial year end.
A major change resulting from the Amendments is the introduction of SPACs to the Exchange. A SPAC is an investment vehicle providing an alternative method for private companies to go public. Compared to the conventional initial public offering (“IPO”) process, the SPAC program permits corporations with no assets or commercial operations, other than cash, to carry out an IPO on the CSE. Within thirty-six months following distribution under its prospectus, the SPAC must complete an initial business combination (known as a “Qualifying Acquisition”) meeting the CSE’s requirements and enabling it to continue trading on the CSE.
A prospective SPAC must submit a listing application demonstrating that it is able to meet the Exchange’s listing requirements. The CSE maintains discretion to grant or deny the application based on a variety of criteria including, among other items, experience of the SPACs proposed officers and directors, the nature of their compensation and the equity ownership in the SPAC.
Appendix 2C to CSE Policy 2 outlines the CSE’s listing requirements for SPACs. Notable requirements include the following:
- No Operating Business: No active business or binding acquisition agreement for a Qualifying Acquisition;
- Minimum Raise: Minimum raise of $30,000,000 by way of prospectus offering of shares or units (containing no more than one share and two warrants);
- Float: Minimum of 1,000,000 freely tradeable securities with a market value of at least $30,000,000 held by at least 150 public holders each holding at least one board lot;
- Security Pricing: Minimum IPO price of $2.00 per share or unit; and
- Escrow Restrictions: Until completion of the Qualifying Acquisition, 90% of the gross proceeds raised in connection with the IPO (including underwriter’s deferred commissions) to be held in escrow.
The listed issuer resulting from the SPAC’s completion of a Qualifying Acquisition has 90 days thereafter to meet the Exchange’s listing requirements for NV Issuers.
Recent revisions to CSE Form 2A – listing statement
On May 18, 2023, the Exchange approved significant amendments to its Form 2A Listing Statement (“Listing Statement”). These revisions aim to provide clearer guidelines for Listing Statement disclosure, which now includes references to long-form prospectus disclosure requirements. The Amendments confirm that a Listing Statement must contain the disclosure specified in Form 41-101F1 – Information Required in a Prospectus. Additionally, in specific situations, the disclosure requirements can be met by referring to existing public disclosure documents, such as by including or incorporating by reference in the Listing Statement a prospectus of the Issuer for which a final receipt has been issued by a securities regulatory authority in Canada or an information circular which contains prospectus-level disclosure and has been filed on SEDAR and distributed to shareholders.
The Amendments represent a significant overhaul of the CSE’s policies, bringing them more in line with the policies of other Canadian stock exchanges. The Amendments took effect on April 3, 2023, while the changes to Form 2A became effective on May 18, 2023.
Should you have any questions regarding the Amendments or require further information, please do not hesitate to contact a member of Miller Thomson’s Capital Markets & Securities group.