Updated TSX guidelines for security based compensation disclosure

26 janvier 2021 | Jonathan Tong, Syed M. Rizvi

( Disponible en anglais seulement )


On January 15, 2021, the Toronto Stock Exchange (the “TSX”) published an updated Guide to Security Based Compensation Arrangements (the “Guide”), which aims to assist listed issuers with preparing meaningful disclosure regarding security based compensation arrangements. For myriad market participants, enhanced guidance on this subject is timely in light of the increasing complexity of such arrangements amongst TSX-listed issuers. Since the Guide only relates to TSX specific requirements, there may be further requirements under other exchange rules or securities legislation that security based compensation arrangements may be subject to.

The four principal sections of the Guide are as follows:

  1. the TSX’s regulatory approach (“TSX Regulatory Approach”) to security based compensation arrangements and the current requirements relating to shareholder approval, the mandatory terms which must be included in the disclosure and other terms which are subject to the discretion of a listed issuer;
  2. the TSX’s disclosure requirements (“TSX Disclosure Requirements”), which must be disclosed to security holders on an annual basis;
  3. the TSX’s reporting requirements relating to security based compensation arrangements (“TSX Reporting Requirements”); and
  4. special circumstances (the “Special Circumstances”) relating to anti-dilution provisions, secondary security purchase plans administered by non independent trustees, backdating of stock options, as well as plans of arrangements and reorganizations.

TSX Regulatory Approach

The Guide details, among other things, the requirements for security holder approval, terms that must be included and terms subject to an issuer’s discretion.

Security based compensation arrangements that are subject to TSX review

Section 613 of the TSX Company Manual applies to security based compensation arrangements under which a listed issuer can issue new securities. An arrangement will be subject to TSX review if the arrangement provides that the participants can receive securities that are either newly issued securities from the listed issuer or purchased on the secondary market. An arrangement will not be subject to TSX review and approval under Section 613 if the awards are either settled solely in cash or in securities purchased on the secondary market.

The Guide distinguishes securities issued to service providers in that options, warrants and other securities issued to an agent or underwriter in the context of a public offering, private placement or other financing will not be captured by the security based compensation arrangement policies of the TSX. Notwithstanding the foregoing, the TSX will review compensation grants if an insider of the listed issuer receives any sort of security based compensation.

Fundamental TSX requirements

The TSX rules require security holder approvals for all security based compensation arrangements, including plans, individual stock options and entitlements not granted pursuant to an arrangement. Approval of security holders is also required for any amendment to an arrangement or entitlement, such as an individual award or option, unless otherwise stated in the plan. When a listed issuer seeks security holder approval, it must include the information described in Subsection 613(d) of the TSX Company Manual in its information circular.

The Guide describes four exemptions from the requirement for a listed issuer to obtain security holder approval for arrangements:

  1. the assumption of options or other entitlements in the context of an acquisition;
  2. arrangements adopted and disclosed prior to listing on the TSX;
  3. options or awards granted as an inducement to an officer not previously employed by the listed issuer; and
  4. an arrangement adopted or amended by an interlisted issuer if less than a quarter of trading in the listed issuer’s securities occurs on Canadian marketplaces.

Renewal approval for evergreen plans

Listed issuers must also obtain security holder approval for an evergreen plan in order to continue to grant awards. This is required within three years after the implementation of an evergreen plan and every three years thereafter. Evergreen plans contain provisions that enable awards to replenish upon the exercise of options or other entitlements in the plan. To obtain approval, the security holders must pass a resolution which specifically approves the unallocated entitlements under the evergreen plan.

Plan maximum

Each security based compensation arrangement must state the maximum number of securities issuable thereunder, either in absolute terms or as a percentage of the total number of issued and outstanding securities. Although this maximum should be based on the number of issued and outstanding securities on a non-diluted bases, it may include other classes of participating securities that are economically equivalent.

Insider participation limit

The question of whether insiders of a listed issuer are eligible to vote on a security based compensation arrangement depends on the degree to which they can participate in such arrangement. Disinterested security holder approval is required unless an arrangement contains the insider participation limit, which is defined in Part I of the TSX Company Manual as “the number of the listed issuer’s securities: (i) issued to insiders of the listed issuer, within any one-year period; and (ii) issuable to insiders of the listed issuer, at any time, under the arrangement, or when combined with all of the listed issuer’s other security based compensation arrangements, which cannot exceed 10% of the listed issuer’s total issued and outstanding securities, respectively.”

If an arrangement contains the insider participation limit, then an insider entitled to receive a benefit thereunder can vote in regards to such arrangement. If insiders are prohibited from voting based on the foregoing restrictions, the applicable disclosure document (such as a circular) must disclose this and the number of securities excluded from voting on the arrangement.

Market price

Under a stock option or similar plan, the exercise price of the options (or similar securities) must be greater than, or equal to, the market price at the time of issuance. Arrangements must disclose the method used for determining the market price and such method must be consistently used when setting exercise prices.

TSX Disclosure Requirements

The Guide provides a summary of all disclosure requirements regarding security based compensation arrangements, which listed issuers must disclose to security holders either: (i) on an annual basis; and/or (ii) upon adoption and amendment of a plan. Security holders require this information to make an informed decision about the arrangement for which their approval is sought: all material aspects of the arrangement must be disclosed. Subsection 613(g) of the TSX Company Manual provides that all of the principal terms of an arrangement should be disclosed each year. The Guide provides a checklist of disclosure items that a listing issuer can review to ensure that all applicable disclosure requirements are met. If security holder approval is sought, then the information contained in the applicable circular requires the TSX’s pre-clearance.

Required information

The information provided in the disclosure document, such as a circular, should be presented as at:

  1. the end of the most recently completed fiscal year (in the case of an annual meeting); and
  2. the date of the meeting materials (in the case of a security holder meeting, other than an annual meeting, where the approval of security holders is sought in connection with an arrangement).

The Guide describes the items that a listed issuer is required to include in its circular, and examples of appropriate disclosure. The objective is to ensure that listed issuers sufficiently disclose the principal terms of their arrangements. The disclosure must include the following items:

  • amendment provision;
  • assignability;
  • burn rate;
  • cessation;
  • eligibility;
  • information about entitlements granted under each arrangement subject to security holder ratification;
  • exercise price;
  • financial assistance;
  • insider participation limit;
  • number of securities issued and issuable;
  • securities under grants;
  • maximum issuable to one person;
  • purchase price;
  • stock appreciation rights;
  • term;
  • vesting;
  • other material information required by a security holder to make an informed decision;
  • security holder resolution and proxy; and
  • annual disclosure requirements of the terms of the arrangements.

TSX Reporting Requirements

Monthly (or quarterly) reporting requirements

If in any given month the number of securities outstanding or reserved for issuance changes, a listed issuer is required to advise the TSX within ten days after the end of that month by submitting a Reporting Form 1 – Change in Outstanding and Reserved Securities. If in any given quarter there are no changes to the number of securities outstanding or reserved for issuance, the listed issuer must file a “nil” Form 1 for that quarter.

Basics of reporting

When a listed issuer adopts a security based compensation arrangement, the listed issuer is required to list and reserve the maximum number of securities issuable under that arrangement (the “reserve”). The reserve will only increase when additional securities are reserved for issuance under the arrangement. The number of securities reserved for issuance will only decrease when options are exercised. A grant or cancellation does not impact the reserve. As a general principal, the number of outstanding awards cannot be greater than the number of securities reserved for issuance under the arrangement.

Reporting for omnibus plans

An omnibus plan permits a listed issuer to grant a variety of security based compensation awards, such as options and deferred units. If a listed issuer adopts an omnibus plan, then it must disclose, on an aggregate basis, in its circular, the maximum number of shares issuable (or reserved for issuance) under the plan.

Special Circumstances

Anti-dilution provisions

If a security based compensation arrangement fails to include the requisite anti-dilution adjustments, the TSX will rectify this deficiency in various ways depending on whether it involves a:

  • stock split;
  • stock consolidation; or
  • special distribution to all security holders.

Secondary security purchase plans administered by non-independent trustees

It is common for listed issuers with stock purchase plans to designate a trust company to make purchases on the market on behalf of the arrangement participants. A trustee is deemed to be non-independent when making an offer to acquire securities on behalf of a listed issuer. If a trustee is considered to be non-independent, then the securities purchased for the purpose of an arrangement will count towards the caps on purchases of the listed issuer’s securities in regards to a normal course issuer bid.

Backdating of stock options

Listed issuers have a responsibility to notify the TSX if it appears that stock options may have been improperly dated or priced during or after any investigation of a listed issuer’s stock option practices.

Plans of arrangements and reorganizations

If a security based compensation arrangement requires a material amendment, such amendment must be made in accordance with the arrangement’s amendment provisions. Even so, the TSX will waive the security holder approval requirement where entitlements are: (i) cancelled for normal consideration if out of the money, or (ii) treated on the same basis as equity holders. A separate resolution of the  security holders will be required however when a plan is being amended and such amendment requires security holder approval.


If you have any questions with respect to this legal update, please contact Jonathan Tong (jtong@millerthomson.com), Syed Rizvi (srizvi@millerthomson.com) or any other member of our Capital Markets & Securities Group.


The authors of the publication would like to thank Madison Derraugh, Miller Thomson Articling Student, for her assistance with this publication.

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