TSX Considers Rules for Issuers with Connections to Emerging Markets


Toronto Stock Exchange (“TSX“) and TSX Venture Exchange (“TSXV“) (collectively, the “Exchanges“) are in the process of reviewing their respective listing requirements applicable to issuers with a significant connection to an emerging market jurisdiction (“Emerging Market Issuers“). The Exchanges have released a consultation paper (“Consultation Paper“) as a part of a review of the listing requirements applicable to Emerging Market Issuers. The TSXV is also soliciting comments and feedback on a proposed TSXV policy document, Appendix 2B – Listing of Emerging Market Issuers (“TSXV Emerging Market Issuer Policy“). For the purposes of this Consultation Paper and the TSXV Emerging Market Issuer Policy, an emerging market jurisdiction means any jurisdiction outside of Canada, the United States, Western Europe, Australia and New Zealand.

The Exchanges have invited the public to review this Consultation Paper and the TSXV Emerging Market Issuer Policy and submit their comments to the Exchanges by February 28, 2013.

While the Consultation Paper has some similarities to the Ontario Securities Commission Staff Notice 51-720 – Issuer Guide for Companies Operating in Emerging Markets, the Consultation Paper and the TSXV Emerging Market Issuer Policy intend to implement some mandatory requirements (instead of only guidance).

Risks associated with Emerging Market Issuers

The Exchanges have identified the following areas relevant to listing in which there may be greater risks associated with Emerging Market Issuers:

  1. Management and Corporate Governance
    • Knowledge of Canadian Regulatory Requirements
    • Communication
    • Local Business Knowledge
  2. Financial Reporting
    • Qualifications of Auditors
    • Adequacy of Internal Controls
    • Qualifications of CFO and Audit Committee
  3. Non-Traditional Corporate/Capital Structures
    • Complexity of Corporate and Capital Structures
  4. Legal Matters Relating to Title and Ability to Conduct Operations
    • Validity of Title to Principal Operating Assets
    • Legal Right to Conduct Operations


The TSX (unlike the TSXV) has not provided many proposed amendments to the TSX Company Manual. Rather, the Consultation Paper is presented as a public consultation. One of the principal purposes of the Consultation Paper is to solicit comments from market participants on matters related to listing Emerging Market Issuers, including possible new guidance or requirements that the TSX may implement.

For example, should the TSX’s focus exclude jurisdictions other than Canada, the United States, Western Europe, Australia and New Zealand? How many directors (or what percentage of the board) should be independent directors with public company and local business experience? Should the TSX require sponsorship for all Emerging Market Issuers? Should the TSX require comfort around internal controls in the form of a certification, management report or other similar report on internal control systems to be submitted by an auditor at the time of original listing for Emerging Market Issuers?


The TSXV Emerging Market Issuer Policy sets forth specific additional and supplemental requirements applicable to the listing of Emerging Markets Issuers that the TSXV proposes to implement.

Although the requirements and procedures set out in the TSXV Emerging Market Issuer Policy are principally intended to apply to New Listing transactions (as that term is defined in Policy 1.1), the TSXV may, at its discretion, apply the requirements and procedures to any transaction or series of transactions that will result in an Issuer becoming an Emerging Market Issuer.

Without amendments or adjustments, the TSXV Emerging Market Issuer Policy currently defines an “Emerging Market Issuer” as an Issuer, other than an Excluded Resource Issuer, whose principal business operations or operating assets are located in an Emerging Market Jurisdiction.

“Excluded Resources Issuer” means an Issuer that is either a Mining Issuer or an Oil & Gas Issuer (under Policy 2.1) and for which the following persons have not been resident in an Emerging Market Jurisdiction for a majority of the ten years preceding the Issuer’s Application for Listing:

  1. a majority of the Issuer’s senior officers;
  2. a majority of the Issuer’s directors; or
  3. any director or senior officer of the Issuer that is also a Control Person of the Issuer or an Associate of a Control Person of the Issuer.

Accordingly, it is possible to structure the management (directors and officers) of an Issuer in order to become an “Excluded Resource Issuer”.

However, certain of the guidance and requirements of the TSXV Emerging Market Issuer Policy would remain applicable to Excluded Resource Issuers.

Specific TSXV Requirements

The TSXV Emerging Market Issuer Policy would implement the following additional requirements:

  • A CFO that is financially literate (per section 5.8(b) of Policy 3.1) would not be sufficient. The CFO must have a strong understanding of the business environment in the jurisdiction in which most of the Issuer’s transactions are conducted. The CFO must have the capability to design and apply effective internal controls over financial reporting to all transaction streams conducted in accordance with the customs of the relevant jurisdiction.
  • Every member of the audit committee must be independent (in contrast to section 21(b) of Policy 3.1 which provides that an Issuer must have an audit committee comprised of at least three Directors, the majority of whom are not Officers, employees or Control Persons of the Issuer or any of its Associates or Affiliates).
  • Auditors for Emerging Market Issuers must be pre-cleared by the TSXV.
  • Emerging Market Issuers will be required to engage their auditors to perform reviews of the Issuer’s interim period financial statements for each interim period in the two years following the listing of the Issuer.
  • Emerging Market Issuers will be required to have a system of internal controls over financial reporting in place at the time of listing and following listing (unless the Emerging Market Issuer’s business operations are not revenue generating).
  • Per section 1.17 of Policy 2.3, if an Issuer’s principal properties or assets are located outside of Canada or the United States, the Issuer will generally be required to provide a title opinion to the TSXV. In addition, the Emerging Market Issuer will be required to provide a legal opinion that the Issuer has all required permits, licenses and other applicable governmental approvals to carry out its business operations in the relevant jurisdiction.
  • Exemptions from the sponsorship requirement pursuant to sections 3.1(a) and 3.4(a)(ii) of Policy 2.2 will not be available to Emerging Market Issuers. Sponsorship reports must be include the requirements of Form 2H-Sponsor Report and the review procedures set forth in Appendix 2A.

Many of these requirements are required both at the time of listing and on an ongoing basis post listing. Accordingly, if the TSXV Emerging Market Issuer Policy is implemented in its current form, Issuers should be mindful of the potential impact of corporate actions such as, without limitation, changes of directors and senior officers and change of auditors.

If you have questions about how the new policies may affect your company, contact any member of Clark Wilson LLP’s Corporate Finance & Securities Group.