On July 13, 2015, the TSX published guidance on what is an Emerging Market Issuer (“EMI”) and what an EMI faces in terms of special risks, what would be required for an initial listing of an EMI, and what ongoing listing requirements will exist for EMIs beyond what is required for other issuers.
Generally, TSX will consider the following factors in determining whether an applicant or an issuer may be an EMI: (i) residency of “mind and management”; (ii) jurisdiction of the principal business operations and assets; (iii) jurisdiction of incorporation; (iv) nature of the business; and (v) corporate structure. The presence of any one or more of these factors may lead to an issuer being considered as an EMI. TSX considers any jurisdiction outside of Canada, the United States, the United Kingdom, Western Europe, Australia and New Zealand may be an EMI. Given the large number of potential jurisdictions and the infrequency of applications from such jurisdictions, TSX will assess other jurisdictions on a country-by-country basis.
Issues indicated as particular risks for EMIs include: knowledge of Canadian regulatory requirements, communication where English is not the common language, qualification of auditors, qualifications of CFO and audit committee, adequacy of internal controls, non-traditional capital structures, title to assets, and foreign legal requirements. These items need to be addressed by EMIs to ensure investors have full knowledge of the risks and steps are taken to mitigate them.
EMIs will have to demonstrate to the TSX that they possess public company experience, have independent board oversight of management, have appropriate local business knowledge in the jurisdiction of operations, and have a suitable CFO and audit committee. The EMI also requires that its auditors have experience in the EMI’s jurisdiction of operations and have the resources to work in the complex trans-national sphere. Internal controls for EMIs will have to be comprehensive.
Most EMIs will require a TSX member firm sponsorship in order to list. Any related party transactions will get very close scrutiny, and the TSX may require an EMI to have a related party policy. Capital structures that are at all unusual will also face considerable review and the TSX must be convinced of the structure’s legality and ability for capital and shares to move freely. The TSX will conduct background searches on key management, board members and significant security holders.
While there is not much completely new in the TSX policy on EMI’s, the TSX has given notice with this policy that EMIs must be ready with a complete package and satisfactory responses to all these issues before it attempts to list.
If you have questions about listing as an Emerging Market Issuer, contact any member of Clark Wilson’s Corporate Finance & Securities Group.