The Canadian Securities Exchange (CSE) has implemented amendments (the Amendments) to its policies with the stated objective of promoting investor confidence and encouraging capital markets participants to engage with CSE-listed issuers.
The Amendments represent a significant enhancement of the continued listing requirements (CLR) which must be met by issuers listed on the CSE. There are also a number of Amendments related to ancillary, housekeeping and other matters.
We think CSE-listed issuers pursuing legitimate business objectives should not find the Amendments difficult to comply with. Those who may be seen to be promoting listings with other objectives should take note of the Amendments.
The following is a summary of the Amendments:
Continued Listing Requirements
Previously, in order to continue to qualify for listing on the CSE, issuers were only required to meet certain basic minimum requirements. Most importantly, they were required to: (a) be in good standing under corporate law, (b) remain a reporting issuer in good standing under securities law, (c) be in compliance with CSE requirements and the terms of their listing agreement, and (d) comply with certain protocols relating to public disclosure.
In addition to the basic minimum requirements noted above, going forward all CSE-listed issuers must meet the following CLR on an annual basis:
Minimum of 250,000 shares in the public float;
10% or more of listed shares in the public float; and
At least 150 public securityholders each holding one board lot of freely trading shares, subject to an exception that would permit no less than 100 public securityholders immediately following a consolidation.
Adequate working capital or financial resources to maintain operations for a period of 6 months.
No prescribed requirement, however the CSE may determine that an issuer no longer meets the CLR if it either:
Reduces or impairs its principal operating assets; or
Ceases or substantively reduces its business operations.
For a mining or oil and gas issuer, either:
For the most recent fiscal year: (a) positive cash flow, (b) significant revenue from operations, or (c) $50,000 in exploration or development expenditures; or
For the three most recent fiscal years, an aggregate of $100,000 in exploration or development expenditures.
For other industry segments, either:
For the most recent fiscal year: (a) positive cash flow, (b) $100,000 in revenue from operations, or (c) $100,000 of development expenditures; or
For the three most recent fiscal years, either $200,000 in operating revenues or $200,000 in expenditures directly related to the development of the business.
We note that the CLR are directly comparable with, and in many cases less onerous than, the continued listing requirements which must be met by issuers listed on the TSX Venture Exchange.
The CSE has stated that they intend to ultimately delist issuers that are not working towards meeting CLR. It does not appear to be the intention of the CSE to delist issuers for minor breaches of policy. Rather, prior to taking any action it appears that staff will consider the nature of the deficiencies and the actions of an issuer attempting to remedy deficiencies.
Issuers that do not meet the CLR may be designated as inactive, assigned to a different industry segment, suspended from trading or delisted. Under the Amendments, the CSE will provide notice to a listed issuer in default. An issuer will have nine months from the date of the notice to remedy the default(s).
The Amendments limit certain activity by an issuer that has been deemed inactive due to failure to meet CLR. For example, such an issuer may not enter into a contract or agreement with any person to provide investor relations services for the issuer without prior approval of the CSE. Financing activity for inactive issuers is also somewhat limited.
Issuers that have received a default notice or that have been designated as inactive and are subsequently suspended for any reason will not resume trading after remedying the breach that caused a suspension. Issuers that are inactive and suspended will be delisted following the 90 day suspension unless an application is made to requalify for listing.
The Amendments describe the conditions that must be met for an issuer to no longer be considered an inactive issuer.
Suspension of Trading
Previously, CSE policies provided for automatic suspension of trading if an issuer failed to meet any of the requirements for listing. The Amendments allow CSE staff to exercise some discretion in assessing non-significant breaches and hopefully avoid unintended consequences resulting from automatic suspensions.
CSE policies also previously stated that following a 90-day suspension, securities of a CSE-listed issuer would be automatically delisted. The Amendments are more practical and provide for an extension of the suspension for an additional 90 days if staff is satisfied that the listed has made progress towards curing the default or breach that gave rise to the suspension.
The Amendments also expand upon the voluntary delisting process. This is consistent with common exchange practice, and clarifies the authority of the CSE to deny a voluntarily delisting in the public interest and to deny a delisting if there are outstanding fees owed to the CSE.
You can read the CSE notice here.
DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.