REGULATORY NOTICE
No. 99-032
October 8, 1999
_____________________________________________________________________
Suggested Routing: Senior Management, Corporate Finance
REQUEST FOR COMMENTS
SUSPENSION AND DELISTING POLICY - CHANGES TO
CONTINUED LISTING REQUIREMENTS AND SUSPENSION REVIEW PROCESS
On September 28, 1999, the Board of Governors of the Toronto Stock Exchange approved
changes to the continued listing requirements and to the suspension and delisting process for listed
companies. Listed companies that do not meet the minimum standards and criteria as detailed in
the continued listing requirements are reviewed for possible suspension or delisting. The new
requirements are attached. Continued listing requirements were last updated in 1995.
The new requirements are effective immediately on an interim basis, pending OSC approval
following public notice and comment. Implementation of the new policy will be subject to a six-month
"grandfathering" period, during which time companies will continue to be subject to review for
suspension under the existing policy. Comments should be in writing and delivered within 30 days
of the date of this notice to:
Gerald B. Ruth
Director, Company Listings
The Toronto Stock Exchange
The Exchange Tower
130 King Street West
Toronto, Ontario M5X 1J2
Fax: (416) 947-4547
e-mail: gruth@tse.com
A copy should also be provided to the
Manager
Document Management
Market Operations
Ontario Securities Commission
20 Queen St. West
Toronto Ontario M5H 3S8
Comments will be publicly available unless confidentiality is requested.
OVERVIEW
The changes to the continued listing requirements are designed to maintain the alignment with
original listing requirements which were raised in 1998, to set higher minimum standards for listed
companies, and to introduce more transparent criteria and a more systematic review process. The
new suspension review process is designed to promote the efficient application of the new criteria
and to better serve our constituents.
While this initiative is part of the TSE's regular review of all listing requirements to ensure the quality
of listings and to reflect changing market conditions, the proposed revisions also support the thrust
of the realignment of the Canadian stock exchanges, under which the TSE is to focus on senior
equities and the Canadian Venture Exchange is to focus on junior equities.
In initiating these changes the key objectives of the TSE were to:
raise requirements to be better aligned with original listing requirements which were
increased in late 1998;
ensure that listing standards reinforce the TSE's focus on senior equities particularly in light of
the pending realignment of the Canadian markets;
ensure that requirements are appropriate in comparison to competitor markets;
redesign the suspension review process for increased effectiveness in applying the policy
and to better serve our constituents;
simplify and clarify the policy in Part VII of the TSE Company Manual; and
complement the new standards recommended by the TSE/OSC joint Mining Standards Task
Force
In formulating the amendments to the policy, considerable data was complied and analyzed on
listed companies and on the maintenance requirements of other exchanges. In addition, a number
of individual experts were canvassed.
KEY CHANGES
The amendments to the Policy introduce a minimum market capitalization requirement of $3 million
coupled with an increase in the public float requirement to $2 million. These two key changes form
the basis of a new system focused more on objective measurements and less on subjective
criteria. Increases in fundamental financial criteria should further the identification of companies
with unsatisfactory activity levels, operating results or financial condition.
The obligation to comply with the Exchange's disclosure policies including the recently introduced
disclosure standards for mining companies will be highlighted. The Policy has also been revised to
contain a clear statement that companies must retain on an ongoing basis capable and
experienced management.
A more systematic suspension review process is being introduced to promote the efficient
application of the new, more objective maintenance criteria. Under the new process, companies
will be notified promptly when they fall below the maintenance standards and will be allowed a
120-day remedy period to address deficiencies where there are no market integrity concerns. If the
decision is made to suspend, the market will be provided with 30-days notice prior to the
suspension of a company's securities.
DISCUSSION OF CHANGES
Market Performance and Public Distribution
1.Introduction of a minimum total market capitalization requirement of $3 million.
Companies will be subject to review for suspension if the market value of the company's
issued securities that are listed on the Exchange is less than $3 million over any period of 30
consecutive trading days. One key indicator of a listed company's financial and operating
performance is the market performance of the company's securities. The introduction of a
minimum total market capitalization (market value) requirement provides a clearly discernible
quantitative measure of a company's size and market performance. The current suspension
review system focuses principally on the application of fundamental financial criteria that rely
more on financial statement disclosure, which is less objective and transparent, more of a
lagging indicator, and at times difficult to apply uniformly across different industry sectors.
2.Increase in minimum market value of public float from $1.0 million to $2.0 million
The increase in the minimum market value of the freely tradeable, publicly held securities
re-establishes the level of this criterion at 50% of the original listing requirement of $4 million.
Under the new requirements, companies will be subject to review for suspension if the market
value of the public float is less than $2 million over any period of 30 consecutive trading days.
This quantitative standard continues to be relevant in identifying companies where the value
of the shares available for trading has been so reduced as to not warrant continued listing on
the TSE.
Financial Requirements for Industrial Companies
3.Increase the total asset requirement from $2 million to $3 million; and
increase the total revenue requirement from $1 million to $3 million; and
increase the expenditure requirement for Research and Development companies from
$500,000 to $1 million.
Under the new requirements, companies in the Industrial category must maintain either annual
revenues from ongoing operations of at least $3,000,000 in the most recent year, or total
assets of at least $3,000,000, or for companies whose main business is research and
development, expenditures of at least $1,000,000 on research and/or development,
acceptable to the Exchange, in the most recent year. These requirements have been raised
within the context of the original listing requirements, and based on the analysis of listed
companies and the comparison with other exchanges.
4.Eliminate the requirement for companies that have had losses in the last two years to have
net tangible assets of at least $1 million.
The current requirement for companies with losses for the past two years and market
capitalization of less than $10 million, to have net tangible assets of at least $1 million has
been eliminated. The analysis of listed companies indicates the requirement is redundant
and less relevant than other criteria.
Financial Requirements for Resource Companies
5.Increase minimum exploration and/or development expenditures from $250,000 to $350,000;
and increase the minimum revenue from the sale of commodities from $1 million to $3 million.
Companies in the Mining and Oil & Gas categories are required to have either generated
revenue of at least $3,000,000 from the sale of resource-based commodities in the most
recent year or have carried out at least $350,000 of exploration and/or development work
acceptable to the Exchange, in the most recent year.
The increase in the revenue requirement is based on the analysis of listed resource
companies and discussions with technical experts regarding revenue levels expected from
commercial operations. The increase in the minimum expenditure level for exploration and/or
development from $250,000 to $350,000 is tied to the increase that was introduced to the
original listing minimum program requirement for mining companies from $500,000 to
$750,000. The $350,000 level was determined to be appropriate for Oil & Gas companies as
well.
6.Replace the $100,000 working capital requirement with the requirement for all resource
companies to have adequate working capital to carry on the business and an appropriate
capital structure.
While working capital remains of key importance to exploration companies, it was
determined to be inappropriate to insist on an arbitrary minimum to cover all companies
having a variety of different financial needs and financial arrangements. On this basis the
working capital requirement for resource companies was changed to "adequate working
capital to carry on the business and an appropriate capital structure".
Regulatory Compliance Issues
7.Highlight the existing requirement for companies to comply with the Exchange's disclosure
policies, including the recently introduced Disclosure Standards specific to Mining
companies.
This reinforces the requirement to comply with existing disclosure policies and formalizes the
requirement for mining companies to comply with the recently introduced "Disclosure
Standards for Companies Engaged in Mineral Exploration, Development & Production". The
introduction of the requirement to adhere to these disclosure standards is consistent with the
recommendations of the Mining Standards Task Force.
8.Clearly state the requirement for companies to have, on an ongoing basis, management with
adequate experience and technical expertise.
This confirms that all companies must maintain on an ongoing basis capable and
experienced management, complementing the original listing requirements. This new
requirement also complements the Mining Standards Task Force recommendation that
mining companies be required to have management with relevant technical expertise on an
ongoing basis.
Suspension Review Process
9.Introduction of a new systematic suspension review process which provides a 120-day
remedy period to regain compliance and a 30-day pre-notification to the market of a
suspension.
A new remedial suspension review process is introduced to facilitate the efficient application
of more objective criteria, while better serving the Exchange's constituents. For companies
that have fallen below the continued listing requirements, but for which there are no market
integrity concerns, a 120-day remedy period provides the company with the opportunity to
address the deficiencies and regain compliance with the minimum standards, or be
suspended. Alternatively, the remedy period provides companies with the opportunity to
secure a listing on another market. The current suspension review process will continue to be
applied to "event-triggered" reviews where companies are reviewed for suspension as a
result of a significant negative development, and a timely response is required to maintain
market integrity.
COMPARISON WITH OTHER JURISDICTIONS
The changes to the continued listing requirements are designed to reinforce the TSE's position as
the senior market in Canada. Nasdaq (National Market) and the NYSE (as of July of this year) both
have established a minimum market capitalization that listed companies must maintain. Both
Nasdaq and NYSE allow companies a remedy period in which to regain compliance with their
minimum standards; Nasdaq provides 90 days whereas the NYSE provides either 6 or 18 months
based on which standards the company fails to meet.
IMPACT
The introduction of the changes to the suspension and delisting policy will impact a number of
companies currently traded on the TSE. It is anticipated that approximately 100 companies
currently listed on the TSE would be suspension candidates under the new criteria. However, in
light of the implementation schedule, which includes a six-month "grandfathering" period followed
by a 120-day remedy period under the revised policy, it is likely that some companies will be
successful in addressing their deficiencies.
IMPLEMENTATION
The amendments to the policy were introduced October 1, 1999. Implementation is scheduled for
April 1, 2000, at the end of a six-month grandfathering period. Upon implementation, companies
that fail to meet the new continued listing standards will be notified and subject to the new
suspension process. Accordingly, these companies will be given 120 days in which to meet the
new maintenance requirements of the Exchange or be suspended from trading. During the
six-month grandfathering period, companies will continue to be subject to review for suspension
under existing standards.
BY ORDER OF THE BOARD OF GOVERNORS
LEONARD PETRILLO
VICE-PRESIDENT,
GENERAL COUNSEL &
SECRETARY |
