On April 3, 2023, significant amendments (the “Amendments”) to the policies of the Canadian Securities Exchange (the “CSE”) came into force. The CSE has amended each of its ten policies – some of the Amendments are material and comprehensive, while others are consequential changes made for housekeeping purposes.
We are releasing a series of blog posts which summarize the material Amendments implemented by the CSE. In this first post, we focus on Amendments related to qualifications for listing of new issuers. Subsequent posts will focus on Amendments related to: distributions (including private placements and acquisitions); the creation of a separate tier of “NV Issuers”; and the listing of special purpose acquisition corporations.
Qualifications for Listing
CSE Policy 2 – Qualifications for Listing (“Policy 2”) sets out the listing requirements that issuers must meet in order to have their securities listed on the CSE. It is important to note that the minimum requirements set out in Policy 2 are not exhaustive – the CSE retains the discretion to impose additional requirements as it determines appropriate, including those it deems necessary taking into consideration the public interest.
Policy 2 also introduces the concept of “NV Issuers” (which have different listing requirements) and allows for the listing of special purpose acquisition corporations (which also have different listing requirements). Each of these topics will be discussed in a later blog post. This post focuses solely on the Amendments as they relate to minimum listing requirements for issuers seeking to list equity securities on the CSE.
Eligibility Review
Issuers that intend to apply for a listing on the CSE concurrently with or immediately following the filing of a preliminary prospectus must now receive prior confirmation from the CSE that the issuer will meet the CSE’s eligibility requirements. In order to obtain written confirmation of eligibility from the CSE an issuer must submit a document which contains sufficient detail as to how it meets or will meet the CSE’s eligibility requirements, such as a draft preliminary prospectus. Issuers with mining operations will need to also provide a technical report on qualifying properties. The CSE will conduct a review and provide a confirmation of eligibility or identify any conditions to be met prior to listing. This review process is subject to a fee, which will be applied to the non-refundable portion of the listing fee.
Float Requirements
An issuer seeking to list its equity securities on the CSE must now have a public float of at least 1,000,000 freely tradeable shares (increase from 500,000 freely tradeable shares), consisting of at least 150 public holders holding at least a board lot each of the security. It is important to note that the definition of “public holders” has also been amended to exclude anyone that holds 10% or more of the issued and outstanding shares of the issuer (increase from 5%). In addition, the public float must constitute at least 20% of the total issued and outstanding of that security (increase from 10%).
Specific Requirements for Mineral Exploration Issuers
Mineral exploration issuers must meet additional listing standards under the Amendments. Mineral exploration issuers must have title to a mineral property on which there has been exploration previously conducted including qualifying expenditures of at least $150,000 (increase from $75,000) by the issuer in the last 36 months. In addition, mineral exploration issuers must have a technical report, prepared in compliance with the requirements of National Instrument 43-101, which recommends further exploration on the property, with a budget for the first phase of at least $250,000 (increase from $100,000). Finally, mineral exploration issuers with a single exploration project must include disclosure of their objectives to pursue additional exploration projects or opportunities.
Despite the revised thresholds noted above, mineral exploration issuers may still qualify with $75,000 of qualifying expenditures and a $100,000 proposed work program, subject to additional restrictive escrow requirements as follows:
all builder shares, regardless of the holder, are subject to escrow;
the initial release from escrow is subject to CSE approval and must be no earlier than 10 days following public announcement of the results of the first phase program described in the issuer’s listing statement;
the transfer of shares within escrow is not permitted without CSE approval; and
the terms of the escrow agreement must irrevocably authorize and direct the escrow agent to immediately cancel all remaining escrowed securities upon delisting from the CSE or the announcement of a change of business or a definitive agreement for a transaction that would constitute a fundamental change.
Capital Structure – Builder Shares
Pursuant to the Amendments, the CSE will not consider a listing application from an issuer which is not yet generating revenue from business activity if such issuer has issued builder shares for less than $0.005 in the previous 24-month period (increase from 18 months).
The CSE may consider exercising discretion to amend or waive requirements related to pricing and builder shares if an issuer has a “Substantial Float”. The CSE will generally consider that an issuer has a “Substantial Float” if all the following requirements are met: (i) $2,000,000 in capital raised, excluding funds from related persons (increase from $1,000,000); (ii) 2,000,000 free trading shares (increase from 1,000,000); and (iii) 200 public shareholders with a minimum of one board lot each with no resale restrictions. It should be noted that the 20% public float threshold has been deleted from the “Substantial Float” criteria.
Additional Information
Readers are encouraged to review Policy 2 prior to making a decision to proceed with a potential listing on the CSE. Please note that the information above only summarizes the material Amendments made to Policy 2 and should not be interpreted as a comprehensive summary on the CSE’s listing requirements.
Stay tuned for additional blog posts regarding the Amendments. Please contact us if you would like further information.
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.