The Toronto Stock Exchange (TSX) is seeking feedback on new listing requirements for three distinct new categories of issuers or products including structured products, exchange-traded and closed-end funds.
The requirements would include tailored minimum listing criteria as well as requirements associated with the general issuance of securities, supplemental listings, management fees, security holder approvals, terminations and voluntary delistings, and continued listing requirements.
Citing the fundamental differences in the trading, liquidity and ability to raise additional funds among the three different product categories, the TSX is proposing certain differing standards for each, such as a minimum market capitalisation or IPO raising of $1m for exchange-traded and structured products and $20m for closed-end funds.
“We are proposing a low minimum IPO raise or market capitalisation requirement for ETPs as they are able to continuously offer additional securities from treasury and grow assets under management and their market capitalisation once listed,” said the TSX in the consultation report. “For structured products, we are proposing a lower minimum IPO raise or market capitalisation requirement because these products have short or medium-term expiry dates and trading liquidity may be supported by the issuer, acting as market-maker.”
Structured products
According to the TSX report, only a handful of structured products are currently listed on Canadian exchanges with the majority of structures being unlisted.
“Structured products are typically launched after a very short marketing period and raise a few million dollars per product,” stated the report. “Financial institutions tend to be serial issuers of these products and will market multiple products at a time.”
These products, said the TSX, typically have maturity dates between two and five years, and most investors tend to sell them close to the maturity date.
“Therefore, there is very little trading volume for most of the products’ lives, and a larger public float would not necessarily increase trading liquidity,” said the report. “If a certain product or structure becomes popular among investors, financial institutions will typically create a new series of that product instead of re-opening a previously issued structured product.”
The TSX said that these products typically have a market capitalisation ranging from approximately $1m to $15m and that competitor outfit Aequitas has set the minimum market capitalisation requirement at $4m to list structured products.
“In the past, TSX has allowed structured products to list with a minimum of $2m of market capitalisation based on the requirements for the supplemental listing of debt for corporate issuers,” it said. “Based on the limited need for liquidity and short product life, TSX is proposing $1m of market capitalisation as an appropriate minimum.”
CSA initiatives
The Canadian exchange said that the new proposals are aimed at aligning TSX’s rules to new regulatory developments specifically the adoption on June 19, 2014, by the Canadian Securities Administrators (CSA) of the amendments to NI 81-102—Mutual Funds that are specifically targeted at improving regulation of closed-end funds.
In addition, the new rules are intended to provide a “detailed and well-indexed compendium” of the requirements applicable to all applicants for listing and all listed issuers to ensure a transparent, fair and orderly market for listed securities.
“The rules are intended to accommodate issuers that are diverse in size and activity,” it said.
According to the exchange, over the past decade ETFs and closed-end funds have become more prevalent in Canada. At the end of 2008, there were three ETF providers in Canada, with 84 products listed on TSX. As of October 31, 2014, there were nine ETF providers in Canada with 335 ETFs listed on TSX, including 56 new ETFs listed in 2014. Over the last five years, TSX has averaged 35 new closed-end fund listings per year. Additionally, the quoted market value for all closed-end funds has increased from $19B at the end of 2008 to $26B as of October 31, 2014. It is expected that more ETF providers will enter the Canadian market over the coming years.
The TSX also said that the structured product market in Canada is dominated by the six major Canadian banks, none of which currently lists such products.
“There are currently only three providers of listed Structured Products in Canada, with six products listed on TSX or on other Canadian exchanges,” it said. “TSX believes there may be benefits to public listings for such products.”
The amendments will be effective upon approval by the Ontario Securities Commission following public notice and comment. The deadline to submit responses is March 16.
Click here to read the TSX consultation report.
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