In 2015, Canada’s junior stock exchange, the TSX Venture Exchange sunk to levels that a few years ago would have been inconceivable. This drop, caused primarily by the sustained slump in commodities, led the S&P/TSX Venture Composite Index to sink below 500 points for the first time since the TMX group bought the Canadian Venture Exchange in 2001. The low point represents a 29% drop from where the TSXV started at the beginning of 2015 and a staggering 85% drop from its peak in 2007.
A primary cause of the exchange’s poor performance has been the extremely challenging market conditions facing extractive resource issuers. At present, more than 70% of the companies listed on the exchange operate within the mining or energy sector.
After a two plus year depression in mining equities, combined with weak prices for most metals, as well as well as hydrocarbon products, junior resource issuers have fallen out of favour with investors.
TSXV White Paper
The TSXV, conscious of the market realities facing its issuers, and with the aim of attracting new investment, conducted a lengthy consultation process with clients and stakeholders. These consultations focused on identifying new initiatives to respond to realities facing its listed issuers and other market participants in light of the sluggish capital market conditions. The outcome of the consultations was a White Paper, issued on December 17, 2015. It contains proposed broad based reforms to various TSXV rules, policies and strategies aimed at fostering renewed interest in the exchange and its services. The full text can be found at: https://www.tsx.com/resource/en/1252.
The recommendations of the White Paper were synthesized into a three-pronged strategic reform program. The first and second prongs of this program are particularly relevant for current and potential resource based issuers.
Cost of compliance
The first prong of the program focuses on reducing the cost of compliance, a primary area of concern for most resource issuers.
The White Paper proposes a number of rule changes including:
- eliminating the general requirement for sponsorship of new issuers undertaking a reverse takeover (RTO), change of business (COB) or other business combination
- narrowing the application of shareholder approval requirements for inactive issuers undertaking an RTO or COB
- implementing a director and officer “NEXUS-type” status certification program reduce or eliminate ongoing requirements for certain individuals
- extending the shelf life of on-file personal information forms for directors and officers from three to five years eliminating escrow requirements that overlap with similar requirements of the Canadian Securities Administrators
- implementing an automated system for transaction filing and accelerating response times to speed up overall transaction processing
Attracting new capital
The second prong of the White Paper’s strategic reform program focuses on attracting new and more diverse capital to the TSXV. The initiatives proposed under this prong are less technical and less defined than those proposed under the first prong, but include commitments to undertake active and ongoing promotion of TSXV-listed issuers through roadshow presentations to fund managers, retail investors, investment advisors and banks and research analysts; instituting an ongoing streaming summary service of available public offerings; and introducing a new market making program to be administered by the exchange.
TSXV seeking feedback
While the exchange has committed to implementing the above listed reforms under an “aggressive timeline,” prior to doing so it plans to host a series of town hall meetings where it will entertain feedback on the strategy and proposed initiatives. In the coming months, existing issuers and other interested parties who may be impacted by these reforms should carefully monitor the developments, and provide feedback as appropriate.
Whether these initiatives will be successful in achieving their intended results remains to be seen, but given the extremely challenging market environment for resource issuers, the proposed reforms should be implemented efficiently and effectively to reduce the headwinds facing junior issuers. CMJ
James Clare is a partner with Bennett Jones in Toronto.