On May 21, 2015, the TSX announced one set of amendments and one request for comment on proposed amendments to the TSX Company Manual (Manual), both respecting physical certificate requirements for securities. The amendments should not have a noticeable impact for many listed issuers or industry participants, but they do highlight a few trends to be aware of.
The amendments and proposed amendments were promulgated in response to the trend of increasing dematerialization of physical securities the securities industry has experienced over approximately the last decade, initiated on the part of industry participants such as transfer agents, exchanges, brokers, and especially, clearing agencies and depositories, like the Canadian Depository for Securities (CDS). Legal practitioners, transfer agents, issuers and underwriters should all be familiar with the effects of the trend, noting the continual increase in electronic closings in recent years, for both financing and M&A transactions. Topically, this trend is reflected in the increasing number of electronic issuances of securities to even United States purchasers by Canadian listed issuers, which until very recently would have required physical certificates to be delivered to those purchasers, mainly for legending and transfer restriction purposes.
The dematerialization of evidence of securities ownership is itself an industry response to mitigate the costs and risks associated with the physical evidence of security ownership, including the costs of printing, storing, transferring, and physical handling of certificates, and the risk of theft and loss. CDS especially, through its rules, has been at the fore of implementing the shift for participants to embrace dematerialization to reduce such costs and risks, as CDS was often the entity with the responsibility to securely store physical certificates, and maintain facilities, staff and processes for their handling and transfer.
The published amendments to the Manual are characterized by TSX as being of a “housekeeping” nature, which characterization the Ontario Securities Commission did not disagree with. The amendments have been in force since May 21, 2015. The amendments update the language of the Manual to contemplate additional forms of evidence of security ownership other than physical certificates, such as holding securities through CDSX, the electronic deposit system of CDS, and direct registration systems, (commonly referred to as “DRS”). The amendments otherwise update the Manual to codify or clarify existing practices and dematerialization trends as they apply to transactions for TSX listed issuers, including amendments to, among other things, the listing agreement, and the rules for supplemental listings, stock splits, and consolidations. One practical change in the amendments to highlight is that the Manual now codifies that TSX listed issuers may have a transfer agent with a principal office in one or more of each of Vancouver, Calgary, Toronto, Montreal, or Halifax, whereas the Manual previously required that issuers have a transfer agent with a principal office in Toronto. Continue Reading