TSX introduces new standards for pricing of public offerings

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On April 20, 2023, the Toronto Stock Exchange (TSX) adopted amendments [PDF] (the Amendments) to Section 606 – Prospectus Offerings of the TSX Company Manual (the Manual) which set new standards relating to the pricing of public offerings, including when the TSX will apply the private placement provisions of Section 607 – Private Placements of the Manual to a prospectus offering. The new rules are substantially the same as the draft Amendments previously circulated by the TSX in December 2022.

Section 606 of the Manual sets out certain rules for issuers proposing to distribute securities by way of a prospectus offering and outlines factors used by the TSX in determining whether a transaction constitutes a “bona fide” public offering. Proposed transactions that do not meet the criteria for bona fide public offerings are instead subject to the more restrictive rules for private placement financings under Section 607 of the Manual, which include specific limitations on offering price discounts. 

Prior to the Amendments, Section 606 of the Manual listed five factors used by the TSX in making its determination of whether an offering was a bona fide public offering without providing guidance on their relative importance or application. In particular, the list of factors included “offering price” but the Manual did not specify what was an acceptable level of discount. This led to uncertainty as to when the TSX would apply its private placement rules to a public offering.

Given changing market practice, including the common use of bought deals and overnight marketed offerings that are executed and priced within a shorter timeframe which allows for less price discovery, and the TSX’s experience that the absence of clear pricing guidelines was causing increased engagement by issuers with the TSX regarding the pricing of public offerings, the TSX concluded that it was advisable to set new standards relating to the pricing of public offerings. The TSX published a request for comments with respect to proposed amendments to Section 606 of the Manual on December 1, 2022 and, following the public comment period, adopted the Amendments effective April 20, 2023.

Pursuant to the Amendments, if a proposed prospectus offering is not “broadly marketed” (as defined in the Amendments) or is “broadly marketed” but does not satisfy the new limitations for insider participation set out in the Amendments, then the TSX will not consider the offering to be a bona fide public offering and will apply the TSX rules applicable to private placements to the offering. The private placement rules impose additional restrictions on the offering price discount, maximum dilution, and insider participation for the offering which are not applicable to a public offering and, in certain circumstances, the TSX will require shareholder approval of a private placement.  As a result of the Amendments, issuers and dealers must carefully consider insider participation in a proposed prospectus offering in light of potentially triggering the application of the TSX’s private placement rules, including shareholder approval requirements. 

Read the full Update published on April 24, 2023