NoticeJul 13, 2021

Notice 2021-004 - Guidance – Acquisitions by Listed Issuers

July 13, 2021

The Canadian Securities Exchange (CSE, or Exchange) is issuing this notice to provide guidance and clarify existing Exchange requirements and expectations with respect to disclosure of certain acquisitions by Listed Issuers.

CSE Policy 8 – Fundamental Changes and Changes of Business describes the shareholder and Exchange approval requirements for a Fundamental Change transaction, including but not limited to reverse takeovers.  For an acquisition that is not a Fundamental Change, Policy 6 – Distributions provides the requirements for an acquisition involving the issuance of securities and Policy 7 – Significant Transactions would apply to an acquisition not involving the issuance of Listed Issuer securities.

The Exchange has reviewed acquisitions of private companies by Listed Issuers that do not appear to meet the criteria for a Fundamental Change but result in the issuance of a significant number of listed securities.  In many cases, the described business of the private company was at a very early stage of development with no public disclosure and little evidence of value.  Shares of the private company were exchanged for listed securities with a significant difference between the price paid for the private company shares and the market price of the listed securities.

An acquisition by a listed issuer of an early-stage business or asset in a private company is not specifically, a transaction of concern.  When shares of the private company are exchanged for free trading listed securities at a higher price, there must be adequate evidence demonstrating the development of that business or asset and supporting the value of the shares exchanged. 

Exchange Requirements

As per CSE Policy 6 Section 3.1:

“Management of the Issuer is responsible for ensuring that the consideration paid for the asset is reasonable and must retain adequate evidence of value received for consideration paid such as confirmation of out-of-pocket costs or replacement costs, fairness opinions, geological reports, financial statements or valuations.  The evidence of value must be made available to the Exchange upon request.  Shares must be issued at a price that does not exceed the maximum discount allowable under section 2.1.”

While there is no explicit requirement for shareholder or Exchange approval, Exchange discretion is described in Policy 1, section 2, including “…the Exchange reserves the right to exercise its discretion in applying the policies in all respects.  The Exchange can waive or modify an existing requirement or impose additional requirements.”

In addition to the general compliance requirements outlined in CSE Form 4 – Listing Agreement, pursuant to section 2 a Listed Issuer shall

“(a) furnish to the Exchange or the Market Regulator, at any time upon demand, all such material information or documentation concerning the Issuer as the Exchange may require

Form Disclosure

Policy 6 sections 3.1 and 3.2 also include the public disclosure to be made with respect to an acquisition:

3. Acquisitions

3.1         Where a Listed Issuer proposes to issue securities as full or partial consideration for assets (including securities), the Listed Issuer must immediately post notice of the proposed acquisition (Form 9)…

3.2         At least one full Business Day prior to closing of the proposed acquisition the Listed Issuer must post an amended Form 9, if applicable1.

Proposed acquisitions should be consistent with the disclosed business objectives of the Listed Issuer.  Investment Issuers that were listed with a detailed investment strategy disclosed in a prospectus or listing statement may not be providing adequate disclosure about changes to investment strategy, particularly if the objectives are changed to accommodate a specific investment or acquisition. Further, if the investment policy or objectives were previously approved by shareholders, it may not be appropriate to amend the policy or objectives for an acquisition not previously contemplated by shareholders, whether or not explicit shareholder or Exchange approval is required by law or Exchange Policy.

Consultation and Guidance

Policy 8 requires that Listed Issuers consult with the Exchange prior to completing a transaction that may be considered a Fundamental Change.  While the transactions described in this notice may not appear to meet the criteria for a Fundamental Change, such determination may not be possible in the absence of financial disclosure about the private company.

Listed Issuers should consult with the Exchange in advance regarding an acquisition for which the consideration will be listed securities or securities convertible or exchangeable into listed securities.

A Listed Issuer that closes an acquisition prior to posting the documents required under s. 3.1 and s. 3.2 of Policy 6 will be in breach of Exchange requirements.

Conditions or Restrictions

Without financial disclosure or adequate evidence of value of the business or asset to be acquired, the CSE may require clarifying news releases with detailed risk factors, extended hold periods or escrow agreements for shares issued, or any other conditions the Exchange determines necessary to address the lack of disclosure.

The Exchange may determine that a transaction or series of transactions represents a significant departure from the stated objectives of the Listed Issuer and consider whether the disclosure and approval requirements for a Fundamental Change would be applicable.  The CSE may also object to a transaction if, in the Exchange’s view, there is no adequate supporting evidence of value for the consideration paid by the Listed Issuer.

Remedial Action

The Exchange will consider the interests of a Listed Issuer’s shareholders, and the broader public interest in considering the appropriate action when a Listed Issuer has proposed or closed a transaction with inadequate disclosure or evidence of value.

Trading in the listed securities may be suspended until such time as the conditions or restrictions described above have been met.  Further, the Exchange will consider the actions of the board and management of the Listed Issuer in the context of the Exchange’s suitability requirements for officers and directors of Listed Issuers.  The Exchange may deem any person to be unacceptable to be associated in any manner with a Listed Issuer if the Exchange reasonably believes such association will give rise to investor protection concerns or could bring the Exchange into disrepute.

Effective Date

The guidance provided in this notice reflects the existing requirements set out in CSE Policy.

For questions about CSE Listings Policies or procedures, please contact:

[email protected], or 416-367-7340.

Mark Faulkner, Vice President Listings & Regulation

[email protected]


[1]Form 9: the disclosure required in question 6 of Part 2 – Acquisitions may be provided in form of Tables 1A and 1B, with a table of all purchasers delivered directly to the Exchange.  See paragraph (6) in the Form 9 Instructions.

Follow us for the latest news from the CSE