TSX has adopted new rules for dividend and distribution reinvestment plans, effective immediately, to provide a complete set of standards and practices. Existing DRIPs, and the listing of additional securities under them, are grandfathered, so issuers with DRIPs already in place will not have to comply with the new rules until the DRIP is amended and requires TSX approval.
Summary of the New DRIP Rules
The rules apply to plans under which securityholders may reinvest their cash dividends or distributions in additional listed securities or elect to receive additional listed securities in lieu of cash dividends or distributions. Excluded from the rules are DRIPs not involving issuances from treasury, i.e., where the issuer purchases securities for the DRIP solely on the secondary market.
DRIPs and amendments must be submitted to TSX for pre-clearance at least 5 business days in advance. Following pre-clearance and approval by the issuer's board of directors, supporting documentation for the listing must be filed with TSX.
The number of securities listed to cover DRIP issuances must be either (i) 5% of the issuer's outstanding securities or (ii) an amount to cover issuances for two years, up to a maximum of 10% of the outstanding securities. (TSX permits re-applications, and this rule is not meant to restrict the overall number of securities issuable under DRIPs.)
The floor price for DRIP issuances is a 5% discount to market. Market prices must be calculated using volume-weighted average trading prices for an immediately preceding period of between 5 and 20 trading days.
Securities issued under a DRIP may be of a different class than the dividend- or distribution-paying securities. But if the latter are not listed, and the DRIP involves issuing listed securities, the TSX's private placement rules will apply. TSX will, however, typically permit unlisted securities to participate in DRIPs on an equivalent basis with listed securities if the two classes are economically equivalent; for example, the unlisted securities are exchangeable for the listed securities.
All securityholders must be eligible to participate in a DRIP, except that issuers may limit the participation of securityholders residing outside of Canada.
Suspensions or terminations of DRIPs must be announced by news release.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2020 by Torys LLP.
All rights reserved.