TSX has finalized its new rules for listed companies on security-based compensation arrangements and website postings. New disclosure requirements for burn rates, the impact of multipliers on the number of securities issuable under security-based compensation arrangements and default vesting provisions have been put in place. These new rules will be effective for listed issuers with financial years ending on or after October 31, 2017 and the website posting requirements will be effective on April 1, 2018. Eligible Interlisted Issuers, Eligible International Interlisted Issuers and Non-Corporate Issuers, defined below, are exempt from the website posting requirements.
- Eligible Interlisted Issuers: issuers that are cross-listed on TSX and a foreign recognized exchange (including NYSE, NYSE MKT, NASDAQ, London Stock Exchange Main Board, AIM, Australian Securities Exchange and Hong Kong Stock Exchange Main Board) if less than 25% of the issuer's overall trading volume took place in Canada in the past 12 months.
- Eligible International Interlisted Issuers: Eligible Interlisted Issuers that are organized in a recognized jurisdiction (including Delaware, England, Australia, Hong Kong and other jurisdictions with corporate statutes substantially modelled after these jurisdictions).
- Non-Corporate Issuers: exchange traded products, closed-end funds and structured products (as those terms are defined in the TSX Company Manual).
Security-Based Compensation Arrangements
Listed issuers will have to disclose annual burn rate information for each of the three most recently completed fiscal years for each security-based compensation arrangement. The formula for calculating the burn rate percentage is as follows:
number of awards granted in the fiscal year
weighted average number of outstanding securities for the fiscal year
No burn rate disclosure is required for the first year of a new compensation plan. However, new plans adopted to replace similar plans would not fall within this exception.
Details about any multipliers on awards (such as treasury-settled PSUs which vest based on the level of achievement of certain performance criteria) will have to be disclosed.
Default term and vesting provisions will have to be summarized for all security-based compensation arrangements – not only for stock options.
Other than the burn rate information, annual security-based compensation arrangement disclosure will be presented as at the end of the most recently completed fiscal year rather than as at the date of the meeting materials. However, where a security-based compensation arrangement is being presented for securityholder approval at a meeting other than an annual meeting, the information must be brought forward to the date of the meeting materials.
TSX's objective with website disclosure is to promote consistency in the marketplace and easier access to companies' corporate governance information. In order to achieve this, TSX-listed companies that are not Eligible Interlisted Issuers, Eligible International Interlisted Issuers, or Non-Corporate Issuers will have to post the following documents on their websites.
- articles of incorporation or other constating documents and the issuer's by-laws;
- majority voting policies;
- advance notice policies;
- position descriptions for the chair of the board and the lead director;
- board mandates; and
- committee charters.
TSX is not mandating that companies adopt the above documents if not otherwise required – for example, advance notice policies are not mandated by securities laws or TSX rules. TSX is not requiring website postings of securityholder rights plans (poison pills), security-based compensation arrangements or position descriptions for key officers.
Canadian securities laws generally do not require companies to post disclosure on their websites. However, the SEC and NYSE prescribe a limited number of documents including board mandates, committee charters and codes of ethics, that U.S. companies must post on their websites (with the web address disclosed in the corresponding SEC filing).
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.