We sat down with Dom Mannella, an associate in our Capital Markets & Securities department, to learn about his practice and hear about what we can expect from the Canadian securities regulators in the coming year.
How has your role changed as an advisor now that you are in private practice?
When I worked as the Listings Manager in the Listings Department at the Canadian Securities Exchange (CSE), my role was to review listing applications (Form 2A – Listing Statements, prospectuses, etc.), proposed transactions, and prepare written recommendation with a memo of the listing application which I would then submit to the Listings Committee for review and approval. On a regular basis, I would advise lawyers representing listed companies as to the interpretation and application of the CSE policies and procedures as well as applicable corporate and securities laws.
Since I joined Foglers as an associate in the Capital Markets & Securities Group, I am now on the other side of the fence. This allows me to put into practice the knowledge and skills gained during my time the CSE and apply them when representing our clients on go-public transactions and their continuous disclosure obligations. In a few cases, the partners in charge of files would reach out for my guidance on the interpretation and application of the CSE policies and how they applied to their clients. It is very rewarding to see how my advice and analyses can have a positive impact on the listed issuers and their advisors. It helps me bring a greater sense of duty to my practice when I am advising clients on the best way to go public on any stock exchange in Canada.
Public companies face a range of novel compliance challenges, so being able to offer counsel from a former Listings Manager and Legal Counsel to the CSE, is a great value for our clients. What sort of insights are you able to share to help them navigating both their business and legal issues?
Having analysed, reviewed, and approved more than two hundred listing applications or proposed transactions on the CSE over the past 4 years, I can state without hesitation that my advice is beneficial to the management and board of directors of listed issuers. I have gained great insights as to how CSE policies are applied and what are the expectations when structuring a deal on the CSE, whether through a business combination (RTO), an IPO, or direct listing (non-offering prospectus). One of the key benefits of having first-hand knowledge of listing applications or proposed transactions was the opportunity to discuss and learn in greater details which policy topics mattered the most to the members of the CSE’s Listings Committee. Having that insight was helpful to avoid potential regulatory pitfalls and reduce costs for those issuers accessing the public markets. Also, my experience has taught me that it is always good corporate policy to be on the regulators good side; to be forthcoming about an issuer’s details to go public on a recognized stock exchange in Canada; or when they acquire an asset or another business.
With the expected release of the new CSE rule, what can we expect from the CSE to modernize capital markets?
On December 9th, 2021, the CSE (“Exchange”) published a proposal (the “Proposal”) to amend its policies and introduce requirements (the “Amendments”) for Listed Issuers that are like existing requirements on the TSX, TSXV, and NEO Exchange. The OSC and BCSC have completed their review of the 60-day comment period on the Proposal and will publish the Amendments in the upcoming months. The Proposal was developed in response to the CSE’s success in attracting larger global companies in recent years.
There are two major components to the Proposal. Firstly, the CSE is updating their requirements for junior issuers, both in terms of initial listing requirements and continued listing requirements on the Exchange. Secondly, the CSE is creating a senior tier on the Exchange for larger and more advanced issuers who have achieved a certain size and maturity in terms of revenue, assets, and market capitalization. The Amendments include additional qualifications and requirements for this distinct subset of listed issuers that would be designated as Non-Venture Issuers (the “Senior Tier”), as defined under NI 51-102 for larger issuers for which the qualifying criteria proposed for this distinct tier are intended to be like those of the TSX or NEO. Accordingly, the Senior Tier would make a long-term listing on the CSE significantly more attractive for successful companies. There are multiple benefits for issuers designated as members of the Senior Tier and they are creating a rule framework that will regulate these companies, in effect as senior issuers. Other significant changes include Exchange review and securityholders approval of certain transactions or developments.
Your experience both here in Canada and in the US has allowed you to guide clients through their securities compliance obligations under an array of financial regulations. What do you foresee being the focus of Canadian securities regulators in the coming year?
Over the past years, the Canadian Securities Administrators (CSA) and the provincial securities commissions have adopted several policy initiatives to keep up with recent developments in the areas of ESG, mining, cannabis, crypto, climate-change and board diversity and inclusion. Also, because of the market’s frenzy during COVID in 2020-2021, we have seen market conditions deteriorating when faced with interest hikes from central banks which have reduced the ability of junior venture issuers to raise money in the public markets. In 2023, companies intending to access the public markets will be faced with a myriad of challenges, notably, the cost of borrowing and raising money has significantly increased and will affect the “bottom line” of those companies. Regarding listed issuers on the CSE however, one of the benefits of that stock exchange is that listing fees are lower than other exchanges in Canada. Therefore, the cost of listing a company (as well as their monthly fees) will remain relatively low despite the increase in interest rates and inflation which have pervaded our economy.
I believe that the CSE’s new rule book combined with the CSAs recent changes/amendments to the prospectus exemptions under NI 45-106 (Listed Issuer Financing Exemption) and the OSC’s 18-month pilot program for a new self-certified prospectus exemption set forth in NI 45-507, will have an inevitable impact on retail investors and issuers in giving them access to a new source of capital and to increased investment opportunities. Also, the mining industry has changed significantly over two decades with emerging demand for environmentally friendlier commodities, carbon-neutral initiatives, and an increased investor awareness relating to ESG. In addition, the CSA recognized the need for modernization, releasing CSA consultation paper 43-101 on April 14, 2022 (the “Consultation Paper”). The Consultation Paper had an original 90-day comment period, which was extended to September 13, 2022. Finally, with regard the crypto industry, the CSA and OSC have jointly published guidance to improve the quality of disclosures provided by crypto asset reporting issuers and are continuously adapting to new and innovative ways of trading listed crypto assets. It remains to be seen how the regulatory framework will both protect investors while promoting capital formation.