Written By John E. Piasta, Kristopher R. Hanc, Luke W. Johnson and Samantha Pettinato

On April 12, 2019, the Toronto Stock Exchange (TSX) released TSX Staff Notice 2019-0002, providing guidance on its new "Sandbox" initiative. This initiative is intended to facilitate the acceptance of: (i) original listing applications; and (ii) transactions involving changes in capital structure (including equity, debt, structured products and other securities), which may not fulfill all of the TSX's prescribed listing requirements, but which may nevertheless warrant acceptance if certain other conditions are met. While the TSX has always had the discretion to provide listing applicants with exemptions or waivers from its listing criteria (as set out in the TSX Company Manual), the TSX Sandbox framework provides insight into how such discretion will be exercised under this new initiative.

Who Is Eligible?

Applicants from any industry sector and at any stage in their business lifecycle are eligible to apply to the TSX Sandbox. The TSX has listed various eligibility criteria it will consider when evaluating Sandbox applications, which include, but are not limited to:

• Evidence of public support or investor interest.
• The applicant's established corporate governance practices.
• The applicant management team's experience level and track record.
• Incorporation in Canada or in a jurisdiction with comparable standards for corporate governance.
• The existence of a long-form prospectus receipted by a member of the Canadian Securities Administrators.
• The applicant's market capitalization.
• The presence of significant pre-tax cash flow from its operations.

Applicants that have been subject to regulatory sanctions, are emerging market issuers, or have questionable management practices are unlikely to be permitted to participate in the TSX Sandbox. Furthermore, applicants and listed issuers that have previously applied through TSX's standard procedures will be precluded from utilizing the TSX Sandbox unless specifically invited to apply by TSX staff.

The Application Process

Interested applicants should follow the TSX's recommendation and request a pre-filing meeting before applying to the TSX Sandbox. Presumably, these meetings will provide prospective applicants with further insight into the application process and their likelihood of acceptance. Applications should consist of the same documents as a regular application, but should also include a submission requesting that the application be reviewed via the TSX Sandbox, together with a discussion of relevant eligibility criteria.

All applications to the TSX Sandbox will be reviewed by the TSX's "Sandbox Committee". Where determined appropriate, the Sandbox Committee may award successful applicants with waivers or exemptions from certain TSX listing requirements. However, successful applicants will also likely be subject to special conditions, which may include, but are not limited to:

• Additional disclosure obligations (including the issuers involvement in the TSX Sandbox).
• A minimum market capitalization or public offering size that the issuer must meet.
• Enhanced sponsorship requirements.
• Enhanced escrow requirements.
• Enhanced reporting requirements to the TSX.
• The expiration date of any waivers or exemptions awarded to the issuer (i.e., the date such issuer will have to comply with all of the standard TSX requirements).

Once the awarded waivers or exemptions are no longer required and/or the issuer has met any additional conditions applicable to the TSX Sandbox listing, the issuer will exit the TSX Sandbox and become subject to standard TSX continued listing requirements.

First-Mover Advantage

First-mover applications are encouraged and will benefit from the TSX Sandbox, as after the TSX has had time to evaluate the market impact of the approved first-mover applications, subsequent similar applications may not be accepted. Additionally, approved applications should not be viewed as precedent-setting, as all decisions with respect to TSX Sandbox will be made strictly on a case-by-case basis.

Future Developments and Further Information

The TSX has announced that it will use its Sandbox as a testing ground for new policy initiatives that would normally require lengthier consideration periods before being implemented. Therefore, in addition to facilitating new listings and changes in capital structure for issuers, the TSX Sandbox could also become a transformative means for efficient and progressive securities policy development.

It remains to be seen the number and nature of issuers that will apply and be accepted to play in the TSX Sandbox and how this initiative may impact issuers' ability to raise capital and the capital markets in Canada generally. In part due to changes brought on by shifts in market conditions, investor demographics, technological innovation and globalization, initiatives to facilitate greater participation in Canadian capital markets, such as the TSX Sandbox, appear to be gaining momentum. We note that the Canadian Securities Administrators are also actively considering alternative prospectus models and other initiatives to reduce regulatory burdens on issuers, which may positively impact the capital raising environment in Canada. As the TSX Sandbox evolves, it is expected that additional TSX Staff Notices will be provided to update guidance, as necessary.

Please contact any member of our Corporate Finance or Mergers & Acquisitions practice groups for further information.

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