David George-Cosh

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The Canadian Securities Exchange (CSE) plans to establish a new tier for companies that adhere to stronger disclosure and governance standards as well as exchange-traded funds (ETFs) and special purpose acquisition companies (SPACs), in a move aimed at boosting trading volume within the junior exchange. 

CSE Chief Executive Officer Richard Carleton said in an interview Wednesday that the exchange will look to create a new "senior tier" that includes 60 to 80 companies following final approval by Canadian securities regulators. 

"This is the culmination of literally about two years of work with the regulators, both to basically update the rules for the existing companies but also to provide a framework for regulating the large companies which are listed on the exchange which are primarily U.S. cannabis companies but not exclusively in that space," Carleton said. 

Canadian securities regulators plan to issue a notification on Thursday to solicit inquiries from companies that might want to join the CSE's senior tier as well as investors, Carleton said. Representatives from the Ontario Securities Commission and British Columbia Securities Commission were not immediately available for comment. 

Since the CSE was approved as a stock exchange by Ontario’s securities regulator in 2004, it has grown to offer an alternative to the much-larger Toronto Stock Exchange and TSX Venture markets operated by TMX Group Ltd. while carving out a reputation as a market that caters to entrepreneurs seeking less stringent listing requirements. For example, CSE-listed companies must publicly issue a minimum of 10 per cent of their outstanding shares compared to the TSX which requires a minimum of 20 per cent. CSE-listed companies also have lower asset value requirements and fee payments compared to the TSX and TSX Venture exchanges. 

To qualify under the CSE's new senior tier, companies will have a smaller window of time to report quarterly financial information and audited statements and will face stricter oversight of disclosed materials and improved governance procedures such as larger boards, Carleton said. 

Other criteria the companies will need to meet include reaching a certain level of market capitalization and revenue, Carleton said. A full list of detailed criteria will be specified in the regulators' statement on Thursday, he added. 

"The intention is to provide a formal rule framework for senior tier companies that basically looks like the original listing and continued listing criteria for the [Toronto Stock Exchange]," Carleton said.

Carleton added that the new CSE framework would also allow ETFs and SPACs to trade on the exchange. Currently, those securities are not eligible to trade on a junior exchange like the CSE, he noted. 

In addition to the CSE's planned listing changes, Carleton said that he has begun talks with the Investment Industry Regulatory Organization of Canada (IIROC) to determine whether any of its listed companies would qualify to trade on margin, a risky strategy where investors can borrow money from brokerages to invest in securities.

"Just because these companies are listed on us, they are not eligible for that beneficial margin treatment through the IIROC rules," he said "But we're working with IIROC to address that."