Allowable Discount Pricing of Private Placement Securities of Canadian Stock Exchange Listed Companies

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Conducting a private placement can be complicated. If you are listed on a stock exchange in Canada you are subject to securities rules of the provinces in which you are a reporting issuer (securities rules) and the rules of the stock exchange your securities are listed for trading (exchange rules). You must also comply with the securities rules where your potential investor(s) reside. Securities rules are silent on the issue of pricing of private placement securities. Exchange rules, however, dictate not only a minimum price but also the allowable discount to the market price private placement securities can be sold. The exchange rules acknowledge that a private placement discount is often times necessary to sell restricted securities that are subject to a hold period. At the same time, the limitations imposed by the allowable discounts ensure that the existing public shareholders are not unduly harmed by an unfair discount rate. These are the provisions of the exchange rules of each stock exchange in Canada concerning the allowable discount pricing of private placement securities, as of April 6, 2015:

Aequitas Neo Exchange

Aequitas Neo Exchange Inc. – Listing Manual 1.1 – Definitions (p.9) “Maximum Discount to market price” means the closing market price on the day preceding the date on which the Listed Issuer issues a press release announcing a transaction or files for price reservation, less a discount of 20%.

Canadian Securities Exchange

Canadian Securities Exchange – Policy 6 – Distributions 2.1 The Exchange defines the term “private placement” as a prospectus exempt distribution of securities for cash or in consideration for forgiveness of bona fide debt. Listed Issuers may not make a private placement at a price per security lower than the greater of (a) $0.05 and (b) the closing market price of the security on the Exchange on the Trading Day prior to the earlier of dissemination of a news release disclosing the private placement or posting of notice of the proposed private placement, less a discount which shall not exceed the amount set forth below:

Closing Price Discount
Up to $0.50 25% (subject to a minimum price of $0.05)
$0.51 to $2.00 20%
Above $2.00 15%

TSX Venture Exchange

TSX Venture Exchange – Policy 1.1 – Interpretation (p.5) “Discounted Market Price” means the Market Price less the following maximum discounts based on closing price (and subject, not withstanding the application of any such maximum discount, to a minimum price per share of $0.05):

Closing Price Discount
up to $0.50 25%
$0.51 to $2.00 20%
Above $2.00 15%

The TSX Venture Exchange on written request will consider granting a discretionary waiver of the $0.05 minimum pricing requirement.

TSX

TSX Company Manual > Part VI Changes in Capital Structure of Listed Issuers > B. Distributions of Securities of a Listed Class > Sec. 607. Private Placements 607 (e) The price per listed security for any private placement must not be lower than the market price less the applicable discount as follows:

Market Price Maximum Discount
$0.50 or less 25%
$0.51 to $2.00 20%
Above $2.00 15%

TSX will allow the price per listed security for a particular transaction to be less than as provided for in this Subsection 607(e) provided that the listed issuer has received security holder approval (other than by security holders participating directly or indirectly in the transaction and such security holders’ associates and affiliates).

Warrants

The foregoing exchange rules do not apply to the exercise price of warrants.  The exchange rules of each stock exchange in Canada dictate the exercise price per share of a warrant must not be less than the market price of the issuer’s listed securities or higher under certain circumstances.

Agent’s warrants are generally treated differently and are allowed to be priced at a discount equal to the discount rate of the securities sold in the private placement offering.

Alixe Cormick is the founder of Venture Law Corporation in Vancouver, British Columbia and a member of Commercialization Advisory Board of the Life Science Institute at the University of British Columbia, the Advisory Board of the National Crowdfunding Association and two private tech companies. She is also a member of the Pacific Northwest Keiretsu Forum, an association of accredited private equity angel investors, venture capitalists and corporate/institutional investors, and Vantech Angel Technology Network, a Vancouver angel group. You can reach Alixe by phone at 604-659-9188, by email at acormick@venturelawcorp.com, on twitter at @AlixeCormick or on Google+ at +AlixeCormick.
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Allowable Discount Pricing of Private Placement Securities of Canadian Listed Companies
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The exchange rules of each stock exchange in Canada concerning the allowable discount pricing of private placement securities, as of April 6, 2015:
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Venture Law Corporation
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Disclaimer

The articles on this blog are not intended to create and do not create, an attorney-client relationship. You should not act or rely on information on this website without first seeking the advice of a lawyer. This material is intended for general information purposes only and does not constitute legal advice. You are advised to contact legal counsel prior to undertaking any securities transaction. Laws change and there are subtle nuances to the rules that may apply in your particular circumstance.