Effective June 2, 2025, the TSX Venture Exchange (the “TSXV”) has implemented substantive changes to its former Policy 5.4 – Escrow, Vendor Consideration and Resale Restrictions, now renamed Policy 5.4 – Capital Structure, Escrow and Resale Restrictions (the “New Policy”). These changes aim to streamline and modernize requirements for New Listings, including Initial Public Offerings (IPOs), Reverse Takeovers (RTOs), Changes of Business (COBs), and Qualifying Transactions (QTs).
This article highlights the most significant changes introduced in the New Policy. Notably, the TSXV has:
- broadened the criteria for demonstrating an acceptable capital structure,
- eliminated the “Surplus Securities” regime, and
- simplified the Seed Share Resale Restrictions (“SSRRs”).
Acceptable capital structure: Broader paths to listing
Under the New Policy, an Issuer must demonstrate an “acceptable capital structure” (previously referred to as “evidence of value”) by meeting at least one of the following criteria:
Contemporaneous equity financing
The majority of securities of the Issuer must be issued to subscribers who are not Non-Arms Length Parties of either the Issuer or the Target Company, and either:
- the Listed shares to be issued in the financing are at least 10 percent of the issued and outstanding Listed shares of the Issuer after the transaction and financing, or
- the financing raises gross proceeds of at least $5,000,000.
In either case, this includes equity financings completed by the Target Company within the past six months, provided the price is not below the Discounted Market Price.
Appraisal of valuation
An appraisal or valuation that supports at least 50 percent of the Consideration.
Consideration includes all payments made or to be made by the Issuer, and encompasses:
- all cash payments;
- the product of the maximum number of Listed Shares issuable multiplied by the Discounted Market Price of the Issuer;
- the value of all other securities to be issued; and
- the cash-equivalent value of all other forms of non-case consideration.
Expenditures
Expenditures made within the past five years in relation to an asset account for at least 50 percent of the Consideration. The expenditures are subject to additional requirements for mining, oil and gas, and technology and research and development issuers with no significant revenue.
New tangible assets of the target company
Net tangible assets of the target Company, in relation to a company, equal at least 50 percent of the Consideration.
Operating cash flow of the target company
Ten times the target Company’s average annual cash flows from operating activities, calculated over at least eight fiscal quarters, equals at least 50 percent of the Consideration.
Securities listed by the target company
Where an Issuer proposes to acquire a Target Company, at least 50 percent of the outstanding equity securities of the Issuer have been issued either:
- at or above the Issuer’s Discounted Market Price for Listed shares, or
- at prices not less than 50 percent of the Issuer’s current Market Price for Listed shares during the 12-month period prior the dissemination of the news release announcing the transaction.
Current listing
The Issuer has been listed and trading on a recognized stock exchange, other than the TSXV, for at least one year and the Issuer has not completed an RTO, QT, COB or analogous transaction within the preceding year.
IPO
The New Listing involves an IPO that includes a financing (e.g., it cannot be a non-offering prospectus).
Escrow for principals’ securities: simplified, standardized
Elimination of “Surplus Securities” escrow
The New Policy eliminates the “Surplus Securities” regime. All escrowed securities will now follow the “Value Securities” schedule:
- Tier 1 Issuers:
- 25 percent released on the Bulletin date
- 25 percent released every six months thereafter for a total of 18 months
- Tier 2 Issuers:
- 10 percent released on the Bulletin
- 15 percent released every six months thereafter for a total of 36 months
Releases are now evenly distributed, with no back-weighted schedules.
IPO vs non-IPO transactions
For IPO transactions, the TSXV will generally follow the escrow requirements outlined in NP 46-201 – Escrow for Initial Public Offerings (“NP 46-201”).
For non-IPO transactions, the TSXV will apply similar requirements with three key differences:
- The TSXV will impose escrow if the Issuer’s immediate post-transaction market capitalization is at least $100 million, though the Issuer may request an exemption in the listing application.
- Escrow generally will not apply to Principals holding less than 1 percent of voting rights, unless their combined holdings exceed 5 percent of the Issuer’s post-transaction outstanding Listed shares. This is intended to discourage Principals from “sprinkling” shares amongst a large number of holders in order to avoid escrow requirements.
- If the Issuer has previously traded on another exchange, escrow will generally be required to align with what would have applied under the New Policy.
Securities subject to and excluded from escrow
Securities subject to escrow include all Principals’ Securities outstanding or to be issued in connection with the transaction, and any securities transferred from a Principal within six months prior to the listing application. Securities that will generally be excluded from escrow include:
- Securities previously released from escrow pursuant to NP 46-201 or TSXV requirements;
- Securities issued via a prospectus to a Person who will be a Principal of the Resulting Issuer; and
- Securities issued in connection with a private placement to a Person who will be a Principal of the Resulting Issuer, where certain criteria are met.
SSRRs
SSRRs are one-year hold periods imposed by the TSXV on certain securities held by individuals who are not Principals of the Issuer at the time a transaction is completed.
SSRRs apply to all Listed shares, convertible or exercisable securities, and other securities held by non-Principals if they were:
- Issued below the lesser of $0.05 or 50 percent of the “Transaction Price”,
- Issued within 12 months before the TSXV’s conditional acceptance letter at a price below 25 percent of the transaction price, or
- Issued within three months before the TSXV’s conditional acceptance letter at a price below 50 percent of the transaction price.
“Transaction Price” is defined as the greater of the Discounted Market Price (as defined in the policies of the TSXV), and the price of the financing completed in connection with the transaction. If there is no Discounted Market Price or financing price, or if more than one financing is completed, the TSXV will determine the Transaction Price.
SSRRs release schedule
The release schedule under the New Policy has been simplified so that all SSRR Securities subject to a hold are released in equal 20 percent tranches every three months, starting on the Bulletin Date.
However, securities issued at or above the Minimum Price but below 25 percent of the Transaction Price are exempt from a hold if held for at least twelve months. Similarly, those issued at or above 25 percent but below 50 percent of the Transaction Price are exempt if held for more than three months.
Transition
Existing escrow agreements under the former policy will remain in effect. However, with disinterested shareholder approval, Issuers may apply to amend existing escrow agreements to align with the New Policy.
Amendments to existing SSRRs can be made without shareholder approval.
All applications for amendment must be made through LINX and include a $1,000 fee plus applicable taxes.
Final thoughts: Modernizing to meet the market
The New Policy marks a meaningful step toward modernizing the TSXV’s listing framework. It is clearly responsive to market feedback, offering issuers more practical, realistic and easy-to-apply criteria for demonstrating an acceptable capital structure. By expanding the available methods to establish value, standardizing escrow requirements and simplifying resale restrictions, the TSXV has reduced procedural friction for companies looking to go public. Notably, the elimination of the complex “surplus securities” regime is likely to enhance the appeal of a TSXV listing by removing an often misunderstood and complex regime which had created a perceived barrier to listing. In short, these changes are both timely and constructive.
For further information, please contact the authors or any member of our Equity Capital Markets team.