In order to ensure that a listed security will have sufficient liquidity and value, the CSE sets certain minimum requirements relating to the capital table of the issuer.
The CSE requires that an issuer have a public float of at least 500,000 freely tradeable shares consisting of at least 150 public holders holding at least a board lot each of the security. The public float consists of shares held by people who are not related to the issuer. The public float must constitute at least 10% of the total issued and outstanding of the securities to be listed. Moreover freely tradable shares are those without any resale restrictions or are not escrowed. This requirement also states that the issuer needs 150 public shareholders (i.e. non-related shareholders to the issuer) that hold a board lot (defined in the Universal Market Integrity Rules) to mean the following:
- in respect of a derivative instrument, 1 contract;
- in respect of a debt security that is a listed security or a quoted security, $1,000 in principal amount; or
- in respect of any equity or similar security;
- 1,000 units of a security trading at less than $0.10 per unit,
- 500 units of a security trading at $0.10 or more per unit and less than $1.00 per unit, and
- 100 units of a security trading at $1.00 or more per unit.
This analysis is done on the pre-IPO cap table to determine if all requirements are met.
The CSE places restrictions on the number of “Builder Shares” that can exist in an issuer’s cap table. Simply, a “Builder Share” is a share issued for little value (i.e. less than $0.02/share) or that was issued to a related person of an issuer for little or no supportable value.
The CSE requires that post-listing an issuer cannot have more than 25% of the issued and outstanding securities as Builder Shares.
Minimum Price Requirements
An issuer must set its IPO price at a minimum of $0.10 per share or unit.
The CSE requires that securities issued to a related person must be subject to a National Instrument 46-201 escrow agreement. This means any of the following people will need to have their securities escrowed:
- a person or company who acted as a promoter of the issuer within two years before the IPO;
- a director or senior officer of the issuer or any of its material operating subsidiaries at the time of the IPO;
- a 20% holder —a person or company that holds securities carrying more than 20% of the voting rights attached to the issuer’s outstanding securities immediately before and immediately after the issuer’s IPO; or
- a 10% holder —a person or company that:
- holds securities carrying more than 10% of the voting rights attached to the issuer’s outstanding securities immediately before and immediately after the issuer’s IPO; and
- has elected or appointed, or has the right to elect or appoint, one or more directors or senior officers of the issuer or any of its material operating subsidiaries.
All issuers on the CSE (unless they have a market cap of at least $100 million on IPO) will be considered an “emerging issuer” and the related persons will be subject to the following escrow schedule: