A steady stream of “shell” companies with little cash, assets or business plans marched onto public markets in 2014 and early last year. Now, under pressure from regulators, the Canadian Securities Exchange is taking significant steps to tighten that access.
An overhaul of the CSE’s listing requirements is in progress, the result of negotiations with regulators, primarily at the Ontario Securities Commission, sources say. The market watchdogs are understood to have been alarmed by the proliferation of these shells and the potential risk they might pose to investors.
The CSE, an upstart rival to the Toronto Stock Exchange, plans to introduce strict working capital requirements for newly listed companies, effectively pushing empty shells out of the picture. The proposals, published late last month and now open to public review and input, would also require firms to reach “appropriate business milestones” before gaining a listing.
“There has been strong feedback that although people like the approach we take to regulation, they would feel more confident if the bar was higher on the way in and if there were continuing listing requirements as well,” Richard Carleton, the CSE’s chief executive said in an interview.
The exchange took steps last year to staunch the flow of questionable firms onto the public market, but that failed to placate all the concerns of regulators.
Shells were going public on the CSE through a court-controlled legal manoeuvre known as a plan of arrangement. By taking this route, they were able to get listed without having to file a prospectus or being subject to any significant vetting by regulators.
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