Exchanges resist relaxing listing rules to boost IPOs

By Laura Syrett
Published: Friday, 14 February 2014

TSX refuses to compromise investor protection; ASX and LSE stress need for clear equity stories

The world’s top stock exchanges for mining companies have said that they will not consider relaxing listing requirements in order to get their equity markets moving, despite the climate of stagnation for resource-related initial public offerings (IPOs).

The world's top mining exchanges such as the Australian
Securities Exchange have said that giving the green light
to looser listing rules would unduly risk investor protection
(source: Edz'sta). 
IPO activity among mining companies on the Toronto, Australian and London exchanges experienced one of its worst years in almost a decade in 2013, as the recoiling of investors from commodities desiccated financial liquidity for exploration firms.


Speaking during the 20th Mining Indaba Conference in Cape Town last week, representatives from the TSX, ASX and LSE, which together account for the vast majority of mining equity capital raised worldwide, said that loosening the rules to make it easier for new companies to list would unduly risk investor protection.


"It would be very difficult to relax the level of regulation for new listings," Graham Dallas, head of business development, EMEA, for the TSX and TSX-Venture Exchange (TSX-V) told IM.


"We have made some small changes around things like the way rights issues are managed; but the level of investor protection that is achieved through the TSX’s regulation is very valuable," he added.


TSX stands firm on listing requirements


With a total of more than 1,600 listed mining companies, the TSX and TSX-V jointly hold a dominant share of small to mid-sized mining companies, and therefore felt the full force of the collapse in exploration funding.


Between January and November last year, just 62 mining companies listed on the TSX and TSX-V, compared to 129 listings during the same period in 2012, and more than 200 in each of the preceding two years.

Last September, in an effort to boost Canada’s beleaguered resource finances, TSX-V president, John McCoach called on the country’s securities regulators to relax rules barring retail investors from participating in private placements for Canadian small cap companies.

While this proposal remains under consideration, the exchange has made clear that any similar slackening of listing requirements is not on the cards.

According to Martine Valcin, director of listed issuer services for the TSX, the exchange’s regulations are the "bare minimum" that a company can be expected to comply with in order to gain some liquidity on the Toronto investment market.

"Once a company has been listed, there is more the TSX can do to help them access capital," Valcin explained to IM.

She added that when conditions on the stock markets are difficult, the TSX tries to be "as flexible as possible" by creating exemptions for companies who meet certain criteria in order to streamline the listing process.

"But," she stressed, "we need to preserve the quality of the market to protect investors and investor confidence."


One Australia-based junior accused the TSX, banks and regulators of having "no mercy", when it came to helping small companies to raise funds.


"It’s ok if you’re a BHP [Billiton], or one of the big boys, but things are not getting better for smaller companies – in fact, they’re getting worse," said the CEO, speaking from the floor at Indaba.


Companies that have successfully listed and raised capital on the Toronto market in recent years were however in favour of maintaining the exchange’s present IPO requirements, which are backed by Canada’s renowned National Instrument 43-101: Standards of Disclosure for Mineral Companies (NI 43-101).


"The TSX is one of the most regulated markets on earth, and NI 43-101 is recognised as the most rigorous disclosure requirement for mining companies on making statements to the market," said Michael Jones, CEO of Platinum Group Metals.


"This sends out a clear message to investors: If you want to play in this sand box, you’ve got to be a grown up," he added.


ASX stresses need for simplicity


In Australia, 2013 was also a difficult financial year for the resource industry, with mining and metals firms accounting for just 16%, or 14, of the 85 new listings on the ASX last year.


As the world’s third largest pool of investable funds, and with 1,000 listed resource companies making up 51% of its overall listings profile, the ASX goes head-to-head with the TSX for much of its small to mid-cap mining business.


“We haven’t suffered as badly as the Toronto market,” James Posnett, manager for listings business development at the ASX, told IM, “but that’s not to say it’s been easy for mining companies in Australia.”


Posnett said that while it was important not to go “too heavy” on regulation, investors look to robust listing requirements to give them confidence to put money into newly listed stock.


“In terms of regulation, the ASX is somewhere between the US and London’s AIM market,” he explained.


“One of the benefits of an ASX IPO is that, once a company has floated, it has a main board listing, so there is no ambiguity in terms of compliance. Compare this to the TSX or London exchange, which have the TSX-V and AIM for small caps, and we believe that the ASX listing situation is simpler,” Posnett said.


Jenny Cutri, assistant manager, listings compliance for ASX Perth, said that while the exchange demands a high level of regulatory compliance for new listings, it is important to make the listing process as smooth as possible to encourage companies to float and for investors to support IPOs.


"Companies do not need to have a minimum number of Australian-resident shareholders in order to list on the ASX," she said, adding that if a company is considering a dual listing with a different exchange as their primary market, the ASX may grant certain waivers, particularly in terms of reporting requirements.


These reporting requirements are governed by Australia’s Joint Ore Reserves Committee (JORC) Code, which Posnett described as being “less prescriptive” than NI 43-101, while affording investors the same level of confidence.


London looks for transparency


Although London lags both the TSX and ASX by some distance when it comes to mining company listings, the London Stock Exchange (LSE) and small cap AIM market are distinguished by the depth and diversity of liquidity they offer resource companies.


According to Luca Broglio, international associate, equity and capital markets, the London market presently has over $1.2 trillion in assets under management and, unlike the TSX and ASX, does not rely on a domestic concentration of investors for investment capital.


He acknowledged, however, that despite the LSE’s access to geographical diversity in terms of funding, the exchange’s mining listings business had suffered along with the Canadian and Australian markets.

“We cannot pretend that the IPO market is going very well, but we are seeing a sustainable level of activity," Broglio said.

Katherine Mulhern, partner for corporate and capital markets, at international law firm, Proskauer, said that while London was not an “easy” place to list, it is the “most sensible” of the top mining exchanges in terms of its approach to regulation.


“For miners looking at listing and the IPO process, they need to have three things clear: disclosure, transparency and corporate governance,” Mulhern said.


She noted that while gaining a listing and successfully raising equity on London’s markets was no mean feat, having a clear equity story and ensuring that corporate strategy is transparent to investors, meant that the LSE could be a “very good place” to raise money for mining projects.


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