TSXV Sandbox and OSC TestLab: Promising Developments for Early-Stage Businesses

The Ontario Securities Commission (the “OSC”) also recently introduced several complimentary measures through its OSC TestLab program with the objective of further fostering growth and innovation in Ontario’s capital markets.

TSXV Sandbox

What Is the TSXV Sandbox?

The TSXV Sandbox represents the expansion of the Exchange’s existing ability to grant discretionary waivers for new listings, potentially broadening market access for issuers that might not squarely fall within the Exchange’s listing standards.

How Is the TSXV Sandbox Different?

While the TSXV already has discretion in granting waivers on listing requirements, the TSXV Sandbox broadens and codifies the Exchange’s discretionary powers. Existing applications will not be automatically transferred to the TSXV Sandbox. Instead, the TSXV will determine whether to transfer an application on a case-by-case basis in consultation with the listing applicant.

All TSXV Sandbox listings will be considered regular Tier 2 TSXV issuers and will not require a different symbol extension to identify them as TSXV Sandbox listings. However, all TSXV Sandbox issuers will be required to identify as such in all public disclosure.

Criteria and How to Apply

The TSXV Sandbox has no additional fee or prescribed eligibility criteria. Applicants should proceed through their local TSXV listing team, together with counsel, to discuss an applicant’s suitability and/or need for the TSXV Sandbox.

The TSXV has not provided examples of what might constitute an issuer eligible under the TSXV Sandbox, and has done so intentionally to reflect the program’s broad and adaptable scope.

How Do Issuers Exit the TSXV Sandbox?

The TSXV Sandbox is a transitory program, meaning that TSXV Sandbox issuers can expect to eventually exit within approximately 12 months after listing. Note, however, that the conditions for exit from the TSXV Sandbox will be customized and adapted based on the unique circumstances of each listing and the TSXV Sandbox issuer.

Initiatives of the OSC TestLab

On May 9, 2024, the OSC highlighted three new initiatives introduced through its OSC TestLab program.

Self-Certified Investor Prospectus Exemption

The Self-Certified Investor Prospectus Exemption, previously introduced on October 25, 2022, allows individuals with requisite financial knowledge and/or relevant background to invest up to $30,000 annually in prospectus exempt financings when they would otherwise fall short of satisfying the requirements under the typical Accredited Investor exemption. With the aim of encouraging investment by certain educated and experienced investors, the OSC extended availability of the Self-Certified Investor Prospectus Exemption to October 25, 2025.

Dealer Registration Exemption for Early-Stage Businesses and Not-For Profit Angel Investor Groups

Generally, persons who are considered to be “in the business of trading” securities in Ontario are required to be registered as dealers with the OSC. Early-stage companies who frequently raise capital may, in certain instances, be considered to be in the business of trading their own securities. In order to address such scenarios, the OSC has introduced exemptions from the dealer registration requirements in order to allow early-stage businesses and not-for-profit angel investor groups in Ontario to engage in capital raising and marketing activities, subject to certain financial limitations and other related constraints. Further information will follow in a separate bulletin.

Streamlined Reporting of Distributions by Early-Stage Businesses

In connection with the OSC’s announcement of dealer registration exemptions for early-stage businesses and not-for-profit angel investor groups, measures that streamline the reporting process have also been announced. To reduce the burden on reporting distributions, the OSC is permitting quarterly reporting of distributions using a streamlined form without an associated fee.

Conclusion

The creation of the TSXV Sandbox and measures introduced by the OSC TestLab are welcome developments and signal an intention by the TSXV and the OSC to bolster the agency of Canada’s venture markets and early-stage businesses.

The Capital Markets Group at Aird & Berlis LLP will continue to monitor matters related to the TSXV Sandbox and the OSC. If you have any questions or require assistance with any matter related to these business-forward initiatives, please contact the authors or a member of the group.