Register today for OSC Dialogue 2024: Inviting, thriving and secure capital markets
TSX Group Inc. and TSX Inc. - s. 144
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
CHAPTER S.5, AS AMENDED (Act)
AND
IN THE MATTER OF
TSX GROUP INC. AND TSX INC.
ORDER
(Section 144 of the Act)
WHEREAS the Commission issued an order dated April 3, 2000 granting and continuing the recognition of The Toronto Stock Exchange Inc. (TSE) as a stock exchange pursuant to section 21 of the Act;
AND WHEREAS the Commission issued an amended and restated order dated January 29, 2002 to reflect that the TSE retained Market Regulation Services Inc. (RS Inc.) to perform its market regulation functions;
AND WHEREAS the Commission issued an amended and restated order dated September 3, 2002 to reflect the name change of TSE to TSX Inc. (TSX) and a reorganization under which TSX became a wholly-owned subsidiary of TSX Group Inc. (TSX Group), a holding company, and granted TSX Group recognition as a stock exchange pursuant to section 21 of the Act, in each case effective on the closing of the reorganization;
AND WHEREAS the Commission issued an amended and restated order dated August 12, 2005 to reflect changes to the definition of an independent director (Amended and Restated Order);
AND WHEREAS the Commission issued an order dated December 16, 2005 to vary the financial viability and financial statement terms and conditions of the Amended and Restated Order to adjust the financial ratios to reflect the change in accounting policy of TSX Group and TSX for recognition of initial and additional listing fees, and to make other suitable revisions (together with the Amended and Restated Order, the Recognition Order);
AND WHEREAS TSX has applied for an order pursuant to section 144 of the Act to: (i) vary the financial viability terms and conditions of the Recognition Order to adjust the current ratio to reflect the balance sheet reclassification of a portion of TSX's deferred revenue-initial and additional listing fees as current liabilities and the portion of future tax asset related to the current portion of deferred revenue-initial and additional listing fees as current assets and to make suitable revisions to the definition of total assets and adjusted shareholders' equity in the financial leverage ratio; and (ii) to vary paragraph 13(d) of the Recognition Order to provide TSX the ability to seek the approval of the Commission to perform its regulation functions, not performed by RS Inc., through any other party, including its affiliates or associates;
AND WHEREAS the Commission has received certain representations from TSX in connection with TSX's application to vary the Recognition Order;
AND UPON the Commission being of the opinion that it is not prejudicial to the public interest to vary the Recognition Order;
IT IS ORDERED pursuant to section 144 of the Act that the Recognition Order be varied as follows:
1. Item 12 of Schedule A of the Recognition Order is repealed and replaced by the following:
12. FINANCIAL VIABILITY
(a) TSX shall maintain sufficient financial resources for the proper performance of its functions.
(b) TSX shall calculate monthly the following financial ratios:
(i) a current ratio, being the ratio of current assets (excluding the portion of future tax asset related to deferred revenue-initial and additional listing fees) to current liabilities (excluding deferred revenue-initial and additional listing fees),
(ii) a debt to cash flow ratio, being the ratio of total debt used to finance TSX's operations (including any line of credit drawdowns, term loans, debentures and capital lease obligations, but excluding liabilities such as accounts payable, deferred revenue, income taxes payable and employee benefit liabilities) to adjusted EBITDA for the most recent twelve months, where adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, adjusted to include initial and additional listing fees received and to exclude initial and additional listing fees reported as revenue, and
(iii) a financial leverage ratio, being the ratio of adjusted total assets to adjusted shareholders' equity, where adjusted total assets is calculated as total assets on the TSX balance sheet less the portion of future tax asset reported on the TSX balance sheet that is related to deferred revenue-initial and additional listing fees as reported on the TSX balance sheet (Adjusted Future Tax Asset) and adjusted shareholders' equity is calculated as shareholders' equity as reported on the TSX balance sheet plus deferred revenue-initial and additional listing fees as reported on the TSX balance sheet less Adjusted Future Tax Asset,
in each case as calculated on a consolidated basis and consistently with the consolidated financial statements of TSX.
(c) TSX shall report quarterly (concurrently with the financial statements filed pursuant to paragraph 17) to Commission staff the monthly calculations of its current ratio, debt to cash flow ratio and financial leverage ratio for the previous quarter.
(d) If TSX fails to maintain or anticipates it will fail to maintain in the next twelve months:
(i) its current ratio at greater than or equal to 1.1/1,
(ii) its debt to cash flow ratio at less than or equal to 4.0/1, or
(iii) its financial leverage ratio at less than or equal to 4.0/1,
it shall immediately notify Commission staff.
(e) If TSX fails to maintain its current ratio, debt to cash flow ratio, or financial leverage ratio at the levels outlined in paragraph 12(d) above for a period of more than three months:
(i) its Chief Executive Officer will immediately deliver a letter advising Commission staff of the reasons for the continued ratio deficiencies and the steps being taken to rectify the situation, and
(ii) TSX will not, without the prior approval of the Director, make any capital expenditures in excess of its approved budget, or make any loans, bonuses, dividends or other distributions of assets to any director, officer, related company or shareholder until the deficiencies have been eliminated for at least six months or a shorter period of time as agreed to by Commission staff.
(f) TSX shall not enter into any agreement or transaction either (i) outside the ordinary course of business or (ii) with TSX Group or any subsidiary or associate of TSX Group if it expects that, after giving effect to the agreement or transaction, TSX is likely to fail to maintain the current ratio, the debt to cash flow ratio or the financial leverage ratio at the levels outlined in paragraph 12(d) above.
2. Item 13(d) of Schedule A of the Recognition Order is repealed and replaced by the following:
13. REGULATION
(d) TSX shall continue to perform all other regulation functions not performed by RS Inc. TSX shall not perform such regulation functions through any other party, including its affiliates or associates, without prior Commission approval. For greater certainty, any outsourcing of a business function that is done in accordance with paragraph 23 does not contravene this paragraph.
Dated August 10, 2006
"Paul M. Moore"
"David L. Knight"