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TSX Provides Guidance on Normal Course Issuer Bids

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On June 8, 2012, the Toronto Stock Exchange (“TSX”) published a staff notice (the “Notice”) aimed at providing guidance to issuers and capital market participants on the use of block purchase exemptions and securities purchased in error under a normal course issuer bid (“NCIB”).

Subsection 629(l)(7) of the TSX Company Manual (the “Manual”) sets out what is commonly referred to as the “block purchase exemption”, which allows an issuer to make one purchase per calendar week which exceeds the daily repurchase restriction. In the Notice, TSX staff raise concerns about the practice by some dealers of bundling pre-existing blocks to sell into one purchase order under an NCIB. In the view of TSX staff, the combination of pre-existing blocks is considered inappropriate and inconsistent with the exception, as such practice allows an issuer to exceed the “one block per week” limitation. The Notice reminds issuers that the block purchase exception was created to allow an issuer to repurchase a large naturally-occurring block on the market, particularly in the case of illiquid securities.

The Notice also confirms that securities purchased in error under an NCIB which are taken into inventory by the buying broker firm may not be resold into an NCIB, as such trades would be considered to be pre-arranged trades, contrary to subsection 629(l)(2) of the Manual. The Notice suggests that one way for dealers to ensure that such securities are not resold into an NCIB is to temporarily cease purchases under an NCIB during resale of such securities.