REVITALIZING TSX VENTURE EXCHANGE CANADA’S PUBLIC VENTURE MARKET

MARCH 2016

PROGRESS REPORT REVITALIZING TSX VENTURE EXCHANGE CANADA’S PUBLIC VENTURE MARKET

PROGRESS REPORT

In December 2015, TSX Venture Exchange (TSXV) announced plans to revitalize Canada’s public venture market through a series of targeted initiatives. We are squarely focused on making a positive and tangible impact for the benefit of all market participants.

OUR COMMITMENT: • We will reduce our clients’ administrative and compliance costs, in a meaningful way, without compromising investor confidence. • We will expand the base of investors financing companies and generally enhance liquidity. • We will diversify and grow the stock list to increase the attractiveness of the marketplace overall.

We can only achieve this by engaging with our clients and other key market participants. As such, this report is intended to demonstrate progress and share information, and also to help spur additional momentum. TSXV welcomes and encourages support and contributions from Canada’s entire public venture community.

TABLE OF CONTENTS

COMMUNITY ENGAGEMENT 3

TOWN HALL POLL RESULTS 3

KEY INITIATIVES UPDATE 6

MOVING FORWARD 9

APPENDIX 10

CONTINUE THE CONVERSATION 12

2 COMMUNITY ENGAGEMENT

In an important effort to build productive dialogue within the community, TSXV hosted a series of town hall meetings at the outset of 2016. We have been speaking to clients across this great country – literally from coast to coast. Meetings were held in and , followed by , , , , Halifax, Kelowna, , Regina, Saskatoon and Mississauga. We will continue to engage with the community, including through upcoming meetings with clients in Kitchener, , Victoria and Saint John’s. The meetings were an opportunity for the Exchange to provide an overview of key initiatives, answer questions, and – most importantly – to solicit feedback and additional recommendations from attendees. Attendance levels at the town halls were high, with over 1,000 participants. We also had high levels of participation in live polling at the larger town halls. During the discussion, several questions were posed to understand who was represented in the audience and their perspective on certain aspects of the revitalization effort. The responses to the poll questions have been included in this report. In addition to the feedback we received during the town hall events, we have communicated directly with hundreds of clients and key stakeholders since publishing our white paper on December 17, 2015. The information shared by the Exchange was well received by the vast majority of stakeholders and much of the dialogue was constructive. Some people were less supportive and that feedback is also valuable. We are sincerely grateful to all participants for their time and keen interest in Canada’s public venture market.

TOWN HALL POLL RESULTS

AUDIENCE PROFILE 496 Respondents (Calgary, Montreal, Toronto, Vancouver and Halifax)

Advisor to a TSXV-listed company Investor 38% 7%

Employed by a brokerage firm 10%

Employed by a TSXV-listed company Other 25% 20%

Results shown are an aggregate of polling in three or more town hall events. 3

SHOULD DIRECTORS AND OFFICERS WITH A PROVEN TRACK RECORD RECEIVE SPECIAL PRIVILEGES? 282 Respondents (Calgary, Montreal, Toronto and Halifax)

Yes, whenever possible 47% No, never 4% Yes, but only in very limited Not sure circumstances 6% 43%

DOES TSXV NEED TO BE REBRANDED? 496 Respondents (Calgary, Montreal, Toronto, Vancouver and Halifax)

No. Focus on improving the fundamentals of the marketplace. 48%

Not sure No. Keep the name, but change 5% what the brand stands for (i.e. an Exchange for all sectors). Yes. The term “venture” 33% has run its course. 14%

DO YOU BELIEVE SHORT SELLING HAS A MATERIAL NEGATIVE IMPACT ON THE MARKET? 499 Respondents (Calgary, Montreal, Toronto, Vancouver and Halifax)

No Yes. 16% Reintroduce the uptick rule. 57% Not sure 27%

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SHOULD CONTINUED LISTING REQUIREMENTS (CLR) BE MORE STRINGENT? 460 Respondents (Calgary, Montreal, Toronto, Vancouver and Halifax)

Not sure 13%

No 57% Yes 30%

WHEN SHOULD COMPANIES BE DELISTED FROM NEX? 336 Respondents (Calgary, Montreal, Vancouver and Halifax) Not sure 5% Never When they fail 7% to remain in good standing When it becomes apparent they are 62% highly unlikely to reactivate 11%

After a certain period of time 15%

SHOULD TSXV REGULATE DIRECTOR AND MANAGEMENT COMPENSATION? 292 Respondents (Calgary, Vancouver and Halifax)

Yes, but only for companies Yes, but only share-based that fail to meet a minimum compensation activity threshold 14% 41% Not sure 6%

No, never 39%

5 KEY INITIATIVES UPDATE

The Exchange has taken important steps to fulfill our commitments and to deliver on the actions outlined in our white paper. Updates on key initiatives are detailed in this section. The timeline for each action varies, but we are making daily progress. We believe the momentum is evident and hope this is encouraging. Of note, and after gathering invaluable feedback from stakeholders, we have made adjustments to our plan. For example, the priority of the following initiatives has been elevated: • With the help of process efficiency experts, we are examining our filing procedures with the goal of improving the client experience. We expect this will result in additional client savings in both time and money.

• We will do what we can to address concerns related to market structure and short selling rules. These matters were not among the initiatives outlined in the white paper as they are not within the Exchange’s scope and authority, but we commit to working with regulators and the trading community to influence discussions.

We will make further adjustments and additions to the plan as we continue on this path. Actions underway provide strong foundations with near- and long-term benefits, but we believe there is much more that we can accomplish together. We also want to acknowledge that some of the issues raised at the town halls and elsewhere will not be acted upon. For example, a number of people we spoke to feel that TSXV should be aggressively delisting companies that have had a challenging time in this market cycle. While this view is in the minority, we respect it and we seriously considered if such action would be in the best interest of the market at large. However, we concluded that it would be inadvisable and this has been validated in the vast majority of our conversations with the community. We will continue to monitor listed companies to ensure they meet continued listing requirements and in cases where they do not, the Exchange will work with the listed company on an appropriate course of action.

6 OUR COMMITMENT WE WILL REDUCE OUR CLIENTS’ ADMINISTRATIVE AND COMPLIANCE COSTS, IN A MEANINGFUL WAY, WITHOUT COMPROMISING INVESTOR CONFIDENCE.

Our goal is to reduce both the costs for companies to list on TSXV and the ongoing costs of being a public company. As an example, our proposed actions – which are subject to regulatory approval – could reduce the overall cost of Reverse Takeover transactions by up to 50%.

ACTION UPDATE

Eliminating the general requirement ✔ Policy revisions have been drafted and we intend to file for regulatory approval in April. for sponsorship

Revising the Exchange’s shareholder ✔ This change has been implemented effectively and the related formal policy revisions are approval requirements expected to be filed with regulators in March.

Recognizing active and proven directors ✔ A TSXV action team has been tasked with determining the criteria and officers for “active and proven” status. ✔ Assessment of appropriate benefits is underway.

Providing automated online filings ✔ Automated online filings are now available for private placement transactions. ✔ Additional online filings are under development and electronic payments are expected to be implemented next.

7 OUR COMMITMENT WE WILL EXPAND THE BASE OF INVESTORS FINANCING COMPANIES AND GENERALLY ENHANCE LIQUIDITY.

We are working to deliver sustained growth and to reach new highs for both trading volumes and dollars raised by TSXV-listed companies.

ACTION UPDATE

Bolstering programs to create more positive ✔ The TSX Venture 50® program was significantly enhanced this year to increase the awareness of Canada’s public venture market awareness of the ranked companies and the venture marketplace overall. and to showcase TSXV-listed companies ✔ 10+ TSX Investor Days are scheduled for 2016 and will feature over twenty TSXV-listed companies.

✔ We are launching a European roadshow in April that will exclusively feature TSXV-listed companies.

✔ Investor webinars featuring other TSXV-listed companies are being planned for the Fall.

Leading an action team with a goal ✔ The team has identified specific issues and barriers, and will begin developing to reduce the barriers to U.S. investors solutions. wishing to participate in the Canadian market

Working to facilitate more direct ✔ The TSX investinit™ website and app were recently launched to stream summaries communication between issuers of financings for TSXV- and TSX-listed companies. and investors

Introducing a Market Making ✔ We are currently finalizing the program model and the technical requirements. program on TSXV The next phase will be system development and testing.

Introducing new investor analytic ✔ A new stock screening tool – TSX Discovery – was recently introduced to help programs and research products investors identify companies of interest to them by using numerous parameters. For example, investors can search by sector, commodity, location and stage of development.

✔ A complementary app will be launched in April.

Engaging with the Investment Industry ✔ Please see the Appendix for an excerpt of IIROC’s guidance regarding investor Regulatory Organization of Canada (IIROC) suitability. to obtain clarity regarding the application of IIROC’s investor suitability standards

Promoting financial literacy and capital ✔ The Voleo TSX Equity Trading Competition was launched and is now live markets education in universities and in over 75 universities and colleges, with over 2,000 participants. colleges across Canada

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OUR COMMITMENT WE WILL DIVERSIFY AND GROW THE STOCK LIST TO INCREASE THE ATTRACTIVENESS OF THE MARKETPLACE OVERALL.

We will always be committed to serving the natural resource sectors that built the foundations of our market. We also recognize that the marketplace as a whole will benefit from a greater number of early-stage companies – including innovation companies – accessing public venture capital.

ACTION UPDATE

Hiring a dedicated team to bring ✔ We will soon begin recruiting for representatives in Montreal/Ottawa, Vancouver/ new companies to our marketplace U.S. Pacific Northwest, Boston/New York and San Francisco/Silicon Valley. from diverse industries, and to help these companies secure financings

Increasing our efforts to ensure private ✔ This work is ongoing and is deeply embedded in our business development efforts. equity firms, VCs and angel investors consider TSXV as an effective exit strategy for early-stage companies

Advocating for early-stage public ✔ On February 19, 2016 we made a submission to the House of Commons’ Standing companies Committee on Finance advocating for small and early-stage public companies to be fully eligible for the refundable investment tax credit (ITC) under the Scientific Research and Experimental Development (SR&ED) program. ✔ In addition, the submission recommended that the flow-through share program should also be directed towards technology and innovation sectors. ✔ Through our submission we also urged the federal government to reconsider its proposed taxation regime on stock options.

MOVING FORWARD

We will continue to drive forward on all actions outlined in the white paper and those subsequently introduced based on client input. The feedback we have received since December has been valuable and encouraging. We are confident the initiatives we have outlined are on the right track, and will deliver tangible benefits to our clients and stakeholders. We commit to sharing additional information and progress updates with the broader community as we move forward. Your continued engagement in the effort to revitalize Canada’s public venture market is vital to its success.

9 APPENDIX

The following excerpts from the Investment Industry Regulatory Organization of Canada (IIROC) Backgrounder and FAQ regarding the Client Relationship Model (CRM) were provided by IIROC.

Prior to CRM, determining suitability was limited to whether the trade and security were suitable for the client. CRM now allows advisers to consider the trade within the context of the client’s overall portfolio of investments. Previously, the acquisition of a small position in a high-risk security, in an otherwise medium-risk account, would not have been permitted. Under CRM’s revised suitability assessment framework, the type of trade must be suitable, when viewed within the context of a diversified portfolio. While seniors are the source of many complaints relating to unsuitable recommendations, neither CRM nor any IIROC rule is uniquely designed to apply to seniors.

ENHANCED SUITABILITY ASSESSMENT OBLIGATION [Dealer Member Rule section 1300.1] COMPLYING WITH SUITABILITY ASSESSMENT OBLIGATION

QUESTION 22 RESPONSE Do the revised suitability assessment requirements allow Under the new account portfolio-focused approach for the holding of some positions within a client’s account to assessing suitability, it is possible that one or a few portfolio that have a higher individual position risk level higher-risk individual positions may be held within a than the client’s agreed-upon risk tolerance level? client’s account investment portfolio, without raising the overall portfolio risk to unacceptable levels. This is BACKGROUND possible in instances where: When changes to the suitability assessment obligation • the higher risk of some account investment portfolio were implemented in March 2013, the focus of the positions is balanced out by the lower risk of other suitability assessment obligation changed from ensuring positions; and/or a proposed order/trade recommendation is individually • risk reduction is achieved through portfolio suitable for the client to ensuring that: diversification. • a proposed order/trade recommendation is a It is also possible that a portfolio where the risk of each suitable addition/subtraction to the client’s account individual position appears to be acceptable may be investment portfolio; and/or unsuitable for a client. This can occur in situations where • the resultant account investment portfolio is suitable the client’s investments are concentrated in a particular for the client. asset type, industry sector or individual issuer and the concentration risk in the portfolio increases the overall Does this change to focusing on account portfolio risk of the portfolio to an unacceptable level. suitability allow for the holding of some positions within a client’s account portfolio that have a higher individual In summary, under the amended suitability assessment position risk level than the client’s agreed-upon risk obligation, portfolio-level risk adjustments relating tolerance level? to diversification and concentration risk must also be considered, in addition to considering individual position risk levels, when determining the actual risk of the client’s investment portfolio.

10 QUESTION 23 QUESTION 24 What are acceptable practices in performing an account What are acceptable practices in performing an account portfolio suitability assessment for a client that has portfolio suitability assessment for high risk tolerant accounts at more than one dealer? clients?

BACKGROUND BACKGROUND Not all clients maintain their investment accounts at Not all clients that open an account with a dealer require a single dealer. Where a client opens accounts at more ongoing portfolio advisory or management services, or than one dealer they may be receiving investment advice have restrictions on the level of risk they can assume. from more than one source and the accounts may be Some clients may open an account with a dealer: opened in order to achieve entirely different investment • to enable them to engage in the speculative trading objectives. What is an acceptable approach to complying of financial products; or with the suitability assessment obligation in these cases? • for the sole purpose of participating in a single RESPONSE investment opportunity offered by the dealer. Where a client maintains accounts at more than one What is an acceptable approach to complying with the dealer, there is no expectation that each dealer would suitability assessment obligation in these cases? consider the “know your client” and account portfolio information across all the accounts the client holds with RESPONSE all dealers. Pursuant to Dealer Member Rule 1300.1, “know your client” and account portfolio information must be considered Rather, each dealer should be generally aware of the when an account suitability assessment is performed. accounts held at other dealers, along with the general Where the advisor has confirmed with a client that: investment objective(s) and client risk tolerance(s) associated with these accounts, to the extent the • the client wishes to engage in speculative trading and/or client is willing to divulge this information. Having the client has opened an account for reasons other than this information will assist the dealer in assessing the to receive portfolio advisory or management services reasonableness of the “know your client” information (such as to purchase a security new issue) provided by the client for the account(s) opened at the and Dealer Member. • the client has a tolerance for high levels of risk (including If no other accounts share the same investment the ability to absorb investment losses) objective(s) or if this information cannot be obtained • the approach used to consider “know your client” and from the client, suitability assessments for accounts account portfolio information in assessing suitability maintained at the dealer can be performed with the can be streamlined to focus on: focus of ensuring that each account portfolio of assets • ensuring: is suitable for the client in attaining their stated account investment objective(s) (taking into consideration the – the client is comfortable with assuming high levels client’s investment time horizon, tolerance for risk and of risk and can absorb significant investment losses; other “know your client” information factors). – the client is not entirely reliant on the advisor or Where there are accounts at more than one dealer with the Dealer Member to advise them on engaging the same investment objective, some additional amount in speculative investing or trading in financial assets or on participating in individual investment of discussion with the client should occur with regard opportunities; and to the client’s willingness to have the Dealer Member consider the “outside of dealer” account(s) as part of – there is some likelihood (in relation to the risk being an overall suitability assessment. It is not expected assumed) that these trading or investing activities that every dealer with which the client has an account will be profitable for the client. would be required to perform such an overall suitability and assessment. • documenting the suitability assessment that has been performed.

11 LET’S CONTINUE THE CONVERSATION

We believe the broader community will ultimately drive the success of Canada’s public venture market. TSXV encourages all members of the venture community to continue to share your views with us. We have established a wider social media presence to help make that a reality.

You can contribute to the conversation in a number of ways: m-x.tv lesoptionscacompte.ca m-x.ca/twitter m-x.ca/facebook m-x.ca/linkedin m-x.ca/rss TSX Venture Exchange m-x.tv lesoptionscacompte.ca @m-x.ca/twitter m-x.ca/facebook m-x.ca/linkedin m-x.ca/rss TMXGroup #revitalizingTSXV

VISIT revitalizingTSXV.ca m-x.tv OptionMatters.ca m-x.ca/twitter m-x.ca/facebook m-x.ca/linkedin m-x.ca/rss EMAIL [email protected] m-x.tv OptionMatters.ca m-x.ca/twitter m-x.ca/facebook m-x.ca/linkedin m-x.ca/rss CALL 1 888 873-8392

WE LOOK FORWARD TO HEARING FROM YOU

This document is a summary. Actions and proposals discussed in this document are subject to change and may be subject to regulatory approval. © 2016 TSX Inc. All rights reserved. NEX, TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX, TSX Venture Exchange, TSXV, Capital Pool Company and CPC are the trademarks of TSX Inc. revitalizingTSXV.ca

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