The Investment Dealers Association has issued a notice describing the regulatory treatment of TSX Group Inc. IPO shares, which have been received by former TSX Inc. shareholders.

The notice provides guidance about regulatory accounting issues that have arisen. Each former shareholder of TSX Inc. common shares received 12,688 TSX shares, TSX choice shares or a combination of common shares and choice shares.

Where former shareholders elected to receive TSX common shares, they are prohibited from transferring these shares for a period of 180 days after completion of the offering, except in certain limited circumstances. As a result, the primary concern is ensuring capital neutral regulatory treatment
of this common share position: (i) at close date and during the 180-day transfer prohibition period and (ii) during the subsequent period after the transfer prohibition expires.

“It is our understanding,” says the IDA, “that at close date, under accounting principles, it is appropriate to measure the transaction at the fair value of the shares received and recognize any gain arising between the fair value and the cost amount previously reported for the holdings of TSX Inc. common shares in earnings. These principles would require that the current market value of the TSX Group Inc. common shares and the remaining term of the transfer prohibition period be taken into consideration when determining the written-up value to be reported.”

“It is also our understanding that immediately upon closing of the TSX Group Inc. offering, a tax obligation was triggered for all former shareholders of TSX Inc. common shares. This tax obligation may be material for certain firms and, in order to preserve capital neutrality, should be considered in the determination of any margin required for the TSX Group Inc. common shares during the 180-day transfer prohibition period.”

Once the transfer prohibition expires, holdings in TSX should continue to be reported as an allowable asset.