Q&A: NEX securities

Question: A while ago I purchased a stock in my TFSA account (through a Canadian brokerage house) with a trading symbol ending in .H. I found out recently that all symbols ending in .H (e.g. ABC.H) are actually listed on NEX which does not seem to be an approved stock exchange. At the time of purchase I believed that the stock was listed on the TSX Venture Exchange.

Should the brokerage system prevent anybody from purchasing stocks listed on the NEX, which is a board on the TSX? Can I be forced to liquidate my position? – George H.

Gordon Pape answers: NEX describes itself as “a unique and separate board of TSX Venture Exchange” which provides a trading forum for listed companies “that have fallen below TSX Venture’s ongoing listing standards”. These include companies with low levels of activity or which have ceased to carry on active business. In effect, these are TSX Venture inactives.

Whether such stocks are eligible for registered plans is unclear. Gary Lee, manager of listed issuer services for NEX, would not commit to an answer either way, saying people should consult their tax advisor or the Canada Revenue Agency. However, he did not disagree with my interpretation that since NEX is a board of the TSX Venture Exchange, securities listed on it should qualify.

Ottawa takes the position that only securities listed on “prescribed stock exchanges” are eligible for registered plans. NEX is not in itself a prescribed exchange but it is an extension of one that is – the TSX. That would seem to make its securities eligible for registered plans but no one seems to want to categorically say that’s the case. Mr. Lee did say, however, that he is not aware of anyone having a NEX-listed security declared to be ineligible by the CRA.

NEX has asked for a ruling from the tax department on this but it will likely take several months to process. In the interim, there appears to be at least a small risk that a NEX-listed stock might be deemed as not qualified. If that happens, the penalty is 1 per cent per month of the stock’s value for as long as it remains in the TFSA.

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