The prohibition against insider trading, a cornerstone of
Canadian securities law, remains one of the few areas of such law
not completely harmonized among all Canadian jurisdictions;
i.e., unlike the rules governing insider reporting,
continuous disclosure, take-over bids, distributions by prospectus
and exempt distributions, there is no one single national
instrument governing insider trading that each Canadian
jurisdiction has adopted as a rule or regulation.
In Québec, the fundamental rules in respect of insider
trading are set out in Sections 187 and 188 of the
Québec Securities Act (QSA): the former
provision prohibits insider trading where the insider (and certain
other persons) are in possession of non-public "privileged
information," while the latter prohibits "tipping,"
i.e., disclosure by insiders (and certain other persons)
of non-public privileged information to others. Recently, both of
these provisions have been amended:
Disclosure of privileged information
Pursuant to Bill 74, the relevant provision of which came into
force on December 4, 2009, Section 188 has been amended to clarify
that not only is an insider prohibited from disclosing non-public
privileged information to others, but neither can the insider
recommend trading in securities of the issuer in question.
Insider trading: where the reporting issuer is itself a
party to the trade
A fundamental exception to the prohibition against insider
trading can be called the "equal information" exception,
i.e., where both sides of the trade are in possession of
the same non-public material information. So where, for example, an
officer of an issuer is granted options or is issued securities
under an option or other compensation plan while in possession of
non-public material information, normally such officer would not be
in violation of insider trading rules since the other side of the
trade (i.e., the issuer itself), would be in possession of
the same information. However, pursuant to Bill 8, the relevant
provision that came into force on June 17, 2009, Section 187 has
been amended to remove this "equal information" exception
where the other party to the trade is the reporting issuer itself
and the transaction is "not necessary in the course of the
On the basis of this amendment, it follows that an officer who
receives an option grant or other securities under an option or
other compensation plan, or for that matter who exercises an option
or other right to acquire securities of the issuer, while in
possession of non-public material information, will now be in
violation of the insider trading rules under the QSA,
unless it was the case that the trade in question was
"necessary in the course of the issuer's business."
It is hard to see how this would ever be the case when options are
exercised, though it arguably be the case where, for example,
options are being granted in the normal course in accordance with
past practice (for example, at the beginning of a fiscal year in
respect of and based on performance during the previous year).
There have been a few rather high-profile instances in the
recent past of options having been granted by an issuer not too
long before the issuer publicly announced that it had entered into
a merger agreement to be acquired at a premium to market. The
amendment to Section 187 of the QSA was likely motivated
by a concern on the part of Québec's Autorité des
marchés financiers (AMF) that options granted in such
circumstances might be conferring an unwarranted benefit on the
recipient, as the value of the options would increase substantially
the moment the merger was publicly announced. That said, merger
negotiations can continue for many months until finalized, and
issuers cannot be expected to forego normal business during all of
such time. Although Section 613(k) of the TSX Company
Manual generally prohibits listed companies from granting
options or otherwise issuing securities on the basis of market
prices that do not reflect undisclosed material information, it
does not impose the severe sanctions now available under the
QSA against an insider who is granted or issued options or
other securities in breach of amended Section 187 QSA.
The insider trading rules in Sections 187 and 188 of the
QSA apply on their terms to insiders of any issuer that is
a reporting issuer in Québec, and therefore apply, in
principle, to trades that take place entirely outside of
Québec. It is unlikely, however, that the AMF will impose
its own insider trading rules on such trades, or for that matter on
a trade involving a reporting issuer in respect of which the AMF is
not the principal regulator (i.e., a reporting issuer that
does not have its head office in Québec).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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