Canada: Use Of Automatic Plans To Facilitate Trading By Company Executives

Under Canadian securities laws, insiders of public companies such as officers and directors are generally restricted from trading in the company's securities when in position of material non-public information (MNPI).  This restriction can prove challenging for those holding investments in their employer-issuers when they may need to purchase or sell securities for legitimate personal, financial or other needs. 

To deal with this restriction, insiders may consider entering into an "automatic plan" to permit the purchase or sale of securities under a prescribed exemption from the general insider trading restriction. Such plans include automatic securities disposition plans (ASDPs) and automatic securities purchase plans (ASPPs), involving the sale or purchase, respectively, of securities from or to the holdings of directors, officers and certain other insiders by a broker, based on a set of pre-arranged instructions (ASDPs and ASPPs are collectively referred to in this article as "Automatic Plans"). 

These Automatic Plans are designed to provide insiders who may, from time to time, possess MNPI (which includes a material fact or a material change with respect to the issuer that has not been generally disclosed) with the ability to buy or sell securities while availing themselves of an exemption from insider trading prohibitions and liability under subsection 175(2)(b) of the General Regulation promulgated under Ontario's Securities Act (the Act).

In addition to possessing MNPI, insiders may be further limited in their ability to trade as a result of issuer-imposed trading restrictions (typically through the issuer's insider trading policy), which generally impose trading black-outs or permit trading only during open trading windows. As a result, it is often challenging for insiders who hold positions in an issuer's stock, which is often encouraged or required, or who are awarded or granted securities-based compensation such as stock options, to effectively diversify or sell their holdings absent adoption of an Automatic Plan.

Overview of Canadian Securities Laws applicable to Automatic Plans

In the U.S., Automatic Plans are more commonly used than in Canada, and are referred to as 10b5-1 plans. The reference is to Rule 10b5-1, which was adopted by the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934 and sets out the parameters of the affirmative defense and exceptions to illegal insider trading.

In Ontario, subsection 175(2)(b) of the General Regulation similarly exempts insiders from insider trading prohibitions and liability under the Act, provided insiders purchase or sell securities pursuant to an automatic dividend reinvestment plan, share purchase plan or other similar automatic plan that was entered into by the insider or issuer prior to the acquisition of MNPI (the automatic plan exemption). While far more prevalent in the U.S., in recent years, Automatic Plans have become increasingly popular amongst insiders of Canadian public companies.

On June 2, 2006, the Ontario Securities Commission released OSC Staff Notice 55-701 – Automatic Securities Disposition Plans and Automatic Securities Purchase Plans (the Staff Notice), addressing frequently asked questions concerning exemptions from insider trading and insider reporting for acquisitions and dispositions of securities under certain types of Automatic Plans. The Staff Notice was intended to be a temporary notice pending development by staff of the Canadian Securities Administrators of a comprehensive CSA staff notice in relation to Automatic Plans. CSA staff have yet, however, to publish such a staff notice, which was also expected to provide specific guidance on trading in managed accounts where full discretionary authority for trading rests with the account manager.

The Staff Notice made clear that the automatic plan exemption will generally apply to Automatic Plans, provided the plan is truly "automatic", which necessitates satisfaction of the following criteria:

  • demonstration from the insider that the insider (i) does not have decision making ability over the trading of securities governed by the Automatic Plan; and (ii) cannot make "discrete investment decisions" through the plan;
  • the insider must not be in possession of MNPI at the time the insider enters into, amends or terminates the plan (if the plan has not been established by the issuer, the issuer must provide a certificate to the broker confirming the issuer is aware of the plan and the insider is not in possession of MNPI);
  • trading parameters and other pertinent instructions are set out in a written plan document;
  • the plan contains "meaningful restrictions" on the ability of the insider to vary, suspend or terminate the plan;
  • the plan prohibits a broker from consulting with the insider regarding any sales or purchases under the plan, and the insider from disclosing information to the broker concerning the issuer that might influence the execution of the plan; and
  • the plan is entered into in good faith.

Benefits of Automatic Plans

Market Signalling, Sensitivity and Reaction

Insiders and issuers alike are often concerned with the message insider selling may convey to the market. Publically announcing the adoption of an Automatic Plan may temper negative market reaction as disclosure should, from an investor relations standpoint, neutralize any negative inference that might otherwise be drawn while preparing investors for future insider sales and counteracting the public perception that MNPI may be motivating the insider to sell at the time of the trade;

Flexibility: Timing Considerations

Insiders have very limited flexibility from a timing standpoint, and black-out periods, limited trading windows and possession of MNPI may restrict the ability of insiders to sell stock or exercise options.

Limited trading windows increase the likelihood that an insider may opt to sell a substantial portion of his or her holdings in one large trade (potentially exposing the insider to market volatility and depressed stock prices), which may be interpreted by the market as an indication that the insider expects the stock price to decrease and precipitate downward pressure on the stock.

Pre-arranged trading instructions, particularly the ability to establish a price floor, the automatic nature of Automatic Plans and the potential availability of exemptive relief from insider reporting (discussed in further detail below) all benefit the issuer as market sensitivity may be tempered through plan disclosure and, where available, annual insider reporting (as opposed to reporting each trade on an ongoing basis). In turn, insiders are permitted to trade throughout black-out periods or outside of open trading windows pursuant to the pre-arranged terms of Automatic Plans thereby providing increased flexibility from a timing standpoint;

Extended and Special Black-out Periods

Increasingly, technological advances may be cited as justification for extended black-out periods. As the quality of information available to insiders improves and the timeliness of the flow of operational and financial information increases, the visibility of insiders with respect to issuer performance has the potential to continue to expand.

Insiders of certain issuers (particularly those involved in the development of new technologies or products, mergers, acquisitions, joint ventures or the acquisition or disposition of assets) are likely to be especially challenged as they may be in possession of MNPI for much of the year and thereby subject to special black-out periods, which may further restrict already narrow trading windows;


From a purely administrative standpoint, a properly implemented Automatic Plan should decrease the amount of time insiders and issuers spend monitoring trading while lowering issuer costs relating to oversight and regulatory compliance. Additionally, a properly implemented Automatic Plan has the potential to minimize the appearance of questionable trading and impropriety while improving investor relations and guarding against inadvertent insider trading violations and resulting reputational damage; and

Exemptive Relief from Insider Reporting

Generally, an insider will be required to file insider reports each time there is a disposition or acquisition under an Automatic Plan. Under Canadian insider reporting rules, certain exemptions may be available to defer reporting to an annual basis, which can minimize negative signalling inferences and adverse market reaction to sales which occur during black-out periods or in close proximity to material events. 

A statutory exemption is available in respect of ASPPs under National Instrument 55-104 Insider Reporting Requirements and Exemptions, which requires that a transaction by transaction report be filed by March 31 of the next calendar year for acquisitions of securities under the ASPP that have not been disposed of or transferred and for certain "specified dispositions."  This deferred filing does not apply, however, to any disposition or transfer of securities acquired under an ASPP other than as part of a "specified disposition" and to acquisitions under a lump–sum provision. This exemption also does not apply to ASDPs, for which exemptive relief must be obtained, the granting of which will require the insider (or issuer, as applicable) to demonstrate that an ASDP is truly automatic and the insider cannot make discrete investment decisions. (Similar substantive relief has been granted in Re: Fortress Paper Ltd., Re: Kinross Gold Corporation and Re: Royal Bank of Canada).

Guidelines for Automatic Plans

While each individual issuer and insider will need to structure an Automatic Plan to be suitable to their own needs and circumstances, the following guidance should be considered. 

While appropriate requirements and restrictions will need to be reflected, issuers should also keep in mind the need to maintain flexibility through, for example, the ability to grant waivers in appropriate circumstances, in order to respond to unforeseen hardships or other situations. 

  • Plan Adoption– The Staff Notice states that an insider may not adopt a plan at a time when the insider is in possession of MNPI. In addition, it may be advisable for an insider to only be permitted to adopt a plan at a time when the insider would otherwise be permitted to trade in securities of the issuer i.e., in compliance with and pursuant to the terms of the issuer's insider trading policy.
  • Imposition of a waiting period prior to commencement of trading – The Staff Notice does not expressly require imposition of a waiting period prior to commencement of trading under a plan. This is likely due to the fact that an Insider cannot be in possession of MNPI at the time of plan adoption. However, imposing a waiting period may be advisable from a risk mitigation standpoint as the longer the delay from the time of plan adoption to the commencement of trading, the more likely any non-material information in the Insider's possession will have since become out-of-date or have been publicly disclosed prior to the actual commencement of trading under the plan.
  • Public disclosure of plan adoption – While the Staff Notice does note that a disclosure obligation may exist depending on the particular circumstances, the issuer may need to consider whether establishment of the plan rises to the requisite threshold of materiality so as to require public disclosure. Irrespective of whether there is a legal requirement to disclose plan adoption, it may be advantageous for the issuer from an investor relations standpoint to voluntarily disclose a plan's adoption.
  • Amendment and Termination – It may be generally advisable to impose a waiting period following notice of amendment or termination (in addition to the requirement that an insider not be in possession of MNPI at the time notice is provided) to seek to ensure that an insider is not amending or terminating the plan either in an effort to: (a) take advantage of information, which may lead to an increase in the issuer's stock price well beyond the threshold specified in the plan; or (b) terminate the plan in anticipation of an unfavorable development to facilitate the disposition of securities or the exercise of options at a lower price than previously specified in the plan prior to the anticipated decrease in the issuer's stock price.
  • Additional considerations relating to amendment and termination – Multiple amendments or terminations by an insider may result in increased scrutiny from investors and regulators. In order to ensure that the automatic nature of the plan is not imperiled or questioned, issuers may wish to impose additional restrictions on the ability of insiders to amend or terminate a plan, including imposing a limit on the number or nature of permitted amendments and whether insiders may terminate within the first six months of plan adoption.
  • Duration – Plan duration is ultimately highly dependent on the needs, circumstances and financial planning considerations of the insider, but plans generally range from between three months to two years. From a risk mitigation standpoint, plan duration should be sufficiently long to guard against allegations of impropriety i.e., allegations that the plan was entered into in an attempt to profit from MNPI or non-public information. At the same time, the duration of the plan should not be so long that plan amendment or early termination is likely to be required.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.