The Toronto Stock Exchange Company Manual has long contained a prohibition against listed companies setting option exercise prices, or prices at which securities may otherwise be issued, at market prices that do not reflect undisclosed material information. TSX staff recently issued a notice reminding companies of this prohibition, but the notice also suggests that the TSX is very leery of options that are granted during blackout periods (or, for companies that use trading windows, outside those windows). That is, the notice "cautions listed issuers about granting options during a blackout period, whether or not the blackout period is directly related to the material undisclosed event."
Blackout periods vary, and represent the approximate periods when a company might possess undisclosed material information. If the company is satisfied that no material undisclosed information exists and appropriate internal approvals are obtained, we think that the mere existence of a blackout period should not be an absolute bar to issuing options or establishing the exercise price.
We contacted representatives of the TSX to understand the extent of the caution. Staff indicated that the caution is not an outright prohibition on issuing options or establishing the exercise price during a blackout period. However, it reflects staff’s serious concern over what it believes is a poor governance practice, and the caution puts listed companies on notice that staff will closely scrutinize these grants in the future to ensure that there was no undisclosed material information at the time of pricing. In appropriate circumstances, the TSX will require the company to cancel or re-price options granted during these periods.
Listed companies should, therefore, be mindful that options granted during a blackout period will be examined by the TSX. If some doubt exists about whether there is undisclosed material information, boards should consider delaying the grant of options until the blackout period has expired.
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A copy of TSX Staff Notice #2005-0003, dated October 24, 2005, can be found on the Toronto Stock Exchange’s website at:
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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