Encroaching on the reporting threshold: What is the significance of 10 percent?
The threshold in Canada when one becomes a "reporting
insider" of a "reporting issuer" is at an ownership
level (including control and direction) of 10 percent. When a
purchaser acquires ownership or control of greater than 10 percent
(on a partially diluted basis) of a reporting issuer, such
purchaser can no longer stay below the reporting
Once a purchaser eclipses the 10 percent threshold, insider
reporting and early warning reporting obligations will take effect.
The reporting insider must then create a profile on the Canadian
System for Electronic Disclosure by Insiders (SEDI), and file an
insider report. Additionally, the reporting insider will be
required to file an early warning report and press release on the
System for Electronic Document Analysis and Retrieval which, like
SEDI, is web based and accessible to the public. Institutional
investors may decide, instead, to adhere to a separate reporting
Additionally, a reporting insider is required to file subsequent
reports on SEDI within five days of any changes to the reporting
insider's ownership or control of the reporting issuer. As
well, additional press releases and early warning reports are
required to be disseminated and filed whenever (i) a reporting
insider's ownership or control increases by 2 percent or more
from the last filed report filed, or (ii) there is a change in a
material fact from the last report filed.
Further, the reporting insider is prohibited from acquiring or
offering securities for a period commencing on the date on which
the early warning report is required to be filed and expiring one
business day after the date the report is filed.
The above is a very brief summary and does not cover every
investing situation. For example, the above rules would be modified
if (i) the purchaser is also an insider of the issuer or a
significant shareholder of the issuer, or (ii) a take-over bid for
the issuer has been launched.
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