On February 18, 2016, the Ontario Securities Commission (the
"OSC") published OSC Staff Notice 51-726
Report on Staff's Review of Insider Reporting and User
Guides for Insiders and Issuers (the "Staff
Notice"). The Staff Notice sets out the results of
the OSC's review of the continuous disclosure records and
reporting insider filings of 100 reporting issuers whose principal
regulator is Ontario.
The term "reporting insider" is defined in National
Instrument 55-104 Insider Reporting Requirements and
Exemptions ("NI 55-104"), and
generally includes persons who have access to material undisclosed
information concerning a reporting issuer and/or significant
influence over the reporting issuer (e.g. CEO, CFO, COO,
significant shareholder, etc.). Reporting insiders are generally
required to file an initial insider report within ten calendar days
of becoming a reporting insider. Any subsequent insider reports
reflecting changes in their holdings must be filed within five
calendar days of such change.
The purpose of the review was to assess compliance and assist
reporting insiders with meeting insider reporting requirements. The
Staff Notice states that insider reporting requirements aim, among
other things, to deter insider trading based on material
undisclosed information and increase market efficiency by providing
investors with information concerning the trading activities of
insiders. When insiders fail to comply with insider reporting
requirements, this affects the integrity, reliability and
effectiveness of the insider reporting regime, which in turn has a
negative impact on market efficiency.
OSC staff examined the filings of approximately 1,500 reporting
insiders on the System for Electronic Disclosure by Insiders
("SEDI") to assess compliance with NI
55-104 and related securities legislation. The review found that
reporting insiders of issuers of all sizes need to improve the
quality of their insider reporting for accuracy, completeness and
timeliness. There were material insider reporting deficiencies in
approximately 70% of the issuers reviewed, with approximately 200
reporting insiders filing new insider reports to address material
deficiencies and 150 reporting insiders filing correctional
reports. The reporting insiders required to file new insider
reports were generally charged late filing fees.
OSC staff found that some of the common reasons for insider
reporting deficiencies leading to remedial filings were as follows:
unfamiliarity with the definition of "reporting insider";
unfamiliarity with the definition of "significant
shareholder" in NI 55-104; failure to file reports for
acquisitions under a normal course issuer bid; failure to report
expiration of securities; late reporting due to issuer delays; and
reliance on third parties. The Staff Notice recommends that as
responsibility to file insider reports remains with the reporting
insider regardless of whether they use a third party agent,
reporting insiders should periodically review SEDI to make sure
their reports are being filed correctly.
Some of the non-material deficiencies resulting in correctional
filings were as follows: inaccurate transaction codes; inaccurate
transaction dates; inaccurate reporting with respect to type of
ownership (direct, indirect or control or direction); not reporting
the name of the registered holder; and use of incorrect security
designations by issuers, precluding their insiders from correctly
reporting their transactions.
OSC staff also found that reporting insiders were unfamiliar
with the requirement to update their insider profiles and issuer
profile supplements on SEDI, reporting issuers used incorrect
security designations in their issuer profile supplements (e.g.
common shares, stock options, rights), few reporting issuers made
use of grant reports (a report that may be voluntarily filed by a
reporting issuer on SEDI which discloses the details of a grant of
stock options or similar instruments to its insiders under a
compensation arrangement), and reporting issuers lacked internal
processes to reconcile insider reports on SEDI with their
continuous disclosure records.
Overall, the Staff Notice notes that many reporting insiders
need to improve the quality of their insider reporting for
accuracy, completeness and timeliness. OSC staff strongly recommend
that issuers and reporting insiders take note of the
recommendations made in the Staff Notice and consider other
processes that can be put in place to increase the rate of
compliance with insider reporting obligations.
To assist issuers and reporting insiders in meeting their
reporting obligations, the Staff Notice includes checklists
(Appendix B and C) which highlight key points that reporting
insiders and issuers should consider in complying with insider
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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