On February 18, 2016, the Ontario Securities Commission (OSC)
staff released a report detailing their findings of a significant
level of material reporting deficiencies in insider reports. OSC
Staff Notice 51-726 discusses the results of staff's review and
includes recommended practices for issuers.
Significant Deficiencies Identified
Staff identified a significant level of material reporting
deficiencies. Of the 100 issuers reviewed, 15% had material
insider reporting deficiencies and 70% had at least one
insider who was required to make a remedial filing. These findings
suggest insiders are still struggling to address insider reporting
requirements, especially in light of the changes introduced
in 2010, including:
the need to create and use security designations for reporting
equity-based compensation, necessitated when compensation awards
became subject to insider reporting in 2010; and
the omission of a reporting exemption for companies controlled
by an individual reporting insider which existed prior to 2010
(companies controlled by an individual reporting insider were
exempted from reporting under the Securities Act (Ontario)
but such exemption was not carried forward upon the creation of NI
Staff Reminders for Insiders
Based on the findings of the review, the staff report includes
reminders to assist issuers and insiders with meeting their insider
reporting obligations, some of which are set out below:
Periodically review who qualifies as a reporting insider. Since
directors and officers of material subsidiaries are also subject to
insider reporting, we recommend issuers should confirm which are
its material subsidiaries at least quarterly.
Issuers can help insiders by creating security designations for
reporting equity-based compensation before any grants are made. We
also recommend issuers ensure their insider reporting policy
addresses the need to file insider reports respecting equity-based
Staff encourage the use of issuer grant reports to simplify
subsequent reporting of grants by insiders, but note that few
issuers use this reporting mechanism. In practice, we understand
most issuers prefer to file the insider report on behalf of the
reporting insiders or leave the responsibility (and liability)
solely with the insider than to make use of this alternative.
Staff confirm that issuers must file an insider report when
purchasing their own securities even when the securities are
cancelled immediately upon repurchase.
Additional Staff Views
The staff's report sets out helpful guidance regarding
compliance with insider reporting obligations. There are two
comments that are worth particular mention:
Staff express the view that option repricing is per se an
"improper practice". While not favoured by shareholders,
repricing options may in certain circumstances be in the
issuer's best interests, but should be executed in a manner
transparent to investors.
Staff state it is essential that insider trading policies
restrict the issuer from granting stock options or similar forms of
stock-based compensation during blackout periods. This is a strong
statement and may foreshadow a potential future rule change.
Failure to comply with the insider reporting regime can result
in fines, while other regulatory enforcement action may be taken
against those issuers and insiders with serious compliance
concerns. The staff's review signals to issuers and insiders
that there are concerns with the quality of insider reporting and
that the OSC will be focusing its attention on this matter. We will
continue to monitor further staff initiatives on insider reporting
and are available to discuss the application of these rules to your
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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