On July 8, 2016, the Ontario Securities Act (the Act)
was amended to prohibit a person who possesses undisclosed material
information from recommending trades or encouraging others to trade
in securities of the issuer. The amendment is the latest in a
series intended to close gaps in Ontario's insider trading
rules. The impetus for these amendments are decisions of the
Ontario Securities Commission (OSC) in which the Commission's
public interest jurisdiction was used to identify and close gaps in
the Act. By making these changes to the Act, the legislature has
added clarity to the insider trading rules and greater certainty
for market participants.
Prohibition against recommending or encouraging trades when in
possession of material undisclosed information
The tipping rule in the Act prohibits a person in a special
relationship with an issuer from sharing undisclosed material
information about the issuer with another person, other than in the
necessary course of business. This prohibition captures
circumstances in which a person with inside information conveys the
information itself, but it is not wide enough to capture
circumstances where a similarly situated person merely recommends
or encourages a person to trade in the issuer's securities.
This left a gap in the Act that the OSC has previously closed using
its public interest jurisdiction. In its decision in in Re
Finkelstein (our case summary can be found
here), the OSC engaged its public interest jurisdiction in
order to make an order against brokers who had recommended that
clients purchase securities of a company in relation to which the
brokers had material undisclosed information.
The Act, like other provincial securities legislation, has
adopted a codified approach to insider trading, setting out the
specific instances of trading conduct that is prohibited by insider
trading rules. The consequences of this approach is that gaps in
the rules will be exposed. The OSC has the ability to address these
gaps on a case-by-case basis by finding that conduct that falls
outside the ambit of the insider trading rules, while not a breach
of the Act, is contrary to the public interest. The difficulty with
reliance on the public interest jurisdiction is that the OSC is
susceptible to criticism that the insider trading rules are not
predictable. Moreover, without proving a breach of the Act, the
sanctions that can be imposed for wrongful trading conduct are
limited. The recent amendment to the Act to capture recommending or
encouraging trading is consistent with other recent efforts by the
legislature to close different gaps identified in the insider
trading rules, which we reported on previously (read our full
analysis of Re Donald
here and our article, "Developments in Insider
here). These legislative amendments closed gaps in the Act
relating to the issuers to which the insider trading prohibition
applies and the range of relationships that can bring a person
within the ambit of the insider trading rules.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
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).