The standards expected of market participants are steadily
increasing in response to demand to address white collar crime
– including amendments to the Ontario Securities Act that took
effect on July 1, 2016 to prohibit a person with a "special
relationship" to an issuer with knowledge of material
undisclosed information from recommending or encouraging a trade in
that issuer's securities. This is just one of several recent
amendments to the Ontario securities legislation aimed at
tightening up the regulation of insider trading in Ontario. Issuers
subject to the Ontario securities legislation should ensure that
"insiders" and those in a "special
relationship" know about the new prohibition, exercise
diligence in safeguarding undisclosed material information, and
refrain from engaging in any disclosure, trading and/or
recommendations in respect of an issuer when in possession of such
By effectively creating a new category of activity drawing
sanction for insider trading, Ontario follows suit with other
Canadian provinces (British Columbia, Alberta, Saskatchewan,
Quebec, Prince Edward Island and New Brunswick) that already
prohibit the same conduct.
The Loophole. Before this change, the Ontario
legislation only addressed "tipping" by prohibiting a
person in a special relationship with an issuer from sharing
undisclosed material information about that issuer with another
person except in the necessary course of business (section 76(2) of
the Act). But it didn't prohibit that person from recommending
or encouraging trading. To deal with this loophole, the Ontario
Securities Commission (OSC) resorted to its power to protect the
public interest to sanction, on a case-by-case basis, trading
activities that didn't breach the Act, but did impugn the
integrity of the capital markets. For example, in one case (Re Finkelstein), a corporate lawyer used
non-public material information he acquired by virtue of his role
as counsel in an imminent transaction to purchase several millions
of dollars of shares for himself and his friends and family; this
didn't breach the Act, but the OSC decided his actions were
contrary to the public interest. Critics argued this approach made
the insider trading rules unclear and unpredictable.
The Belt Tightening. The most recent amendments
to the Ontario Securities Act close this
loophole: a person with a "special relationship" to an
issuer who has knowledge of material undisclosed information is now
also prohibited from recommending or encouraging a trade in that
issuer's securities. The Act defines those in a "special
relationship" to include:
Insiders, affiliates or associates either of the issuer or of a
person or company considering making a take-over bid, becoming a
party to a reorganization, amalgamation or other arrangement or
business combination, or acquiring a substantial portion of the
A person or company engaging in a business or professional
activity with or on behalf of the issuer or a person or company
considering a transaction referenced above.
A director, officer or employee of the issuer, a subsidiary of
it, or a company that controls either the issuer or any company
considering a transaction referenced above.
A person or a company that learns of either a material fact or
change with respect to the issuer while being one of the people
A person or company that learns of a material fact or change
respecting the issuer from any of the above people, and that knows
or ought reasonably to have known that the other person is in such
a "special relationship".
Elissa McCarron, Law Student at McInnes Cooper helped
produce this article.
The content of this article is intended to provide a general
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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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