Canada: Blackout Periods – Unintended Consequences?

Last Updated: December 14 2016
Article by Jay P. Reid

Your blackout policies may be negatively impacting your long-term incentive plans- here's how to mitigate that risk.

Under Canadian securities legislation, insiders (including all employees of a company) are restricted from trading in their company's securities when they are in possession of material non-public information (MNPI). Issuer imposed trading restrictions (often referred to as "blackouts") typically place further restrictions on an insider's ability to trade in the company's securities. While insider trading restrictions are essential for the proper functioning of the public markets, they place significant restrictions on the ability of senior executives to exercise or otherwise transact in the securities underlying their companies' equity incentive plans or their own personal holdings in these securities.


Plunging commodity prices in recent years, coupled with corporate blackouts, have in many instances, resulted in corporate insiders seeing significant impairment of the value of their already-vested incentive securities alongside their companies' declining share prices. This wealth destruction is not limited to equity incentive plans; increasingly, company executives and directors are being asked by institutional shareholders and proxy advisors to hold increasing levels of securities in the issuers that they oversee. The typical CEO is now required to hold three to five times their annual salary in shares of the company, while the remainder of the senior executive team is required to hold a minimum amount equal to their respective salaries. Post exercise and postretirement hold periods for executives are now being requested by these same stakeholders. Add in the frequency and duration of blackout periods—especially for companies with a high growth/high acquisition strategy—and executive and corporate director shareholdings can become practically illiquid. As a considerable portion of most executives' personal net worth is tied up in the companies they oversee, this illiquidity can have detrimental consequences to the financial wellbeing of an executive.


In addition to the individual considerations, the limited trading windows of executive equity incentives can negatively impact issuers, especially in cyclical commodity sectors. We have witnessed numerous cases where company executives are in blackout for several months at a time while commodity and share prices decline. This combination of events can lead to a large number of underwater stock options and can greatly reduce the value of other equity based incentives such as Restricted Share Units (RSUs). Should the low price commodity cycle be protracted, as with the current downturn, the resulting abundance of underwater options may cause the following issues:

1. Reduced transactions in stock option and other equity based incentives which, in turn, restrict the company's ability to grant new equity incentives as available room under the incentive plan is already filled with a glut of underwater incentives; and 2. Negative impact on the perception of a company's equity incentive plans under various proxy advisor analyses—either as an increased 'cost' of the plan under the Shareholder Value Transfer (SVT) model utilized by Institutional Shareholder Services (ISS) and/or as higher plan dilution, which is concerning to most institutional investors and proxy advisors. This higher cost and dilution can lead to AGAINST voting recommendations by proxy advisors and corresponding votes against a company's equity incentive plans by shareholders, should a company have to ask shareholders for plan (re)approval during these difficult times.


A well designed Automatic Securities Disposition Plan (ASDP) can help mitigate many of the foregoing issues.

ASDPs are plans that are entered into by the insider, or sponsored by the issuer, that, when entered into in advance of MNPI coming into existence, allow an insider to later sell securities of the issuer, while in possession of, or potentially in possession of, material non-public information (i.e. while in blackout).

ASDPs are structured to comply with exemptions to insider trading prohibitions (and associated liability) in Canadian securities laws—for example, subsection 175(2)(b) of the General Regulations of the Ontario Securities Act (the Act), which states that an insider will be exempted from insider trading prohibitions if "the purchase or sale was made pursuant to participation in an automatic dividend reinvestment plan, share purchase plan or other similar automatic plan that was entered into by the person or company prior to the acquisition of knowledge of the material fact or material change".1


ASDPs are structured around the Ontario Securities Commission (OSC) Staff Notice 55701, which addresses several frequently asked questions from stakeholders regarding possible exemptions from insider trading under the Act. The Staff Notice is clear that the OSC will consider an ASDP to be another similar automatic plan under 175(2)(b) if it is truly automatic and possesses the following criteria:

  • The insider can demonstrate that he/she no longer has the ability to make decisions relating to trading in the securities in the plan (i.e. after they have been set initially) and cannot make "discrete investment decisions" during the term of the plan;
  • At the time of entry into the plan, the insider is not in possession of any MNPI in relation to the issuer;
  • At the time of entry into the plan, in the case of plans that have not been established by the issuer, the insider provides the broker with a certificate from the issuer confirming that the issuer is aware of the plan and certifying that, to the best of its knowledge, the insider is not in possession of material undisclosed information about the issuer. A formal certificate or other such documentation is important as a mere representation by the insider that they are not party to any MNPI is insufficient;
  • Trading parameters (number of securities to be sold, number of options to be exercised, price floor for exercise/sale, timeline over which the sales and/or exercises will take place, etc.) and other instructions are set out in a written plan document at the time of the establishment of the plan;
  • The plan contains meaningful restrictions on the ability of the insider to vary, suspend or terminate the plan so that the insider cannot profit from MNPI through a decision to vary, suspend or terminate the plan;
  • The plan provides that the broker is not permitted to consult with the insider regarding any sales under the plan and that the insider cannot disclose to the broker any information concerning the issuer that might influence the execution of the plan; and
  • The plan to purchase or sell securities was given or entered into in good faith and not as part of a plan or scheme to evade the insider trading prohibitions.


PLAN DISCLOSURE – The OSC Staff Notice notes that a disclosure obligation may exist depending on the particular circumstances of the ASDP and whether the plan would be sufficiently material to require public disclosure (best practice would be for full plan disclosure, regardless of materiality). Whether or not there is a legal requirement to disclose the ASDP, it may be advantageous from an investor relations standpoint to voluntarily disclose a plan's adoption in order to manage the market's perception of the sale of securities by insiders. Disclosure may also assist in mitigating the need for immediate disclosure under the System for Electronic Disclosure by Insiders (SEDI) (see below).

WAITING PERIOD/NOTICE PERIOD – The OSC Staff Notice does not expressly require a waiting period prior to commencement of trading under the ASDP; however, best practice is to include a waiting period of one to three months to help mitigate:

" any market perception that the insider was in possession of non‐public information at the time the ASDP was established (for example, if the plan was disclosed immediately following a blackout period); and

" potential negative market reaction from the sale of securities from insiders.

Note that recent plans that have received exceptive relief to allow for annual SEDI reporting rather than immediate SEDI reporting had waiting periods of 90 days.

PLAN DURATION – While the Staff Notice does not specifically address the minimum or maximum term of an ASDP, a plan should likely be long enough to avoid any perception of impropriety/use of MNPI on behalf of the insider. Conversely, the plan should not be so long as to raise the possibility that plan amendment or termination is required by changing insider circumstances. Plans typically range from six to 24 months.

INSIDER REPORTING – An insider (or the broker on behalf of the insider) is required to file insider trading reports each time there is a disposition under the ASDP. We recommend that each report include a statement in the general remarks section of the insider report that the sale is pursuant to an ASDP. It is possible for an issuer or insider to apply for exemptive relief to reduce the reporting requirements for sales under an ASDP to an annual reporting schedule. Securities commissions may grant exemptive relief when they are satisfied that the ASDP is truly automatic and that annual SEDI reporting is in the public interest.


Lane Caputo Compensation, Burnet, Duckworth & Palmer LLP and Solium Capital have collaborated to provide a turnkey solution for the efficient and cost-effective development of an ASDP for our clients. Our approach ensures the appropriate compensation governance structure to underpin the ASDP, includes all plan documentation and securities legislation interpretation and a cloud-based solution to administer, track and report activity under the plan.

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

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions