The Canadian Securities Administrators (the
"CSA") have published for comment
proposals for significant changes to the insider reporting regime
across Canada. The key changes include the following:
Reduction in the scope of persons required to file
insider reports - Under the existing framework,
insider reporting applies to significant (10% plus) shareholders
and to insiders who are directors and/or officers and who in the
normal course have access to material undisclosed information.
Under the CSA's proposals insider reporting obligations would
be imposed only on a truly core group of insiders –
significant shareholders would continue to have to report, but
persons with access in the ordinary course to material nonpublic
information would only be required to report if they exercise, or
have the ability to exercise, significant power or influence over
the business, operations, capital or development of the reporting
issuer (or a major subsidiary). The proposals would also change the
definition of "major subsidiary" from a subsidiary with
20% of consolidated assets or revenues to 30% thresholds, which
would have the effect of reducing the number of insiders required
to insider report.
Accelerated five (5) day filing
deadline - The proposals contemplate accelerating the
filing deadline for insider reports from ten (10) calendar days to
five (5) calendar days (for all but the initial reports, which
would continue to have a ten (10) day filing deadline).
Harmonization and integration
– The proposals would harmonize insider reporting
requirements nationally and centralize the rules relating to
insider reporting (for example, the requirements for insider
reporting of equity monetization transactions, today forming a
discrete regulatory instrument, would be integrated into the new
Permitting issuers to report on behalf of their
insiders for certain matters - To assist insiders
with the reporting of stockbased compensation arrangements, the
proposals would permit issuers to publicly file "issuer grant
reports," the filing of which would exempt affected insiders
from making their own prompt filing obligations. Instead, affected
insiders would only be obligated to file an alternative report on
an annual basis.
Incorporating the concept of "post-conversion
beneficial ownership" – The 10%
threshold at present does not capture convertible securities. The
proposals contemplate utilizing the concept of
"post-conversion beneficial ownership." This concept
would deem a person to own securities underlying their convertible
securities where the convertible securities are convertible within
a period of 60 days. This proposal would harmonize the insider
reporting regime with the early warning regime.
Requiring issuers to disclose in their information
circulars any late filings by their insiders - To
boost transparency and add further incentive to comply with the
insider report filing deadlines, the proposals suggest that issuers
would be required to disclose in their information circulars
whether any of their insiders have been subject to late filing
Harmonizing the Requirements for Deemed Look-back
Reporting – The proposals would nationalize
the "deemed insider look-back provisions" in securities
legislation in some jurisdictions. These provisions stipulate that
where an issuer acquires a significant interest in a second issuer,
the directors and officers of the first issuer may, in certain
cases, be deemed to be insiders of the second issuer and be
required to report transactions involving the securities of the
second issuer for a historical period of up to six months. The
purpose of this requirement is to address concerns that such
individuals may have been "front-running" the acquisition
by the first issuer.
The CSA indicated that it is continuing to examine the use of
derivatives to avoid disclosure requirements. The CSA noted that,
by using derivatives, market actors can accumulate substantial
economic interests in issuers without triggering disclosure
obligations, then quickly convert into the underlying securities in
the event that there is a vote (the "hidden ownership"
phenomenon). Similarly, voting rights themselves can be severed
from the underlying security, meaning that ownership of those
voting rights may not be reported ("empty voting"). The
CSA observed that other jurisdictions have been considering and
proposing initiatives to address these practices, and indicated
that it is also reviewing possible regulatory responses.
We will provide an update as developments with respect to the
reformulation of the insider reporting rules occur.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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