Canada: Important Changes To Canadian Insider Trading Disclosure Regime

The Canadian securities regulatory authorities in each of the provinces of Canada have enacted a new, uniform insider trading disclosure regime which will come into force on April 30, 2010. The new regime contains a number of important changes to the current insider trading disclosure rules in Canada.

Canadian securities legislation requires insiders of reporting issuers:

  • to file an initial insider report, disclosing their beneficial ownership of, or control or direction over, whether direct or indirect, securities of the reporting issuer, and their interest in, or right or obligation associated with, a related financial instrument (defined below) involving a security of the reporting issuer;
  • to file insider reports disclosing changes in their beneficial ownership of, or control or direction over, whether direct or indirect, securities of the reporting issuer, or interest in, or right or obligation associated with, a related financial instrument involving a security of the reporting issuer; and
  • upon the exercise of an option, warrant or other convertible or exchangeable security, to file separate insider reports disclosing the resulting change in their beneficial ownership of, or control or direction over, whether direct or indirect, each of the options, warrants or other convertible or exchangeable securities, and the common shares or other underlying securities.

Canadian insider reporting requirements are intended to deter improper insider trading based on material undisclosed information and increase market efficiency by providing investors with information concerning the trading activities of insiders and, by inference, the insiders' views of their issuer's prospects. Insider reporting also helps prevent illegal or otherwise improper activities involving stock options and similar equity-based instruments, including stock option backdating, option repricing and the opportunistic timing of option grants (spring-loading or bullet-dodging). Insiders are expected to interpret Canadian insider reporting requirements with these policy rationales in mind and comply with the requirements in a manner that gives priority to substance over form.

Deadline to Report Shortened

The reporting deadline for insider reports after an initial report has decreased from 10 days to five calendar days after the trade for most transactions following a six-month transition period. Initial reports continue to be required to be filed within 10 days of becoming a reporting insider (defined below).

Categories of Persons Required to Report Reduced

The categories of persons required to report trades has been reduced to a core group that have the greatest access to material undisclosed information and the greatest influence over reporting issuers. Persons required to report, now called reporting insiders, are:

  1. the CEO, CFO or COO and directors of the reporting issuer;
  2. the CEO, CFO or COO and directors of a major subsidiary of the reporting issuer. A major subsidiary is a subsidiary (i) whose assets, as included in the issuer's most recent annual audited or interim balance sheet (or statement of financial position), are 30% or more of the consolidated assets of the issuer or (ii) whose revenue, as included in the issuer's most recent annual audited or interim income statement (or statement of comprehensive income), is 30% or more of the consolidated revenue of the issuer;
  3. a significant shareholder of the reporting issuer. A significant shareholder is a person or company that has beneficial ownership of, or control or direction over, whether direct or indirect, or a combination of beneficial ownership of and control or direction over, whether direct or indirect, securities of an issuer carrying more than 10% of the voting rights attached to all of an issuer's outstanding voting securities (excluding any securities held by the person or company as underwriter in the course of a distribution);
  4. the CEO, CFO or COO and directors of a significant shareholder of the reporting issuer;
  5. a significant shareholder based on post-conversion beneficial ownership of the reporting issuer's securities. A person or company is a significant shareholder based on post-conversion beneficial ownership if the person or company has beneficial ownership of, post-conversion beneficial ownership of, control or direction over, whether direct or indirect, or any combination of beneficial ownership of, post-conversion beneficial ownership of or control or direction over, whether direct or indirect, securities of an issuer carrying more than 10% of the voting rights attached to all of an issuer's outstanding voting securities. Post-conversion beneficial ownership of a security, including an unissued security, occurs if the person or company is the beneficial owner of a security convertible into the security within 60 days following that date or has a right or obligation permitting or requiring the person or company, whether or not on conditions, to acquire beneficial ownership of the security within 60 days, by a single transaction or a series of linked transactions;
  6. the CEO, CFO or COO and directors of a significant shareholder based on post-conversion beneficial ownership of the reporting issuer's securities;
  7. a person or company responsible for a principal business unit, division or function of the reporting issuer;
  8. a management company that provides significant management or administrative services to the reporting issuer or a major subsidiary of the reporting issuer;
  9. the CEO, CFO or COO and directors of such a management company;
  10. the significant shareholder of such a management company;
  11. an individual performing functions similar to the functions performed by any of the insiders described above;
  12. the reporting issuer itself, if it has purchased, redeemed or otherwise acquired a security of its own issue, for so long as it continues to hold that security; and
  13. any other insider that (i) in the ordinary course receives or has access to information as to material facts or material changes concerning the reporting issuer before the material facts or material changes are generally disclosed; and (ii) directly or indirectly exercises, or has the ability to exercise, significant power or influence over the business, operations, capital or development of the reporting issuer.

Reporting Requirements for Derivative Transactions

The new regime consolidates insider reporting requirements for derivative transactions in one location with the primary insider reporting requirements.

Reporting insiders continue to be required to file an initial insider report disclosing their interest in, or right or obligation associated with, a related financial instrument involving a security of the reporting issuer and, thereafter, insider reports disclosing any change in the interest in, or right or obligation associated with, a related financial instrument involving a security of the reporting issuer.

Reporting insiders of a reporting issuer must file an insider report within five days if they enter into, materially amend or terminate an agreement, arrangement or understanding that has the effect of altering, directly or indirectly, the reporting insider's economic exposure to the reporting issuer and involves, directly or indirectly, a security of the reporting issuer or a related financial instrument involving a security of the reporting issuer. A related financial instrument means an agreement, arrangement or understanding to which an insider of a reporting issuer is a party, the effect of which is to alter, directly or indirectly, the insider's (a) economic interest (meaning a right to receive or the opportunity to participate in a reward, benefit or return from a security or an exposure to a loss or a risk of loss in respect of a security) in a security of the reporting issuer, or (b) economic exposure to the reporting issuer.

Related financial instruments include forward contracts, futures contracts, stock purchase contracts or similar contracts involving securities of the reporting issuer, options issued by an issuer other than the reporting issuer, stock-based compensation instruments, including phantom stock units, deferred share units (DSUs), restricted share awards (RSAs), performance share units (PSUs), stock appreciation rights (SARs) and similar instruments and debt instruments or evidences of deposit issued by a bank or other financial institution for which part or all of the amount payable is determined by reference to the price, value or level of a security of the reporting issuer (a linked note).

Economic exposure in relation to a reporting issuer means the extent to which the economic or financial interests of a person or company are aligned with the trading price of securities of the reporting issuer or the economic or financial interests of the reporting issuer.

Extended Deadline for Reporting Transactions under Automatic Securities Purchase Plans

The new regime sets out a deferred reporting option for acquisitions and certain dispositions by directors and officers of securities under an automatic securities purchase plan, which is a dividend or interest reinvestment plan, a stock dividend plan or any other plan established by an issuer or by a subsidiary of an issuer to facilitate the acquisition of securities of the issuer, if the timing of acquisitions of securities, the number of securities which may be acquired under the plan by a director or officer of the issuer or of the subsidiary of the issuer, and the price payable for the securities are established in advance by written formula or criteria set out in a plan document and not subject to a subsequent exercise of discretion. This deferred reporting option also applies to a related financial instrument involving securities of reporting issuers. It does not apply to options and similar securities.

A director or officer of a reporting issuer or a subsidiary may file an insider report disclosing, on a transaction-bytransaction basis or in acceptable summary form, each acquisition (other than an acquisition under a lump sum provision) and each specified disposition of a security under an automatic securities purchase plan in a calendar year, that has not previously been disclosed, by March 31 of the following year.

A disposition or transfer of securities acquired under an automatic securities purchase plan is a specified disposition if (a) the disposition or transfer is incidental to the operation of the plan and does not involve a discrete investment decision or (b) the disposition or transfer is made to satisfy a tax withholding obligation arising from the distribution of securities under the plan and certain other requirements are met.

Alternative Reporting Regime for Compensation Arrangements

A director or officer may comply with an alternative reporting regime for the acquisition or specified disposition of a security of the reporting issuer under a compensation arrangement established by the reporting issuer or by a subsidiary of the reporting issuer if the reporting issuer has previously disclosed the existence and material terms of the compensation arrangement in an information circular or other publicly filed document and has filed an issuer grant report, setting out details of the grant of securities under the compensation arrangement. This alternative reporting option also applies to a related financial instrument involving securities of reporting issuers.

A compensation arrangement includes, but is not limited to, an arrangement, whether or not set out in any formal document and whether or not applicable to only one individual, under which cash, securities or related financial instruments, including options, stock appreciation rights, phantom shares, restricted shares or restricted share units, deferred share units, performance units or performance shares, stock, stock dividends, warrants, convertible securities or similar instruments, may be received or purchased as compensation for services rendered or otherwise in connection with holding an office or employment with a reporting issuer or a subsidiary of a reporting issuer.

If a reporting issuer has complied with the reporting requirements described above, a director or officer of the reporting issuer or a subsidiary may file an insider report disclosing, on a transaction-by-transaction basis or in acceptable summary form, each acquisition and each specified disposition of a security under a compensation arrangement in a calendar year, that has not previously been disclosed, by March 31 of the following year.

Penalties

It is an offence to fail to file an insider report in accordance with the filing deadlines or to submit information in an insider report that, in a material respect and at the time and in the light of the circumstances in which it is submitted, is misleading or untrue.

A failure to file an insider report in a timely manner or the filing of an insider report that contains information that is materially misleading may result in one or more of:

  • the imposition of a late filing fee;
  • the reporting insider being identified as a late filer on a public database of late filers maintained by certain securities regulators;
  • the issuance of a cease trade order that prohibits the reporting insider from directly or indirectly trading in or acquiring securities or related financial instruments of the applicable reporting issuer or any reporting issuer until the failure to file is corrected or a specified period of time has elapsed; and
  • in appropriate circumstances, enforcement proceedings.

Canadian securities administrators have indicated that they may also consider information relating to wilful or repeated non-compliance by directors and executive officers of a reporting issuer with their insider reporting obligations in the context of a prospectus review or continuous disclosure review, since this may raise questions relating to the integrity of the insiders and the adequacy of the issuer's policies and procedures relating to insider reporting and insider trading.

The Canadian securities administrators recommend that issuers adopt written disclosure policies to assist directors, officers, employees and other representatives in discharging timely disclosure obligations. Written disclosure policies should also provide guidance on how to maintain the confidentiality of corporate information and prevent improper trading based on inside information. National Policy 51-201 Disclosure Standards outlines detailed best practices for issuers for disclosure and information containment and provides interpretative guidance of insider trading laws. Adopting these best practices may assist issuers to ensure that they take all reasonable steps to contain inside information.

Reporting issuers may also wish to consider preparing and periodically updating a list of the persons working for them or their affiliates who have access to material facts or material changes concerning the reporting issuer before those facts or changes are generally disclosed. This type of list may allow reporting issuers to control the flow of undisclosed information. The Canadian securities administrators may request additional information from time to time, including asking the reporting issuer to prepare and provide a list of insiders and reporting insiders in the context of an insider reporting review.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
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

    Mondaq.com (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 www.mondaq.com

    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 Mondaq.com’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.

    Disclaimer

    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.

    Registration

    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 unsubscribe@mondaq.com 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.

    Cookies

    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.

    Links

    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.

    Mail-A-Friend

    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.

    Emails

    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 .

    Security

    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 webmaster@mondaq.com.

    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 EditorialAdvisor@mondaq.com.

    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 enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com 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