Publication
title
National Instrument 55-101 Insider Reporting Exemptions is Amended
DATE
April 25, 2005
EXPERTISE
The Canadian Securities Administrators (CSA) will implement amendments to National Instrument 55-101 Insider Reporting Exemptions (the "Instrument") and Companion Policy 55-101CP (the "Policy") on April 30, 2005, subject to receipt of the necessary ministerial approvals.
The CSA's objective is to enhance deterrence of unlawful insider trading, increase market efficiency and significantly reduce the regulatory burden associated with insider reporting on insiders, issuers and the securities regulatory authorities.
Current exemption for certain directors and senior officers of certain subsidiaries of a reporting issuer
The Instrument currently provides an exemption from the insider reporting requirements for certain directors and senior officers of a subsidiary of a reporting issuer in respect of the reporting issuer's securities, subject to certain restrictions. In order to rely on the exemption the director or senior officer must not:
- in the ordinary course receive or have access to information as to material facts or material changes concerning the reporting issuer before the material facts or material changes are generally disclosed;
- be a director or senior officer of a major subsidiary; or
- be an insider of the reporting issuer in a capacity other than as a director or senior officer of the subsidiary.
New exemption for certain senior officers of a reporting issuer or a subsidiary of a reporting issuer (exemption for nominal vice-presidents)
In addition to keeping the exemption for directors of a subsidiary of the reporting issuer, the proposed Instrument provides a new exemption from the insider reporting requirement for senior officers of a reporting issuer or a subsidiary of a reporting issuer (regardless of size) provided the following criteria are met:
- the individual does not in the ordinary course receive or have 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
- the individual is not an ineligible insider (as defined in the proposed Instrument).
Essentially the following individuals are ineligible insiders in relation to a reporting issuer:
- an individual performing the functions of the chief executive officer, the chief operating officer or the chief financial officer;
- a director;
- a director of a major subsidiary of the reporting issuer (representing 10% or more of the consolidated assets or consolidated revenues of the reporting issuer);
- a senior officer in charge of a principal business unit, division or function of the reporting issuer or a major subsidiary of the reporting issuer;
- a person who is an insider due to the large number of securities (more than 10%) of the reporting issuer that the person holds.
Thus, the scope of this exemption is much broader than before and is now available to senior officers of a reporting issuer or a subsidiary of a reporting issuer who may, for example, have the title of "Vice-President" but who do not have access to any confidential information. This statutory exemption will replace the discretionary relief granted in numerous cases since 2002 by the CSA following the issuance of CSA Staff Notice 55-306 - Applications for Relief from Insider Reporting Requirements by Certain Vice-Presidents.
New exemption for certain insiders of investment issuers
The proposed Instrument also provides for a new exemption from the insider reporting requirement for directors and senior officers of an insider issuer or of a subsidiary of an insider issuer in respect of securities of an investment issuer. An investment issuer means a reporting issuer in respect of which another issuer is an insider (considering the large number of securities (more than 10%) of the reporting issuer it holds. As is the case for the insider reporting exemptions for certain directors and senior officers, the new insider reporting exemption for certain insiders of investment issuers is subject to the following conditions:
- the individual does not in the ordinary course receive or have access to information as to material facts or material changes concerning the investment issuer before the material facts or material changes are generally disclosed; and
- the individual is not an ineligible insider in relation to the investment issuer.
The "material facts or material changes concerning the investment issuer" include information that originates at the insider issuer level but which concerns or is otherwise relevant to the investment issuer. For example, a decision at the parent issuer level that the subsidiary investment issuer will commence or discontinue a line of business would generally represent a "material fact or material change concerning the investment issuer". Similarly, a decision at the parent issuer level that the parent issuer will seek to sell its holding in the subsidiary investment issuer would also generally represent a "material fact or material change concerning the investment issuer". Accordingly, a director or senior officer of the parent issuer who routinely has access to such information concerning the investment issuer would not be entitled to rely on the exemption for trades in securities of the investment issuer.
Continuing exemption for certain directors and senior officers of affiliates of an insider of a reporting issuer
It should be noted that the exemption for directors and senior officers of affiliates of an insider of a reporting issuer is substantially unchanged in the proposed Instrument.
Insider lists
The Instrument currently provides a requirement for reporting issuers to maintain a list of all insiders that are exempted from the insider reporting requirements in the case of the directors and senior officers of certain subsidiaries and the directors and senior officers of affiliates of an insider of a reporting issuer. The proposed Instrument changes the existing regime and adds new conditions so that insiders can avail themselves of these exemptions. Thus, the current requirement to establish and maintain a list of all insiders that enjoy a reporting exemption is now supplemented by a requirement to establish and maintain a list of all non-exempted insiders. Moreover, instead of maintaining such lists, the reporting issuer may file an undertaking with the regulator or securities regulatory authority to make available to the regulator or the securities regulatory authority, promptly upon request, a list containing the information described in such lists as at the time of the request.
Insider policies
The proposed Instrument also contains a new condition that requires a reporting issuer to advise its insiders that are exempted from the insider reporting requirements about its policies and procedures relating to restricting the trading activities of its insiders and other persons with access to material undisclosed information concerning the reporting issuer. In this regard, the CSA recommend in National Policy 51-201 that issuers adopt written corporate disclosure policies to assist directors, officers or other representatives in satisfying their obligations in this regard.
Exemption for certain acquisitions and dispositions made in the context of an automatic securities purchase plan
The current exemption from reporting acquisitions made pursuant to an automatic securities purchase plan has been amended in the proposed Instrument so that it also applies to certain dispositions of securities pursuant to such a plan which the CSA believe may be reported on an annual basis. The following dispositions are exempted:
- dispositions that are incidental to the operation of the plan and that do not involve a "discrete investment decision" by the director or senior officer; and
- dispositions that are made to satisfy a tax withholding obligation arising from the distribution of securities under the plan and that result from an irrevocable election by the senior officer or director to fund the tax withholding obligation through a disposition of securities not less than thirty (30) days prior to the date of the disposition.
It should be noted that an amendment has been made to the exemption in the current Instrument that allows for a consolidated report to be filed within ninety (90) days of the end of the calendar year, so that the reporting requirement does not apply if, at the time the report becomes due, the individual is no longer subject to an insider reporting requirement.
Maintenance of the exemptions for normal course issuer bids and certain issuer events
The exemption for normal course issuer bids and the exemption available to insiders when their ownership of securities of the reporting issuer changes as a result of an issuer event of the reporting issuer have not been modified.
Existing exemptions
Finally, as is the case currently, the proposed Instrument provides that, notwithstanding the coming into force of the amendments, insiders may continue to rely on orders of the CSA previously made exempting them from insider reporting requirements, subject to the terms of such orders and unless the orders provide otherwise.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.
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