Will the Proposed New Insider Reporting Rules Affect You?

The Canadian Securities Administrators have recently published a new proposed National Instrument 55-104 – Insider Reporting Requirements and Exemptions (“NI 55-104”) to replace a number of instruments that currently govern insider reporting.  The proposed NI 55-104 will contain the main insider reporting requirements and exemptions for insiders or reporting issuers, except in Ontario, where the main insider reporting requirements will remain in the Ontario Securities Act.  Despite this difference, insider reporting obligations will be substantially the same in all Canadian jurisdictions.

The proposed NI 55-104 contains some significant changes from current insider reporting requirements.  A few of these changes are briefly described below.

A reduction in the number and type of persons required to file insider reports.  One of the main objectives of the proposed NI 55-104 is to focus the insider trading reporting obligations on a smaller group of senior insiders who have the greatest access to material undisclosed information.  Under this new concept, reporting insiders will include parties who are considered insiders under the current regime and significant shareholders who in the ordinary course have access to material undisclosed information about the reporting issuer and directly or indirectly do or have the ability to exercise significant power or influence over the business operations, capital or development of the reporting issuer.

Shorter filing deadlines for most insider reports.  Under the current insider reporting regime, changes in insider’s beneficial ownership of securities must be reported within ten calendar days of the transaction.  The proposed NI 55-104 will continue to require the filing of an initial insider report within ten days, however, subsequent reports of transactions by insiders must be reported within five days

Simpler reporting obligations for stock based compensation arrangements.    The proposed NI 55-104 introduces the concept of issuer grant reports.  Using these, an issuer could report grants of stock-based compensation on SEDAR.  Insiders would then be exempt from the five day filing requirement and could file an alternative report annually instead.

A requirement for certain issuers to disclose late filings of insider reports.  Another change is the proposed requirement for issuers to disclose their annual information circulars where any of their directors or executive officers have been subject to late filing fees relating to the late filing of insider reports.

A requirement for disclosure of unexercised conversion of securities that are convertible within sixty days for certain insiders.  Another new concept is that of significant shareholders based on post-conversion beneficial ownership.  This concept is based on similar requirements in the early warning regimes for takeover bids and is intended to ensure that a person who owns convertible securities that have the right or obligation to acquire beneficial ownership of the underlying security within sixty days cannot avoid the disclosure requirements by holding a convertible security rather than the underlying security.  In effect, the proposed NI 55-104 deems such a party to own the underlying security for the purpose of insider reporting obligations.

The proposed NI 55-104 is not yet in effect; however, approval seems likely.  Insiders should be aware of the progress of this initiative and be prepared for the changes it will bring.  Your lawyer can help you with that.

This article was originally published in the April 28, 2009 edition of the Ottawa Business Journal.