Last month, the OSC published OSC Staff Notice 51-726 Report on Staff’s Review of Insider Reporting and User Guides for Insiders and Issuers (the Notice), setting out the results of its review of the insider reporting practices of 100 reporting issuers and approximately 1,500 reporting insiders. Pursuant to National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104) “reporting insiders” are usually required to file an initial insider report within 10 calendar days of becoming a reporting insider, and to file subsequent insider reports reflecting changes in an insider’s holdings within five calendar days of a change. In this regard, the Notice noted that significant improvements are required with respect to the quality of insider reporting. In 70% of the issuers reviewed, the OSC found material discrepancies, including failure by reporting insiders to create or update insider profiles or to file insider reports on the System for Electronic Disclosures by Insiders. Deficiencies resulted from a variety of factors, including relying on third parties to make their filings, as well as unfamiliarity with the definition of “reporting insider “and “significant shareholder” in NI 55-104.
The Notice further notes that many insider-trading policies reviewed by the OSC did not properly restrict derivative-based transactions or the grant of stock-based compensation during “blackout periods” around regularly scheduled earnings announcements. The OSC notes that insider trading policies should prohibit such transactions during blackout periods in order to avoid scrutiny due to the timing of these transactions.
In order to help insiders and issuers avoid fines and other regulatory penalties, the Notice includes other recommendations that should be reviewed carefully, including by investment fund managers who report on behalf of their funds.