Recent amendments to the Securities Act (Ontario) have expanded the scope of the insider trading and tipping prohibitions. In addition to “reporting issuers”, these provisions now apply to any “other issuer whose securities are publicly traded.”
The changes resolve a potential gap in the insider trading provisions that arise from the fact that a public issuer with securities traded by Ontario market participants may not be a reporting issuer in Ontario.
A 2010 amendment had already extended the scope of the insider trading and tipping prohibitions to any issuer listed on the TSX Venture Exchange that has a real and substantial connection to Ontario. With the recent change, it is now clear that the prohibitions can apply to any issuer with securities listed or traded on a public market in any jurisdiction, whether in Canada or abroad.
Prior to these amendments, it was clear that improper trading in securities of issuers that were not reporting issuers in Ontario could lead to sanctions under the Act. For example, in decisions such as Re Talawdekar and Hariharan in 2015 and Re Suman and Rahman in 2012, the OSC addressed such improper trading as conduct contrary to the public interest. With the expanded scope of the insider trading and tipping provisions, such conduct would now constitute a direct breach of the Act.
Since there is no definition of what constitutes “an issuer whose securities are publicly traded,” there is the potential for the new language to be interpreted broadly. For example, consider whether a non-reporting issuer that has distributed securities widely in reliance on exemptions to the prospectus requirement could be considered to have securities that are publicly traded.
Given that the OSC and other members of the CSA are currently considering expanding the scope of the prospectus exempt market through additional exemptions, such as a new crowdfunding exemption and an expanded offering memorandum exemption, there is a greater potential for:
- “quasi-public” non-reporting issuers with large numbers of retail investors; and
- increased secondary trading in the exempt market, including through crowdfunding portals and other platforms, such as TSX Private Markets.
We expect that the full scope of the expanded insider trading and tipping prohibitions will become clear as these provisions are interpreted in future decisions. However, in the interim, registrants and issuers should update their policies and procedures to reflect the expanded scope of the insider trading and tipping prohibitions.