The Ontario government has amended Ontario’s Securities Act (Act) to expand the scope of prohibited insider trading and enhance the record-keeping requirements imposed upon capital market participants in the province. This bulletin focuses on the amendments to the insider trading prohibitions, while our companion June 2015 Blakes Bulletin: Ontario Creates Significant New Record-Keeping Obligations for Capital Markets Participantsconsiders the new record-keeping requirements.
INSIDER TRADING PROHIBITIONS NOW APPLY TO ISSUERS OUTSIDE ONTARIO
Prior to the amendment, insider trading and tipping prohibitions set out in section 76 of the Act only applied to Ontario reporting issuers’ securities. As a result, trading in the securities of public companies that were not reporting issuers in Ontario (broadly, meaning non-Ontario companies whose securities were not traded on Ontario exchanges) was not subject to the insider trading prohibitions, even where other connections to Ontario (such as trades, or “tips”, made by an Ontario resident) were present.
With the new amendments, insider trading and tipping prohibitions have been expanded to apply to trading in the securities of both Ontario reporting issuers and any other issuers whose securities are publicly traded. As a result, trading in the securities of foreign companies whose securities are listed on foreign exchanges will now be subject to the insider trading and tipping prohibitions in section 76.
The legislative expansion of Ontario’s insider trading prohibitions is notable in that it follows recent attempts by enforcement staff (Staff) of the Ontario Securities Commission to similarly expand the scope of prohibited insider trading through use of the general power to sanction “conduct contrary to the public interest.” For more information on those recent efforts, see our June 2015 Blakes Bulletin: Broad Reach for Canadian Securities Regulators for Insider Trading.
As set out in that bulletin, Staff has already prosecuted insider trading in the securities of non-Ontario reporting issuers. The new amendments are significant in that they both confirm Staff’s authority to undertake such prosecutions, and in that they enable Staff to pursue more severe sanctions in doing so, including large monetary penalties. Moreover, while Staff’s use of the public interest power only concerned insider trading, the amendments expressly apply to both insider trading and tipping.
PROPOSED COOPERATIVE CAPITAL MARKETS REGIME IMPLICATIONS
The new insider trading prohibitions have been enacted in the context of ongoing discussion and development of the proposed uniform provincial capital markets legislation, the Provincial Capital Markets Act (PCMA). Notably, that proposed legislation contemplates expanded civil rights of action for insider trading, which will likely be brought through class actions, presumably coupled with claims for misrepresentations in disclosure documents. In the event the PCMA was to adopt both the expanded prohibition on insider trading and the civil liability provision, the scope of potential civil claims alleging insider trading, including class actions, in all of the PCMA participating provinces and territories would be significantly expanded. The civil right of action for insider trading is discussed in our November 2014 Blakes Bulletin: New Cooperative Capital Markets Rules Affect Civil Liability for Misrepresentation, Insider Trading and our April 2015 Blakes Bulletin: Commenters Don’t Hold Back: Responses to Civil Liability and Enforcement Provisions of Draft Cooperative Capital Markets Legislation.