Under Canadian securities laws, insiders of public companies such as officers and directors are generally restricted from trading in the company’s securities when in position of material non-public information (MNPI).  This restriction can prove challenging for those holding investments in their employer-issuers when they may need to purchase or sell securities for legitimate personal, financial or other needs. 

To deal with this restriction, insiders may consider entering into an “automatic plan” to permit the purchase or sale of securities under a prescribed exemption from the general insider trading restriction. Such plans include automatic securities disposition plans (ASDPs) and automatic securities purchase plans (ASPPs), involving the sale or purchase, respectively, of securities from or to the holdings of directors, officers and certain other insiders by a broker, based on a set of pre-arranged instructions (ASDPs and ASPPs are collectively referred to in this article as “Automatic Plans”). 

These Automatic Plans are designed to provide insiders who may, from time to time, possess MNPI (which includes a material fact or a material change with respect to the issuer that has not been generally disclosed) with the ability to buy or sell securities while availing themselves of an exemption from insider trading prohibitions and liability under subsection 175(2)(b) of the General Regulation promulgated under Ontario’s Securities Act (the Act).

In addition to possessing MNPI, insiders may be further limited in their ability to trade as a result of issuer-imposed trading restrictions (typically through the issuer’s insider trading policy), which generally impose trading black-outs or permit trading only during open trading windows. As a result, it is often challenging for insiders who hold positions in an issuer’s stock, which is often encouraged or required, or who are awarded or granted securities-based compensation such as stock options, to effectively diversify or sell their holdings absent adoption of an Automatic Plan.

Overview of Canadian Securities Laws applicable to Automatic Plans

In the U.S., Automatic Plans are more commonly used than in Canada, and are referred to as 10b5-1 plans. The reference is to Rule 10b5-1, which was adopted by the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934 and sets out the parameters of the affirmative defense and exceptions to illegal insider trading.

In Ontario, subsection 175(2)(b) of the General Regulation similarly exempts insiders from insider trading prohibitions and liability under the Act, provided insiders purchase or sell securities pursuant to an automatic dividend reinvestment plan, share purchase plan or other similar automatic plan that was entered into by the insider or issuer prior to the acquisition of MNPI (the automatic plan exemption). While far more prevalent in the U.S., in recent years, Automatic Plans have become increasingly popular amongst insiders of Canadian public companies.

On June 2, 2006, the Ontario Securities Commission released OSC Staff Notice 55-701 – Automatic Securities Disposition Plans and Automatic Securities Purchase Plans (the Staff Notice), addressing frequently asked questions concerning exemptions from insider trading and insider reporting for acquisitions and dispositions of securities under certain types of Automatic Plans. The Staff Notice was intended to be a temporary notice pending development by staff of the Canadian Securities Administrators of a comprehensive CSA staff notice in relation to Automatic Plans. CSA staff have yet, however, to publish such a staff notice, which was also expected to provide specific guidance on trading in managed accounts where full discretionary authority for trading rests with the account manager.

The Staff Notice made clear that the automatic plan exemption will generally apply to Automatic Plans, provided the plan is truly “automatic”, which necessitates satisfaction of the following criteria:

  • demonstration from the insider that the insider (i) does not have decision making ability over the trading of securities governed by the Automatic Plan; and (ii) cannot make “discrete investment decisions” through the plan;   
  • the insider must not be in possession of MNPI at the time the insider enters into, amends or terminates the plan (if the plan has not been established by the issuer, the issuer must provide a certificate to the broker confirming the issuer is aware of the plan and the insider is not in possession of MNPI);   
  • trading parameters and other pertinent instructions are set out in a written plan document;  
  • the plan contains “meaningful restrictions” on the ability of the insider to vary, suspend or terminate the plan;   
  • the plan prohibits a broker from consulting with the insider regarding any sales or purchases under the plan, and the insider from disclosing information to the broker concerning the issuer that might influence the execution of the plan; and   
  • the plan is entered into in good faith.

Benefits of Automatic Plans

Market Signalling, Sensitivity and Reaction

Insiders and issuers alike are often concerned with the message insider selling may convey to the market. Publically announcing the adoption of an Automatic Plan may temper negative market reaction as disclosure should, from an investor relations standpoint, neutralize any negative inference that might otherwise be drawn while preparing investors for future insider sales and counteracting the public perception that MNPI may be motivating the insider to sell at the time of the trade;

Flexibility: Timing Considerations

Insiders have very limited flexibility from a timing standpoint, and black-out periods, limited trading windows and possession of MNPI may restrict the ability of insiders to sell stock or exercise options.

Limited trading windows increase the likelihood that an insider may opt to sell a substantial portion of his or her holdings in one large trade (potentially exposing the insider to market volatility and depressed stock prices), which may be interpreted by the market as an indication that the insider expects the stock price to decrease and precipitate downward pressure on the stock.

Pre-arranged trading instructions, particularly the ability to establish a price floor, the automatic nature of Automatic Plans and the potential availability of exemptive relief from insider reporting (discussed in further detail below) all benefit the issuer as market sensitivity may be tempered through plan disclosure and, where available, annual insider reporting (as opposed to reporting each trade on an ongoing basis). In turn, insiders are permitted to trade throughout black-out periods or outside of open trading windows pursuant to the pre-arranged terms of Automatic Plans thereby providing increased flexibility from a timing standpoint;

Extended and Special Black-out Periods

Increasingly, technological advances may be cited as justification for extended black-out periods. As the quality of information available to insiders improves and the timeliness of the flow of operational and financial information increases, the visibility of insiders with respect to issuer performance has the potential to continue to expand.

Insiders of certain issuers (particularly those involved in the development of new technologies or products, mergers, acquisitions, joint ventures or the acquisition or disposition of assets) are likely to be especially challenged as they may be in possession of MNPI for much of the year and thereby subject to special black-out periods, which may further restrict already narrow trading windows;


From a purely administrative standpoint, a properly implemented Automatic Plan should decrease the amount of time insiders and issuers spend monitoring trading while lowering issuer costs relating to oversight and regulatory compliance. Additionally, a properly implemented Automatic Plan has the potential to minimize the appearance of questionable trading and impropriety while improving investor relations and guarding against inadvertent insider trading violations and resulting reputational damage; and

Exemptive Relief from Insider Reporting

Generally, an insider will be required to file insider reports each time there is a disposition or acquisition under an Automatic Plan. Under Canadian insider reporting rules, certain exemptions may be available to defer reporting to an annual basis, which can minimize negative signalling inferences and adverse market reaction to sales which occur during black-out periods or in close proximity to material events. 

A statutory exemption is available in respect of ASPPs under National Instrument 55-104 Insider Reporting Requirements and Exemptions, which requires that a transaction by transaction report be filed by March 31 of the next calendar year for acquisitions of securities under the ASPP that have not been disposed of or transferred and for certain “specified dispositions.”  This deferred filing does not apply, however, to any disposition or transfer of securities acquired under an ASPP other than as part of a “specified disposition” and to acquisitions under a lump–sum provision. This exemption also does not apply to ASDPs, for which exemptive relief must be obtained, the granting of which will require the insider (or issuer, as applicable) to demonstrate that an ASDP is truly automatic and the insider cannot make discrete investment decisions. (Similar substantive relief has been granted in Re: Fortress Paper Ltd.Re: Kinross Gold Corporation and Re: Royal Bank of Canada).

Guidelines for Automatic Plans

While each individual issuer and insider will need to structure an Automatic Plan to be suitable to their own needs and circumstances, the following guidance should be considered. 

While appropriate requirements and restrictions will need to be reflected, issuers should also keep in mind the need to maintain flexibility through, for example, the ability to grant waivers in appropriate circumstances, in order to respond to unforeseen hardships or other situations. 

  • Plan Adoption – The Staff Notice states that an insider may not adopt a plan at a time when the insider is in possession of MNPI. In addition, it may be advisable for an insider to only be permitted to adopt a plan at a time when the insider would otherwise be permitted to trade in securities of the issuer i.e., in compliance with and pursuant to the terms of the issuer’s insider trading policy.  
  • Imposition of a waiting period prior to commencement of trading – The Staff Notice does not expressly require imposition of a waiting period prior to commencement of trading under a plan. This is likely due to the fact that an Insider cannot be in possession of MNPI at the time of plan adoption. However, imposing a waiting period may be advisable from a risk mitigation standpoint as the longer the delay from the time of plan adoption to the commencement of trading, the more likely any non-material information in the Insider’s possession will have since become out-of-date or have been publicly disclosed prior to the actual commencement of trading under the plan. 
  • Public disclosure of plan adoption – While the Staff Notice does note that a disclosure obligation may exist depending on the particular circumstances, the issuer may need to consider whether establishment of the plan rises to the requisite threshold of materiality so as to require public disclosure. Irrespective of whether there is a legal requirement to disclose plan adoption, it may be advantageous for the issuer from an investor relations standpoint to voluntarily disclose a plan’s adoption.  
  • Amendment and Termination – It may be generally advisable to impose a waiting period following notice of amendment or termination (in addition to the requirement that an insider not be in possession of MNPI at the time notice is provided) to seek to ensure that an insider is not amending or terminating the plan either in an effort to: (a) take advantage of information, which may lead to an increase in the issuer’s stock price well beyond the threshold specified in the plan; or (b) terminate the plan in anticipation of an unfavorable development to facilitate the disposition of securities or the exercise of options at a lower price than previously specified in the plan prior to the anticipated decrease in the issuer’s stock price.  
  • Additional considerations relating to amendment and termination – Multiple amendments or terminations by an insider may result in increased scrutiny from investors and regulators. In order to ensure that the automatic nature of the plan is not imperiled or questioned, issuers may wish to impose additional restrictions on the ability of insiders to amend or terminate a plan, including imposing a limit on the number or nature of permitted amendments and whether insiders may terminate within the first six months of plan adoption.  
  • Duration – Plan duration is ultimately highly dependent on the needs, circumstances and financial planning considerations of the insider, but plans generally range from between three months to two years. From a risk mitigation standpoint, plan duration should be sufficiently long to guard against allegations of impropriety i.e., allegations that the plan was entered into in an attempt to profit from MNPI or non-public information. At the same time, the duration of the plan should not be so long that plan amendment or early termination is likely to be required.