National Instrument 55-104 - Insider Reporting Requirements and Exemptions, its companion policy and related amendments (NI 55-104) are now in force in all jurisdictions across Canada, except Ontario, where equivalent amendments to the Ontario Securities Act now apply. These new rules harmonize and streamline insider reporting requirements across Canada.
Summary of Key Changes
Among the more significant changes that have taken effect with the new rules:
- effective October 31, 2010, the deadline for filing insider reports will accelerate from 10 calendar days to five calendar days;
- the range of persons required to file insider reports has been reduced, as the new rules focus on insiders who have access to material undisclosed information regarding a reporting issuer and significant power or influence over that reporting issuer;
- a shareholder holding securities carrying less than 10% of voting rights attached to all of the securities of a reporting issuer may still be considered a “significant shareholder” of that issuer based on a calculation of “post-conversion beneficial ownership”, and therefore be required to file insider reports; and
- cash-settled deferred stock units (DSUs) and other stock-based compensation arrangements must now be disclosed, however reporting issuers may elect to file “issuer grant reports” at the time of the granting of stock-based compensation arrangements (including stock options), which will allow reporting insiders to report such grants on an annual basis.
Five Day Filing Deadline
Following a six month transition period, beginning November 1, 2010, the deadline for filing insider reports (other than initial reports) will be accelerated from 10 calendar days to five calendar days. The filing deadline for initial insider reports will continue to be 10 calendar days from the date a person or company becomes a “reporting insider” of a reporting issuer.
Reduction in Persons Required to File
The new rules focus on a narrower, “core” group of insiders, or “reporting insiders”, who have regular access to material undisclosed information and power to influence the reporting issuer.
An insider of a reporting issuer will be a “reporting insider” if the insider is:
(a) the CEO, CFO or COO of the reporting issuer, of a “significant shareholder” (discussed
below in paragraph (d)) of the reporting issuer or of a “major subsidiary” of the reporting issuer (discussed below under the heading “Major Subsidiary”);
(b) a director of the reporting issuer, of a significant shareholder of the reporting issuer or of a major subsidiary of the reporting issuer;
(c) a person or company responsible for a principal business unit, division or function of the reporting issuer;
(d) a significant shareholder of the reporting issuer, meaning a shareholder that beneficially owns, controls or directs securities carrying more than 10% of the voting rights attached to all of
an issuer’s voting securities;
(e) a significant shareholder based on post-conversion beneficial ownership of the reporting issuer’s securities (discussed below) and the CEO, CFO, COO and every director of the significant shareholder based on post-conversion beneficial ownership;
(f ) a management company that provides significant management or administrative services to the reporting issuer or a major subsidiary of the reporting issuer, every director of the management company, every CEO, CFO and COO of the management company and every significant shareholder of the management company;
(g) an individual performing functions similar to the functions performed by any of the insiders described in paragraphs (a) to (f );
(h) the reporting issuer itself, if it has purchased, redeemed or otherwise acquired a security of its own issue, for so long as it continues to hold that security; or
(i) any other insider that:
(i) in the ordinary course receives or has access to information as to material facts or material changes concerning the reporting issuer before the material facts or material changes are generally disclosed; and
(ii) directly or indirectly exercises, or has the ability to exercise, significant power or influence over the business, operations, capital or development of the reporting issuer.
Under the new rules, a subsidiary is considered a “major subsidiary” of a reporting issuer if the subsidiary accounts for 30% of the consolidated assets or revenues of the reporting issuer. This increase from the 20% threshold set out in the previous insider reporting rules should further reduce the number of insiders who will be considered reporting insiders.
“Significant Shareholder Based on Post-Conversion Beneficial Ownership”
The new rules have also introduced the concept of “post-conversion beneficial ownership”, which deems beneficial ownership of any security underlying a convertible security on a particular date if the underlying security can be acquired within 60 days of such date, and whether or not on conditions. If a shareholder holds securities carrying more than 10% of voting rights attached to all of the securities of a reporting issuer, calculated on the basis that the underlying securities in respect of which the shareholder has the right to acquire have in fact been issued (and including any shareholder will be considered a “significant shareholder based on post-conversion beneficial ownership”, and be required to file insider reports.
Reporting of Stock-Based Compensation Arrangements
Cash-settled DSU transactions are required to be reported. However, the new rules introduce an exemption which simplifies reporting for certain issuer grants made under stock-based compensation arrangements such as options, stock appreciation rights, DSUs and restricted stock units. This is the case even if the instrument is exclusively cash-settled. Directors and officers will be exempt from filing individual insider reports in respect of acquisitions or specified dispositions of securities or related financial instruments under such arrangements provided the issuer elects to file an “issuer grant report” on SEDI within five calendar days of such transaction and has disclosed the existence and material terms of the arrangement in a public filing on SEDAR. “Specified dispositions” are those which are incidental to the compensation arrangement and do not involve a discreet investment decision of the reporting insider or which are made to satisfy a tax withholding obligation. A director or officer will still be required to file an alternative report with respect to such transactions on an annual basis, which will be due by March 31 of each year with respect to prior calendar year transactions.
Public Disclosure of Late Filing Fees
Prior to the coming into force of the new insider reporting rules, the CSA withdrew its proposal to require an issuer to disclose whether any of its insiders have been subject to late filing fees in its information circular. The CSA has noted, however, that this proposal may be reintroduced in the future.