On January 22, 2010, the Canadian Securities Administrators (the "CSA") published National Instrument 55-104 Insider Reporting Requirements and Exemptions and a related companion policy, establishing a new national regime on insider reporting obligations and exemptions aimed at harmonizing and streamlining how insiders report their securities transactions to the public. The new regime is substantially similar to the proposed regime announced by the CSA on December 18, 2008. Except in Ontario, where the main insider reporting requirements remain contained within the Ontario Securities Act, the new regime generally consolidates the main insider reporting requirements in a single national instrument. Despite the difference, the substance of the requirements for insider reporting will be the same across CSA jurisdictions.
The "Reporting Insider"
NI-55-104 narrows the class of persons required to file insider reports by introducing the concept of "reporting insider." Under the new regime, the group of insiders required to file insider reports is reduced but a "basket" provision is included to capture any other insider that satisfies the following criteria:
- the insider in the ordinary course receives or has access to material undisclosed information concerning the reporting issuer prior to general disclosure; and
- the insider 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.
This new approach is intended to benefit investors by focusing the insider reporting requirement on a core group of insiders with the greatest access to material undisclosed information and the greatest influence over the reporting issuer.
Shortened Reporting Deadline
The new regime shortens the reporting deadline for subsequent reports from ten days to five calendar days after the trade for most transactions, following a six month transition period. The introduction of the accelerated reporting requirement is delayed from the effective date to provide insiders and issuers time to become familiar with the new reporting requirements and to make necessary arrangements with third-party service providers.
Stock Compensation Reporting Requirements
Issuers have the option to file "issuer grant reports" on stock-based compensation to assist insiders with their reporting obligations. If the issuer files a report, the insider is exempt from the requirement to file an insider report by the ordinary filing deadline and can instead file an alternative report on an annual basis.
Introduction of "Significant Shareholder Based on Post-Conversion Beneficial Ownership"
The new regime introduces the term "significant shareholder based on post-conversion beneficial ownership," based on a similar concept in the early warning regime. In determining whether a shareholder has crossed the disclosure threshold for the purposes of insider reporting status, the post-conversion beneficial ownership of any convertible securities that are convertible within 60 days will be considered. The introduction of this concept will result in persons holding convertible securities to become insiders of an issuer before gaining power over the issuer.
Subject to obtaining all necessary ministerial or government approval, the new insider reporting regime will take effect on April 30, 2010. In Ontario, the new regime and consequential amendments will come into force on the later of April 30, 2010 and the date the requisite provisions of the Budget Measures Act, 2006 (No. 2) are proclaimed into force.