In late December 2008, the Canadian Securities Administrators ("CSA") unveiled their proposed new regime for insider reporting. The proposals are intended to harmonize and streamline insider reporting requirements across Canada and, when implemented, will replace the existing rules. The exception will be Ontario, where the main reporting requirements will remain in the Securities Act (Ontario). Despite this difference, however, the substance of insider reporting requirements will be the same across all CSA jurisdictions, including Ontario.
Among the more significant changes, the CSA proposes to:
- reduce the number of persons required to file insider reports;
- accelerate the deadline for filing insider reports from 10 calendar days to five calendar days;
- require issuers to disclose in their information circulars any late filings by insiders;
- introduce the concept of "post-conversion beneficial ownership" to deem securities that may be acquired within 60 days to be already held for the purposes of determining insider status; and
- facilitate reporting of stock-based compensation arrangements by allowing issuers to file "issuer grant reports" (similar to the current "issuer event report") rather than requiring insiders to file individual SEDI reports.
Who Will File: The "Reporting Insider" Concept
The CSA has proposed a new "principled" approach to determining who must file insider reports. This approach will focus on a narrower, "core" group of insiders, or "reporting insiders," who have regular access to material undisclosed information and power over the issuer. As under the current rules, directors of an issuer, its major subsidiaries, and its "significant shareholders" (i.e., shareholders who own, control or direct securities carrying more than 10% of the voting rights attached to all of the issuer's outstanding voting securities) will be required to file insider reports. The chief executive officer, chief operating officer and chief financial officer of an issuer, its major subsidiaries and significant shareholders will also continue to file insider reports, as will significant shareholders themselves. Under the proposed new rules, persons responsible for a principal business unit, division or function of a reporting issuer, as well as management companies providing significant services to an issuer, will also be "reporting insiders" and thus file insider reports. For remaining insiders of an issuer, only those who: (a) in the ordinary course have access to material undisclosed information concerning the issuer; and (b) directly or indirectly exercise, or have the ability to exercise, significant power or influence over the business, operations, capital or development of the issuer, will be "reporting insiders." This is expected to simplify reporting for large issuers, and enhance the value of insider reporting generally.
Of note to convertible securityholders of an issuer is the proposed concept of "significant shareholder based on post-conversion beneficial ownership," which will deem any securities that may be acquired within 60 days to be already held for the purposes of determining insider and reporting insider status. As a result, holders of convertible securities may become insiders of an issuer prior to gaining access to material information or power over the issuer.
"Primary" and "Supplemental" Reporting Obligations
The CSA has proposed dividing insider reporting obligations into two categories. The "primary" reporting obligation relates to the direct or indirect ownership of, or control or direction over, securities of an issuer, and includes any interest, right or obligation associated with a related financial instrument. The "supplemental" reporting obligation will apply to any agreement, arrangement or understanding which has the effect of altering a reporting insider's economic exposure to an issuer, involves a security or related financial instrument of the issuer, and does not otherwise fall under the primary reporting obligation.
Five-Day Filing Deadline
Under the proposed new rules, the deadline for filing insider reports will be accelerated from 10 calendar days to five calendar days. The current deadline of 10 calendar days for filing an initial report upon becoming an insider would remain the same.
Disclosure in Information Circular of Late Filing Fees
Also among the proposals is an amendment to Form 51-102F5 – Information Circular, which would require an issuer to disclose in its information circular whether any of its insiders have been subject to late filing fees.
Comment Period: Timeline
The details of the new regime are set forth in proposed National Instrument 55-104 – Insider Reporting Requirements and Exemptions. The CSA requested comments on the proposals and related consequential amendments no later than March 19, 2009.