Ontario’s securities legislation generally requires a reporting insider of a reporting issuer to file reports disclosing information about transactions involving the issuer’s securities or related financial instruments, unless the reporting insider is eligible for an exemption from the insider reporting requirements.
Reporting insiders are generally required to file insider reports online through SEDI.
Insider reporting serves a number of functions, including deterring improper insider trading based on material undisclosed information and increasing market efficiency by providing investors with information concerning the trading activities of insiders of an issuer (and by inference, each insider’s views of the issuer’s prospectus). Insider reporting also helps prevent illegal or otherwise improper activities involving stock options and similar equity-based instruments, since the requirement for timely disclosure of option grants and public scrutiny of such disclosure will generally limit opportunities for insiders to engage in improper financial practices. These include:
- stock option backdating
- option repricing
- opportunistic timing of option grants (spring-loading or bullet-dodging)
All insiders, including insiders who are not reporting insiders, are subject to the provisions in Canadian securities legislation prohibiting improper insider trading.
Requirements for insider reporting are set out in full in National Instrument 55-104 Insider Reporting Requirements and Exemptions.
Determining insider status
An insider is generally someone who has routine access to material undisclosed information concerning a reporting issuer and significant influence over the reporting issuer.
The actual persons who meet the definition of insider or reporting insider are contained in securities law:
- an insider is defined in section 1(1) of Ontario’s Securities Act
- a reporting insider is defined in NI 55-104
Contents of an insider report
A reporting insider of a company is generally required to file insider reports that disclose:
- any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer
- any interest in, or right or obligation associated with, a related financial instrument involving a security of the reporting issues
- any change in any of the above information
Separate and supplementary insider reporting requirements exist for derivatives (which are outlined in Part 4 of NI 55-104). A reporting insider is generally required to file a report about a derivative transaction involving securities of the reporting issuer if:
- the transaction directly or indirectly alters the insider's economic interest in a security of the reporting issuer or economic exposure to the reporting issuer
- the insider is not otherwise required to file an insider report about the transaction
A reporting insider who is required to file an insider report about a derivative transaction must disclose the existence and material terms of the transaction in the insider report.
Deadlines for filing insider reports
A reporting insider is generally required to file an initial insider report within 10 calendar days of becoming a reporting insider. Any subsequent insider reports reflecting changes in their holdings must be filed within five calendar days.
Canadian securities legislation contains a number of exemptions that allow reporting insiders to file reports on a deferred basis in circumstances where the policy rationale for "real time" reporting does not apply.
Consequences of not filing an insider report
It is an offence in Ontario:
- to fail to file an insider report in accordance with the deadlines outlined in NI 55-104
- to submit information in an insider report that, in a material respect, is misleading or untrue
The penalties for these offences may include one or more of the following:
- a late filing fee
- the reporting insider being identified as a late filer on a public database
- the issuance of a cease trade order that prohibits the reporting insider from trading in securities and related financial instruments until the failure to file is corrected
- in appropriate circumstances, enforcement proceedings
Exemptions to insider reporting requirements
Ontario securities law includes a number of exemptions from the insider reporting requirement, which are outlined in:
- National Instrument 51-102 Continuous Disclosure Obligations
- National Instrument 55-104 Insider Reporting Requirements and Exemptions
- National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues
- National Instrument 71-101 The Multijurisdictional Disclosure System
- National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers
The insider reporting requirement for securities and related financial instruments can be found in sections 106 to 109 of Ontario’s Securities Act and Part 3 of National Instrument 55-104 Insider Reporting Requirements and Exemptions. In addition, refer to:
- CSA Staff Notice 55-312 Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization)
- CSA Staff Notice 55-315 Frequently Asked Questions about National Instrument 55-104 Insider Reporting Requirements and Exemptions
- CSA Staff Notice 55-316 Questions and Answers on Insider Reporting and the System for Electronic Disclosure by Insiders (SEDI)
- OSC Staff Notice 55-701 Automatic Securities Disposition Plans and Automatic Securities Purchase Plans