There are a slew of fresh changes coming to the insider reporting and early warning regime, including acceleration of filing deadline, extending the concept of deemed beneficial ownership and reporting for derivatives.
The final version of National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104) comes into effect on April 30, 2010.
At a recent seminar, these changes and their implications were detailed by David Surat, counsel with the securities and capital markets group in the Toronto office of Borden Ladner Gervais LLP.
The change that has generated the most attention is the filing deadline, which will be shortened from 10 calendar days to 5 calendar days, when it comes into effect on October 30, 2010. This is seen as the biggest change, hence the additional six-month transition period.
“The five-day reporting period reflects a perception that the longer reporting window tends to detract from the purposes of insider reporting, which is to deter insider trading and to increase market efficiency by disclosing what insiders were doing,” says Surat.
He says there are consequences to late filing. “Late filing or non-filing of insider reports can become an issue for the reporting issuer when they are dealing with the securities commission,” he says. “There is always the potential for enforcement action if you’re a habitual late filer.”
The other major change is the introduction of the concept of a reporting insider. The intention of this concept is to limit insider reporting to a core group of insiders. The insiders market really wants to know about.
“By reducing the number of filers it both improves the relevancy of filing and to eliminate occasional users,” says Surat.
Another significant change in NI 55-104 is the introduction of the concept of significant shareholder based on post-conversion beneficial ownership. “The new rule will also include shareholders who hold either directly 10% securities holding 10% of the votes or have securities convertible or may be acquired within 60 days that would put them over the 10% threshold,” says Surat. This is potentially expanding the class of people who may be considered to be reporting insider, he says.
NI 55-104’s reporting requirements clearly state that reporting insiders are expected to disclose all dealings that affect their interests in the reporting issuer. Comments published with NI 55-104 suggest that the CSA expects all transactions to be reported, including cash-settled and physically-settled instruments.
The new rule preserves the existing exemption from direct reporting by certain insiders with respect to securities acquired and disposed of under automatic securities purchase programmes.
The new condition added to the insider reporting exemption “requires an eligible institutional investor to disclose in its early warning report its holdings under related financial instrument, which will include derivatives and the material terms of that instrument.”
(04/09/10)