BCN 2001/11 - Advance Notice of National Instrument 55-101 and Related Documents - Exemption from Certain Insider Reporting Requirements [BCN - Rescinded]
National Instrument 55-101 Exemption from Certain Insider Reporting Requirements (the “National Instrument”) and Companion Policy 55-101CP (the “Companion Policy”) are initiatives of the Canadian Securities Administrators (“CSA”).
The Commission has not yet made the National Instrument as a rule, nor has it made the related consequential amendments to the Securities Rules. This Advance Notice is being published to advise that, if the required government approval is obtained, the Commission expects to make the National Instrument as a rule on or before May 15, 2001 when the National Instrument is expected to come into force as a rule in British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by the CSA.
When adopted, the National Instrument, Companion Policy and Consequential Amendments will be published in the Weekly Summary. The Commission anticipates publishing these documents in May 2001, if and when it has received all necessary approvals. The Ontario Securities Commission (“OSC”) has made the National Instrument as a rule effective May 15, 2001 and is publishing it in the February 23, 2001 issue of the OSC Bulletin. The text of the National Instrument and the Companion Policy may be found at the OSC website at www.osc.gov.ca.
Revocation of Local Policy Statement
The National Instrument will replace certain local policies such as OSC Policy 10.1, British Columbia Local Policy Statement 3-14 and Policy Statement No. Q-10 of the Commission des valeurs mobilières du Québec. These local policies set out guidelines for applications for exemptions from the insider reporting obligations, which will be superseded by the exemptions contained in the National Instrument.
The CSA republished drafts of the National Instrument (the "Draft Instrument") and Companion Policy (the "Draft Policy") for comment in June 20001
(collectively, the "Draft Instruments"). The instruments had been previously published for comment in August 19992.
As a result of comments received, some non-material alterations were made to the Draft Instrument and the Draft Policy. Appendix A of this Notice lists the commentors on the Draft Instruments and provides a summary of the comments received and the response of the CSA.
The CSA had planned to enact the National Instrument at the same time as proposed National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI) (“NI 55-102”). NI 55-102 will establish an electronic filing system for insider trading reports. SEDI has been delayed until at least late 2001. The CSA has decided to proceed with the National Instrument rather than wait for SEDI. The National Instrument will be effective with or without SEDI.
Substance and Purpose of National Instrument
The National Instrument will provide the following exemptions from the obligation to file insider reports under Canadian securities legislation:
- It will exempt certain directors and senior officers of subsidiaries of a reporting issuer, and of corporate affiliates of insiders, who neither hold the securities of the reporting issuer in significant amounts nor are in a position to acquire knowledge of undisclosed material information from the obligation to file insider reports.
- It will generally permit directors and senior officers of a reporting issuer, or of a subsidiary of the reporting issuer, to report acquisitions under automatic securities purchase plans on an annual basis.
- It will permit issuers that purchase their own securities under normal course issuer bids to report acquisitions monthly. This exemption is not currently required in British Columbia as it is the same as the requirement within which all insider reports must be filed. Other jurisdictions such as Ontario, Alberta and Quebec require reporting within 10 days after the transaction. As part of bringing SEDI into operation, the Commission proposes to reduce the insider reporting period to 10 days after the transaction at which time issuers in British Columbia will be able to take advantage of this exemption.
- It will permit insiders to wait until their next insider report to report changes in their holdings resulting from an issuer event, such as a stock dividend, stock split, consolidation, amalgamation, reorganization or merger.
Consequential amendments to the Securities Rules are required to ensure consistency with the National Instrument. In particular, the Commission will repeal section 160 of the Securities Rules as Parts 5 and 7 of the National Instrument replace it.
Questions relating to the National Instrument and related documents may be referred to:
Senior Legal Counsel, Policy and Legislation
British Columbia Securities Commission
or (800) 373-6393 (in B.C.)
DATED at Vancouver, British Columbia, on February 21, 2001.
Joyce C. Maykut, Q.C.
This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.
Summary of Comment Letters and Responses
Two comment letters were received, one from Torys and one from the Canadian Bankers Association, in response to the request for comments on the Draft Instruments.
One commentator recognized the significant steps taken by the CSA to streamline and decrease the administrative burden with respect to reporting requirements and commended the CSA on the changes made.
Definition of Senior Officer in Securities Legislation -
Narrow Insider Reporting Requirements
A commentator submitted that the definition of “senior officer” should be changed. The commentator recommended relief from insider reports filed by vice presidents who are not in a position to receive non-public material information in the ordinary course, on the basis that such filings represent an unnecessary burden which does little to further the objectives of the legislation.
The commentator submitted that a senior officer who meets the following criteria be exempt from the insider reporting requirement:
a) the senior officer is a vice president;
b) the senior officer is not in charge of a principal business unit, division or function of the reporting issuer or subsidiary, as the case may be;
c) the senior officer does not receive, in the ordinary course, information as to material facts or changes concerning the reporting issuer before the material facts or changes are generally disclosed; and
d) the senior officer is not an insider of the reporting issuer or a subsidiary in any other capacity.
The CSA determined that the National Instrument should not be changed at this time to narrow the definition of "senior officer" for insider reporting purposes. Such an amendment was outside the current scope of, and time frame for implementation of, the National Instrument. As indicated in the Notice accompanying the Draft Instrument, the CSA believe that this comment raises broader issues which require significant further consideration, which consideration could not appropriately occur within the time period for the adoption of the National Instrument. The CSA are currently reviewing this matter and it is possible that such review may lead to proposed amendments to the National Instrument in this regard.
Normal Course Issuer Bid Reporting
One commentator suggested that consideration be given to providing that normal course issuer bids effected in compliance with the requirements of the rules of The Toronto Stock Exchange (and other exchanges with similar reporting rules) be exempt from the requirement to file an insider report, on the basis that the requirements of the TSE already require reporting of all the relevant information that is contained in an insider trading report within 10 days after the end of each month in which acquisitions occur.
The CSA determined not to make any changes in this regard to the National Instrument. The CSA note that the exemption contained in the National Instrument, permitting issuers to disclose acquisitions of securities under a normal course issuer bid within 10 days of the end of the month in which the acquisitions occur, provides new relief from the current insider reporting requirement to file such reports within 10 days of each acquisition under normal course issuer bids. In addition, it is the CSA's understanding that the information required to be reported to the stock exchanges is somewhat different from that required under the insider reporting requirement and, in addition, the information which is made available to the public through the reports to the stock exchanges is also different than that provided through the insider reporting requirement. It is also the understanding of the CSA that the method employed by the exchanges to disseminate that information, and the availability of such information to the public, is more limited than that provided by the current insider reporting requirement. Moreover, it is the CSA's understanding that stock exchanges accept insider trading reports as being sufficient for their reporting purposes, so that there is an opportunity for issuers to reduce the time spent in their preparation of filings in this regard. For all these reasons, the CSA have determined not to make this change.