NIN 99/29 - Proposed National Instrument 55-101 and Companion Policy 55-101CP Exemption From Certain Insider Reporting Requirements [NIN - Rescinded]
| Published Date: | 1999-08-20 |
|---|---|
| Effective Date: | 1999-08-18 |
The proposed National Instrument and the Companion Policy are initiatives of the CSA. The proposed National Instrument is proposed to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Nova Scotia and Ontario, as a Commission regulation in Saskatchewan and as a policy in each of the other jurisdictions represented by the CSA.
As a result of the proposed National Instrument, certain local policies such as Ontario Securities Commission Policy 10.1, British Columbia Local Policy Statement 3-14 and Policy Statement No. Q-10 of the Commission des valeurs mobilières du Québec that set out guidelines for applications for exemptions from the insider reporting obligations in these situations will no longer be necessary when the proposed National Instrument is implemented. It is proposed that these policies be repealed. In Ontario, Policy 10.1 also refers to directors and senior officers of companies that are insiders of the reporting issuer. As relief for these persons is not applied for or granted very often, and because this type of relief is not covered in similar policies of other provinces and is more appropriately dealt with on a case by case basis, those insiders are not granted relief under the proposed National Instrument.
Substance and Purpose of Proposed National Instrument and Companion Policy
The purpose of the proposed National Instrument is to provide an exemption from the obligation to file insider reports under Canadian securities legislation for certain directors and senior officers of subsidiaries and of affiliates of insiders who neither hold the securities of a reporting issuer in significant amounts nor are in a position to acquire knowledge of undisclosed material information. The proposed National Instrument also permits directors and senior officers of reporting issuers to report acquisitions of securities under automatic securities purchase plans on an annual basis in most circumstances.
Canadian securities legislation imposes an obligation on insiders to disclose ownership of and trading in securities of reporting issuers, in part in an attempt to deter illegal insider trading and to increase investor confidence in the securities market by providing investors and potential investors with information concerning the trading activities of substantial securityholders and other insiders of the issuer. The definition of "insider" in Canadian securities legislation, other than the Quebec legislation, includes any person or company beneficially owning, directly or indirectly, or exercising control or direction over, voting securities of a reporting issuer carrying more than 10 percent of the voting rights attached to all voting securities of the reporting issuer. In Quebec, the definition is slightly different as an insider includes a person who exercises control over more than 10 percent of a class of voting shares or shares with an unlimited right to a share of the profits or assets of the issuer on a winding-up. Every director or senior officer of an insider of a reporting issuer is also an insider of the reporting issuer. Canadian securities legislation, other than the Quebec legislation, stipulates that a company is deemed to beneficially own securities beneficially owned by its affiliates. As a consequence of these definitions, insider reporting obligations are imposed on directors and senior officers of affiliates of an insider of a reporting issuer. These directors and officers may have no relationship with the reporting issuer and no access to undisclosed material information concerning the reporting issuer.
Canadian securities legislation also imposes an obligation on insiders to file a report for each purchase made under automatic securities purchase plans. These purchases are typically in amounts and at prices and times determined by established formula or criteria and the only investment decision by the insider is the decision to participate in the plan or cease participation in the plan.
The Canadian securities regulatory authorities have recognized the extent to which compliance with the insider reporting requirements can be unnecessarily burdensome and have, in recent years, provided exemptive relief on a case-by-case basis in response to applications made on behalf of directors and senior officers of subsidiaries and affiliates of corporate insiders of reporting issuers and in respect of purchases made under automatic securities purchase plans. The proposed Companion Policy makes it clear that these orders are, except as otherwise provided in them, still in effect notwithstanding the implementation of the proposed National Instrument. The degree to which the orders replicate each other suggests that the process of granting case-by-case exemptions is routine and for that reason the relief set out in the proposed National Instrument is merited.
The proposed Companion Policy also makes it clear that the proposed National Instrument only provides an exemption from the insider reporting requirements and not from liability for improper trading under Canadian securities legislation.
Alternatives Considered
Consideration was given to continuing the current practice of granting the relief set out in the proposed National Instrument on an ad hoc basis in response to applications made. The CSA have concluded however that this practice is neither efficient nor effective and accordingly the proposed National Instrument would provide relief to certain insiders who fall within the scope of the insider reporting requirement. This is a step in implementing the recommendations of the Task Force on Operational Efficiencies that reported to the CSA in 1995.
Anticipated Costs and Benefits
The proposed National Instrument will be beneficial to certain market participants who fall within the scope of the insider reporting requirement of Canadian securities legislation as they will in some cases be relieved from reporting and in other cases will have to report less frequently. In addition, those persons or the reporting issuer of which they are an insider will no longer have to incur the expense of applying for relief. The only costs imposed by the proposed National Instrument arise from the requirement in Part 5 to maintain a list of exempted insiders.
The Canadian securities regulatory authorities are of the view that the benefits of the proposed National Instrument outweigh the costs.
Comments
Interested parties are invited to make written submissions with respect to the proposed National Instrument and Companion Policy. Submissions received by November 19, 1999 will be considered.
Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission in duplicate, as indicated below.
British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Department of Government Services and Lands, Securities Division, Government of Newfoundland and Labrador
Registrar of Securities, Government of the Northwest Territories
Registrar of Securities, Government of Nunavut
Registrar of Securities, Government of the Yukon Territory
c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:
Claude St Pierre,
Secretary
Commission des valeurs mobilières du Québec
Tour de la Bourse
C.P. 246, 22nd Floor
Montréal, Québec H4Z 1G3
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.
Questions may be referred to any of the following:
Laura Startup
Senior Legal Counsel
Policy and Legislation
British Columbia Securities Commission
(604) 899-6748
or (800) 373-6393 (in B.C.)
lstartup@bcsc.bc.ca
Agnes Lau
Deputy Director, Capital Markets
Alberta Securities Commission
(403) 422-2191
agnes.lau@seccom.ab.ca
Barbara Shourounis
Director
Saskatchewan Securities Commission
(306) 787-5645
barbara.shourounis.ssc@govmail.gov.sk.ca
Doug Brown
Counsel
Manitoba Securities Commission
(204) 945-2548
dbrown@cca.gov.mb.ca
Paul De Souza
Forensic Accountant, Enforcement Branch
Ontario Securities Commission
(416) 593-8295
pdesouza@osc.gov.on.ca
Sylvie Lalonde
Conseillère en réglementation
Commission des valeurs mobilières du Québec
(514) 940-2199 Ext. 4555
sylvie.lalonde@cvmq.com
DATED at Vancouver, British Columbia, on August 18, 1999.
Douglas M. Hyndman
Chair