Notice 2016-008 – Regulatory Guidance – OSC Insider Reporting Review
Attention all CSE Listed Companies AND Insiders
OSC Insider Reporting Review
We draw your attention to the recent publication by the OSC of the results of their review of 100 reporting issuers and 1500 insiders that found many material (and many more non-material) deficiencies in the reporting by insiders of their trading activity.
The full report is contained in OSC Staff Notice 51-726 Report on Staff's Review of Insider Reporting and User Guides for Insiders and Issuers, which is available here: http://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20160218_51-726_review-insider-reporting.htm
While we encourage all CSE listed companies and their insiders to review the Notice in its entirety, some of the key findings were as follows….
“The 100 Ontario reporting issuers selected for the review resulted in a corresponding
review of approximately 1,500 reporting insiders. While approximately 85% of the reporting
insiders we reviewed were materially compliant, we found material insider reporting
deficiencies in approximately 15% which resulted in approximately 200 reporting insiders
filing new insider reports on the System for Electronic Disclosure by Insiders (SEDI) to
address these deficiencies.”
The CSE believes it is important to draw attention to this matter because the review concluded that “in approximately 70% of the issuers reviewed, at least one insider was required to file a remedial filing to address a material deficiency.”
Insider Reporting Requirements
In Ontario, the general insider reporting requirements are found in the Securities Act (Ontario) (the Act). Certain insider reporting requirements in the Act have been varied by National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104)
National Instrument 55102 System for Electronic Disclosure by Insiders (SEDI) (NI 55102)
sets out the process for filing insider reports.
National Policy 51-201 Disclosure Standards (NP 51201) provides guidance on "best disclosure" practices for issuers and includes a provision on insider trading policies and blackout periods.
Types of Deficiencies
- Approximately 30% of the issuers had at least one reporting insider that did not have an insider profile and failed to file insider reports on SEDI.
- Approximately 65% of the issuers had at least one reporting insider that had a variance equal to or greater than 5% between the balances of securities holdings as reported on SEDI versus Continuous Disclosure records of the respective issuer.
Common Reasons for Non-compliance included:
- Unfamiliarity with definition of "reporting insider"
- Unfamiliarity with definition of "significant shareholder" in NI 55104
- Failure to file reports for acquisitions under a NCIB within 10 days of the end of the month in which the acquisition was completed
- Failure to report expiration of securities such as options or warrants within the required 5 day period
- Late reporting because they did not receive certain key information from issuers on a timely basis.
- Reliance on third parties who failed to file on time.
Some of the nonmaterial deficiencies resulting in correctional filings were the following:
• inaccurate transaction codes;
• inaccurate transaction dates;
• inaccurate reporting with respect to type of ownership (direct, indirect or control or direction) ;
• not reporting the name of the registered holder; and
• use of incorrect security designations by issuers, precluding their insiders from correctly reporting their transactions
Issuer profile supplements
Some reporting issuers were not aware that they are required to file an amended issuer profile supplement on SEDI immediately if there is a change in the information disclosed in their issuer profile supplement.
Approximately 60% of issuers had out of date issuer profile supplements which required updating. Some of the common issues noted were that the insider affairs contact was out of date and security designations needed to be updated for approximately 40% of reporting issuers reviewed.
OSC Staff Recommendations include:
Issuers should implement a process to annually verify the securities holdings communicated to them by insiders in order to avoid variances in the public records filed by the issuer on SEDAR versus the reports filed by insiders on SEDI.
Reporting insiders should be proactive and review information circulars annually and other CD records of the issuer on a regular basis to ensure their security holdings are properly reflected.
Issuers should annually review their insider trading policies to ensure they align with current Canadian securities legislation.
Issuers should also adopt a written policy which, among other things, specifically prohibits derivativebased transactions, the grant of options and the setting of the exercise price during blackout periods.
The written policy should also provide for a senior officer to approve and monitor the trading activity of all insiders, officers, and senior employees.
Assistance is available:
To assist issuers and their reporting insiders, OSC Staff provided checklists in appendices to The Notice which highlight some of the key points that reporting insiders and issuers, respectively, should consider in complying with insider reporting requirements.
The Notice also identified the following persons to whom questions may be addressed.
Inquiries and Contact Centre, Strategy
and Operations Branch
Tel: 416.593.8314 / 1.877.785.1555
Julie Erion, Supervisor, Insider
Reporting, Corporate Finance Branch
Shannon O'Hearn, Manager, Corporate
Finance Branch Tel: 416.595.8944
Katie DeBartolo, Accountant, Corporate
Finance Branch Tel: 416.593.2166
Gina You, Legal Counsel, Corporate
Finance Branch Tel: 416.595.8934
Krstina Skocic, Legal Counsel, Corporate
Finance Branch Tel: 416.263.3769