Statutory Provisions (OSA) – Insider Trading

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  1. OSA – Section 76 – Trading Where Undisclosed Change/Tipping
  • (1) Trading where undisclosed change: No person or company in a special relationship with a reporting issuer shall purchase or sell securities of the reporting issuer with the knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed.
  • (2) Tipping: No reporting issuer and no person or company in a special relationship with a reporting issuer shall inform, other than in the necessary course of business, another person or company of a material fact or material change with respect to the reporting issuer before the material fact or material change has been generally disclosed.
  • (3) Idem: No person or company that proposes,

o (a) to make a take-over bid, as defined in Part XX, for the securities of a reporting issuer;

o (b) to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with a reporting issuer; or

o (c) to acquire a substantial portion of the property of a reporting issuer,

  • shall inform another person or company of a material fact or material change with respect to the reporting issuer before the material fact or material change has been generally disclosed except where the information is given in the necessary course of business to effect the take-over bid, business combination or acquisition.
  • (4) Defence- reasonably believing it was generally disclosed: No person or company shall be found to have contravened subsection (1), (2) or (3) if the person or company proves that the person or company reasonably believed that the material fact or material change had been generally disclosed.
  • (5) Definition: For the purposes of this section,“person or company in a special relationship with a reporting issuer” means,

o (a) a person or company that is an insider, affiliate or associate of,

  • (i) the reporting issuer,
  • (ii) a person or company that is proposing to make a take-over bid, as defined in Part XX, for the securities of the reporting issuer, or
  • (iii) a person or company that is proposing to become a party to a reorganization, amalgamation, merger or arrangement or similar business combination with the reporting issuer or to acquire a substantial portion of its property,

• Notes: Takeover Bids: Insiders of the company making the takeover bid are in a special relationship (like directors/officers), but the company itself can still trade shares ^ why?

o Policy objective saying it’s a good thing to allow people to make takeover bids (balancing of investor protection and efficient capital markets), and the only realistic way to do that is to buy shares to complete the transaction, to defray their costs. ^ ought not be insider trading b/c something else we want to protect ^ don’t want the insider directors (or from other company) to prosper from it, there’s no policy justification for that. So want to allow take-over-bids, but not enrich directors/officers.

• If you are the bidding company and you go to the company you want to sell – must agree nothing will be told in mtg that is not public info (otherwise would put in a special relationship)

o (b) a person or company that is engaging in or proposes to engage in any business or professional activity with or on behalf of the reporting issuer or with or on behalf of a person or company described in sub-clause (a) (ii) or (iii),

  • Note: catches lawyers here

o (c) a person who is a director, officer or employee of the reporting issuer or of a person or company described in subclause (a) (ii) or (iii) or clause (b),

o (d) a person or company that learned of the material fact or material change with respect to the reporting issuer while the person or company was a person or company described in clause (a), or (c),

  • Note: e.g. if I WAS a lawyer, learned something they’re going to do, then they fire you, can’t trade.

o (e) a person or company that learns of a material fact or material change with respect to the issuer from any other person or company described in this subsection, including a person or company described in this clause, and knows or ought reasonably to have known that the other person or company is a person or company in such a relationship; (“personne ou compagnie ayant des rapports particuliers avec un emetteur assujetti”)

  • Note: Deliberately vague, b/c a code is either insuff or excessive
  • Recall: “reporting issuer” includes an issuer that has a real and substantial connection to Ontario and whose securities are listed and posted for trading on the TSX Venture Exchange. (“emetteur assujetti”)
  • (6) Idem: For the purpose of subsection (1), a security of the reporting issuer shall be deemed to include,

o (a) a put, call, option or other right or obligation to purchase or sell securities of the reporting issuer;

o (b) a security, the market price of which varies materially with the market price of the securities of the issuer; or

o (c) a related derivative.

  • **note definitions of associate, affiliate, and insider in 1(1)

MISSING A CATEGORY: Tippees who don’t know or ought to know that the person they got the info from was in a special relationship!! ^ persons who learn of information from a person in a special relationship and knows or ought to know that the person was in a special relationship are people in a special relationship, but misses those people who don’t know or ought to know

  • *on an exam: look for hints that the person knows or ought to have known: (e.g. if taxi driver tells you to buy RIM, fine, you don’t know or ought to know. If his last name is same of CEO of RIM, more of an issue)

76(1): it is an offence for a person or a company in a special relationship with reporting issuer to purchase or sell securities with knowledge of a material fact or material change that has not been generally disclosed

  • See 76(4) for Definition of Special Relationship
  • THE ONLY ONES WHO CAN BE CHARGED are those in a special relationship with reporting issuer
  1. Tipping (OSA s.76(2) +(3))

76(2) and (3): offence for reporting issuer or someone in a special relationship with reporting issuer or any person proposing to make takeover bid ^ prohibited from disclosing or giving other people information with respect to a material fact/change that has not been generally disclosed except in the necessary course of business

  • Relevant that this applies to both an undisclosed material FACT and CHANGE

o If you ’re in a special relationship with RI and you have info not in public domain, you can’t tell anyone that, except in regular course of business until it’s generally disclosed

  • Note: the Phrase is actually a Misnomer: Tipping is not trading ^ don’t even have to trade. What is definition of trade? SALE OF SECURITY ^ doesn’t include a purchase
  • POLICY: Level Playing Field: We’re trying to avoid people with knowledge from using that knowledge to detriment of market b/c not a level playing field!
  • NECESSARY COURSE OF BUSINESS:

o Is a question of FACT (depends on the circumstances) –

  • Easy example: If I’m a company and I want to make a takeover bid for RIM, I have to call a lawyer to help me make a takeover bid for RIM, I’m TIPPING, but in the necessary course of business b/c I can’t do it without a lawyer. Have to hire a banker, I need $100m, tell them why
  • Other cases of necessary course of business mentioned by NP 51-201, dealings with vendors/ suppliers; employees and officers, legal counsel, parties to negotiation, labour unions and industry assoc, govt agencies and credit rating agencies
  • However, would not incl analysts. Also must make sure the receiver of info does not given info to anyone else

Royal Trust Co v. Campbeau -^Changes v. facts: tipping covers both

In this situation, even though they decided that knowing a major SH wouldn’t tender their shares was not a material change, it was a material fact, and in that case, the Director told other SHs not to tender, b/c the bid wouldn’t go ahead ^ today, he’d be dead with these rules (due to tipping regs). Telling people not or that they don’t have to tender to protect your job is not in the necessary course of business, and you’re guilty of tipping

Whenever you give an informational adv that is considered tipping

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