Appendix B List of Commenters, Summary of Public Comments and CSA Responses Canadian Bankers Association Legal Advisory Committee – Autorité des marchés financiers Market Regulation Services Inc. McCarthy Tétrault Ogilvy Renault RBC Financial Group Securities Law Subcommittee of the Business Law Section of the Ontario Bar Association TD Bank Financial Group
2 Summary of comments Summary of comment A. General comments 1. Amendments in general Five commenters supported the amendments in general, subject to their specific comments. (McCarthy, RBC Financial, Ontario Bar, Canadian Bankers, LAC) 2. Removing requirements relating to list of Six commenters agreed with removing the insiders requirement to maintain lists of insiders. (RBC Financial, Ontario Bar, TD Bank Financial, Canadian Bankers, Ogilvy, LAC) One commenter suggested that we should remove from the Companion Policy the suggestion that maintaining a list of insiders relying on exemptions is a best practice as it could cause confusion as to which policies and procedures are necessary to comply with applicable insider trading laws. (McCarthy) CSA response We thank the commenters for their support. We have considered all comments received and have amended the materials where we believe it is appropriate. We thank the commenters for their support. We have not amended the Companion Policy in response to this comment. The suggestion to maintain a list of persons with access to undisclosed material information is not a requirement in order for insiders to rely on the exemptions in the Instrument. The suggestion is intended to be an example of a best practice that issuers may wish to consider in developing their policies and procedures relating to information containment and insider trading.
3 Summary of comment CSA response One commenter suggested that the new We have amended the CP in response to guidance in Part 4 of the CP be amended to this comment. delete the words “and help them [reporting issuers] to ensure that insiders are not violating insider trading prohibitions”, noting that the obligation to comply with the insider trading prohibitions rests on the insider itself, not the issuer. (Ogilvy) One commenter supported including The CP does not refer to notices of record-keeping in relation to those insiders intention; however, CSA staff think that who have the reporting obligation as an lists of insiders or persons with access to example of a best practice in 55-101CP, undisclosed information can be useful. without reference to notices of intention or other lists. (Canadian Bankers) One commenter indicated that they were The recommendation is not a requirement. not sure how the recommendation of a best Issuers can take other approaches to practice approach of maintaining lists of managing information. We will consider knowledgeable insiders will result in the additional relief from the reporting regulatory relief that many reporting requirements as part of phase 2. issuers were looking for. (LAC) 3. Changing percentage thresholds in Five commenters supported the proposed We thank the commenters for their definition of “major subsidiary” amendments to increase the relevant support. percentages from 10 to 20% in this definition. (RBC Financial, TD Bank Financial, Canadian Bankers, LAC, OntarioBar ) One of those commenters thought that the changes would alleviate considerably the reporting requirements of a number of officers and directors. (LAC).
4 Summary of comment CSA response Although supporting the change, another of those commenters indicated that they did not think this change would have much practical effect. (Ontario Bar) One commenter stated that, in their view, a The suggested changes to the definition of test based on assets and revenues is not ineligible insider or insider are beyond the appropriate in determining which directors scope of phase 1 of this project. We will or senior officers of a subsidiary have consider changing those definitions as part access to information regarding material of phase 2. facts or changes with respect to the reporting issuer. Instead, they suggested that the definition of “ineligible insider” or “insider” should be refined further. (Ogilvy) 4. Definition of “normal course issuer bid” One commenter suggested adopting a more We agree with this comment and plan to generic definition of normal course issuer amend the definition as suggested. bid so that it would be available for a normal course issuer bid on a recognized exchange for the purposes of National Instrument 21-101 Marketplace Operation. (RS) 5. Definition of “ineligible insider” One commenter suggested that, until the The suggested change to the definition of CSA combines the insider reporting ineligible insider is beyond the scope of requirements and exemptions in one phase 1 of this project. We will consider
5 Summary of comment harmonized national instrument, the definition of “ineligible insider” should be narrowed. (Ogilvy) 6. Summary Reporting of Insider trades by One commenter requested that the CSA marketplaces bear in mind the order designation requirements under UMIR when drafting the phase 2 amendments. (RS) 7. Proposed future amendments Five commenters suggested that we should require fewer insiders to file insider reports. (RBC Financial, Ontario Bar, TD Bank Financial, Ogilvy, McCarthy) Five commenters suggested that the CSA could consider accelerating the time for filing reports only if the number of insiders required to file reports was reduced. (RBC Financial, Ontario Bar, McCarthy, TD Bank Financial, Canadian Bankers) One commenter suggested that the phase 2 amendments should adopt a definition of ineligible insider based on the definition of senior officer in s. 485.1 of the Bank Act. (RBC Financial) One commenter suggested that we adopt a narrower definition of insider for the purposes of insider reporting requirements along the lines of 10% holders, directors and “executive officers” (as defined in NI CSA response changing the definition as part of phase 2. We will consider these requirements as part of phase 2 of this project. We thank the commenters for their suggestions. We will take these comments into consideration when preparing the phase 2 amendments. We invite commenters to provide additional comments when we publish the phase 2 amendments for comment. We thank the commenters for this suggestion. We will take this suggestion into consideration when preparing the phase 2 amendments. We will take this comment into consideration when preparing the phase 2 amendments. We will take this comment into consideration when preparing the phase 2 amendments.
6 Summary of comment CSA response 51-102). (Canadian Bankers) One commenter suggested that we should The issue of harmonizing penalties and harmonize penalties for missed or administrative practices in imposing them erroneous filings and the administrative is beyond the scope of this project. practices applied in determining when to However, the CSA will consider this impose penalties. (RBC Financial) comment in the context of other projects dealing with administrative penalties and practices. B. Answers in response to questions in CSA Notice: 1. The exemption in Part 5 of NI 55-101 that Three commenters agreed that persons We thank the commenters for their allows insiders to defer reporting acquisitions who own or control more than 10% of the suggestions. We have decided not to under an automatic securities purchase plan is voting securities of a reporting issuer include 10% holders in the phase 1 currently available only to directors and should be able to defer reporting amendments but will consider as part of senior officers of the reporting issuer or a acquisitions under ASPPs. (McCarthy, phase 2 whether this exemption, if it subsidiary of the reporting issuer. Should we Canadian Bankers, Ogilvy) continues to be necessary, should be make this exemption available to persons One commenter felt that any extension of expanded. who own or control more than 10% of the this exemption to 10% holders should not voting securities of a reporting issuer? For be limited as to the number or percentage example, this would allow these persons to of securities that the insider can acquire participate in a dividend reinvestment plan before being required to file an insider and report on the additional shares they report. (McCarthy) acquire in this way within 90 days of the end One commenter was of the view that the of the calendar year. If so, should there be ASPP exemption should not be available to limits on the number or percentage of persons who own or control more than securities that the insider can acquire before 10% of the voting securities of a reporting being required to file a report? issuer, because the market is interested in any further acquisitions by these persons. In the case of a dividend reinvestment
7 Summary of comment CSA response plan, the 10% shareholder may acquire a not insignificant number of securities and the reporting is not unduly burdensome. (Ontario Bar) One commenter asked the CSA to consider the impact of such an exemption on the insider obligations under National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103) and suggested that the CSA might consider limiting the exemption according to the same thresholds as those found under the early warning system. (LAC) 2. We are proposing to let insiders who One commenter suggested that this We thank the commenter for this are executive officers or directors of a proposal introduces some confusion as to suggestion. However, we think that the reporting issuer rely on the ASPP exemption the proper way to report stock option proposed approach is clear and ensures that in section 5.1 of NI 55-101 for the acquisition grants. In their view, a preferable approach information about stock option grants is of stock options or similar securities granted may well be to include guidance in the made public on a timely basis. We will to the insider if the reporting issuer has companion policy as to the circumstances consider further questions relating to previously disclosed in a press release filed (if any) in which it would be appropriate insider reporting of grants of stock options on SEDAR the existence and material terms for insiders to rely on the ASPP and similar securities as part of the phase 2 of the grant. exemption. (Ontario Bar) amendments.
8 Summary of comment CSA response One commenter had some concerns with The exemption does not (and is not the proposed limitation on the use of the intended to) expand the type of securities exemption in section 5.1 by executive that are required to be reported. officers and directors, indicating that the phrase “or similar securities” is vague and causes significant lack of clarity as to whether the existing exemption in section 5.1 would be available in any circumstances. They are concerned that this provision should not be used to expand the types of securities that are required to be reported. (Canadian Bankers) One commenter indicated that where the A grant of stock options is generally not a notice is filed is not as important as that newsworthy event. As a result, even if we the information reach the public require issuers to issue a press release, it is marketplace rapidly. It is their belief that not necessarily going to be picked up by disclosure of the information in the the financial press. Therefore, based on the financial press is the best method to ensure comments received, we have amended NI prompt and timely public disclosure, which 55-101 to require a notice on SEDAR, does not prevent however the requirement rather than a press release. of the filing of a notice on either SEDAR or SEDI or both. (LAC) (a) Could the same result be achieved by Four commenters were of the view that a Based on the comments received, we have requiring the reporting issuer to file a notice on SEDAR would be sufficient. amended NI 55-101 to require a notice on notice on SEDAR, rather than issuing a (RBC Financial, Ontario Bar, McCarthy, SEDAR, rather than a press release. press release? Ogilvy)
9 Summary of comment CSA response One commenter did not favour either a We will consider this as part of the phase 2 press release or a notice on SEDAR, but amendments (and/or as part of the SEDI would prefer to allow reporting issuers to project). The notice on SEDAR will disclose grants of stock options and to the include detailed information about the extent required to be reported, issuer grants to the insiders who are subject to the derivatives like deferred share units, limitation in section 5.2(3) of NI 55-101, restricted share awards and long term but not for other insiders. incentive plan units, in a general report of the issuer on SEDI. (Canadian Bankers) That commenter also would seek clarification that any press release or notice filing on SEDAR should provide information in more general terms, not detailed with respect to “each insider”. (b) In the future, rather than require issuers to Four commenters supported enhancements We thank the commenters for their views file a press release on SEDAR, should we to SEDI that would allow a report on stock on this. We will consider this as part of the enhance the System for Electronic option grants to be made in a manner SEDI project. Disclosure by Insiders (SEDI) to allow similar to an issuer event report. (RBC reporting issuers to disclose grants of Financial, Ontario Bar, McCarthy, Ogilvy) stock options and issuer derivatives like deferred share units, restricted share awards and long term incentive plan units One commenter suggested that it would be If SEDI is enhanced to allow this type of in a report of the issuer? This report could useful to have this report be consistent report, we would amend NI 55-101 so that be analogous to the “issuer event” report with the ASPP exemption so that there are the reporting issuer would not need to file required under section 2.4 of National not multiple reports available for reporting the notice on SEDAR that is contemplated Instrument 55-102 SEDI. stock option grants. (Ontario Bar) in these amendments.
10 Summary of comment CSA response 3. The current concern in the United States In the opinion of one commenter, grants We thank the commenters for their views about options backdating illustrates that the represent compensation decisions by the on this. We will consider this as part of market is keenly interested in the timing of company rather than investment decisions phase 2 of this project. stock option grants. We understand that some by insiders. Therefore, the reports do not investors time their own market purchases of enhance the signaling function. In addition, securities of an issuer based on option grants the commenter did not think the deterrence to insiders that have been publicly disclosed. function is relevant to compensation We believe that stock options or similar decisions. (RBC Financial) securities granted to executive officers or One commenter was of the view that stock directors need to be disclosed on a timely option grants and issuer derivatives grants basis – either in an insider report filed on to executive officers and directors of a SEDI within 10 days or a press release filed reporting issuer provide a greater signaling by the issuer on SEDAR. We are willing to function than disclosure of similar grants allow other insiders to rely on the ASPP to other insiders. (McCarthy) exemption for grants of stock options and similar securities, provided the plan under One commenter questions the differential which they are granted meets the definition treatment of executive officers and of an ASPP, the conditions of the exemption directors as compared to other insiders. It are otherwise satisfied, and the insider is not is the activities of only a very small circle making a discrete investment decision in of senior insiders that would likely be respect of the grant. Does disclosure of relevant to the market. Casting a wider grants of options and issuer derivatives to reporting net places an unjustified burden executive officers and directors provide a on reporting issuers and their insiders that greater “signalling” function or “deterrence” is out of all proportion to the utility of the value than disclosure of similar grants made information that such reports would to other insiders? provide. (Ontario Bar)
11 Summary of comment CSA response One commenter considers it to be unlikely that option grants provide a signaling function. Most companies grant options at the same time each year such that the signaling value (and consequently deterrence value) would be more likely from not granting options than granting them. The message in such circumstances could be that there is potentially material undisclosed information. However, disclosure of securities transactions of executive officers and directors have more significance in general than disclosure of similar grants and trades of a wide category of other insiders. (Canadian Bankers) One commenter was of the view that if an ASPP is truly an automatic plan with no discrete investment decision being made upon granting, then such disclosure if properly understood should not provide a signal in the market. (Ogilvy) One commenter was of the view that it is extremely important for information about these grants to reach the marketplace promptly and that in addition to its signaling function, the disclosure should have a deterrence value in the context of ensuring true dating of grants. (LAC)
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