Amendments to Ontario Securities Act Affect Insider Trading Rules
Bill 135, Helping Ontario Families and Managing Responsibly Act, 2010 (the Act), first introduced by Ontario's Minister of Finance on November 18, 2010 as an act to implement certain financial and budget matters, received Royal Assent on December 8, 2010. The Act contains several amendments to Ontario securities law, most significantly the establishment of a legislative framework for regulating derivatives which, to date, has not been covered by Ontario's Securities Act. The Act also makes a few notable amendments to the illegal insider trading rules in Ontario which are described below.
Ontario's Securities Act prohibits persons in a special relationship with a reporting issuer from trading where they have knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed (insider trading) and from informing others of such information, other than in the necessary course of business, before such information has been generally disclosed (tipping). Prior to the amendments made by the Act, these prohibitions only applied in respect of Ontario reporting issuers. The amendments made by the Act extend the definition of "reporting issuer" in the Securities Act to include issuers that have "a real and substantial connection to Ontario and whose securities are listed and posted for trading on the TSX Venture Exchange."
What exactly a "real and substantial connection to Ontario" means is not defined, but it is expected that the "significant connection to Ontario" test set out in Policies of the TSX Venture Exchange will be a key factor in the determination since the analysis will always be in respect of issuers listed on the TSX Venture Exchange.
Given that the key amendments made under the Act establish a regulatory framework for derivatives, the amendments to the Securities Act also extend the provisions dealing with insider trading and tipping, misrepresentation in disclosure documents and fraud or market manipulation to include derivatives. The provisions concerning civil liability for insider trading and tipping have also been extended to apply to "related derivatives." With respect to a security, a "related derivative" is defined to be "a derivative that is related to the security because the derivative’s market price, value, delivery obligations, payment obligations or settlement obligations are, in a material way, derived from, referenced to or based on the market price, value, delivery obligations, payment obligations or settlement obligations of the security."
While the amendments to the Securities Act establishing the framework for regulating derivatives will not come into force until a date to be determined in the future, the amendments to the illegal insider trading rules discussed above came into force on December 8, 2010. See our related article, "OTC Derivatives Regulation", in this issue of Co-Counsel Business Law Quarterly.