(1) In making materiality judgements, it is necessary to take into account a number of factors that cannot be captured in a simple bright-line standard or test. These include the nature of the information itself, the volatility of the company’s securities and prevailing market conditions. The materiality of a particular event or piece of information may vary between companies according to their size, the nature of their operations and many other factors. An event that is “significant” or “major” for a smaller company may not be material to a larger company. Companies should avoid taking an overly technical approach to determining materiality. [FN 28] Under volatile market conditions, apparently insignificant variances between earnings projections and actual results can have a significant impact on share price once released. For example, information regarding a company’s ability to meet consensus earnings [FN 29] published by securities analysts should not be selectively disclosed before general public release.
(2) We encourage companies to monitor the market’s reaction to information that is publicly disclosed. Ongoing monitoring and assessment of market reaction to different disclosure will be helpful when making materiality judgements in the future. As a guiding principle, if there is any doubt about whether particular information is material, we encourage companies to err on the side of materiality and release information publicly. [FN 30]
FN 28 See also Re Royal Trustco Ltd. et al. and Ontario Securities Commission (1983), 42 O.R. (2d) 147 (Div. Ct.), affirming (1981), 2 OSCB 322C, where the Ontario Securities Commission issued a denial of exemption order against two senior officers of Royal Trustco who disclosed to officers of a Canadian chartered bank that certain shareholders of Royal Trustco did not intend to tender their Royal Trustco shares to a hostile take-over bid by Campeau Corporation. The Ontario Securities Commission held that the disclosure constituted illegal “tipping”. On appeal the Divisional Court stated that the term “fact” should not be read “super-critically” and that “information” that shareholders of Royal Trustco did not intend to tender to a hostile take-over bid by Campeau Corporation “was sufficiently factual or a sufficient alteration of circumstances to be a material “change” to fall within the [tipping provision].”
FN 29 The range of earnings estimates issued by analysts following a company.
FN 30 See also Canadian Investor Relations Institute, “Model Disclosure Policy”, (February 2001) where CIRI noted in its explanatory notes that “Determining the materiality of information is clearly an area where judgement and experience are of great value. If it is a borderline decision, the information should probably be considered material and released using a broad means of dissemination. Similarly, if several company officials have to deliberate extensively over whether information is material, they should err on the side of materiality and release it publicly”.