(1) Securities legislation prohibits a reporting issuer and any person or company in a special relationship with a reporting issuer from informing, other than in the necessary course of business [FN 5], anyone of a “material fact” [FN 6] or a “material change” (or “privileged information” in the case of Québec) [FN 7] before that material information [FN 8] has been generally disclosed. [FN 9] This prohibited activity is commonly known as “tipping”
(2) Securities legislation also prohibits anyone in a special relationship with a reporting issuer from purchasing or selling securities of the reporting issuer [FN 10] with knowledge of a material fact or material change about the issuer that has not been generally disclosed. [FN 11]
This prohibited activity is commonly known as “insider trading”.
(3) Securities legislation prohibits any person or company who is proposing:
- to make a take-over bid;
- to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination; or
- to acquire a substantial portion of a company’s property
from informing anyone of material information that has not been generally disclosed. An exception to this disclosure prohibition is provided where the material information is given in the “necessary course of business” to effect the take-over bid, business combination or acquisition.
(4) It is important to remember that the tipping and insider trading provisions apply to both material facts and material changes. A company’s timely disclosure obligations generally only apply to material changes. This means that a company does not have to disclose all material facts on a continuous basis. However, if a company chooses to selectively disclose a material fact, other than in the necessary course of business, this would be in breach of securities legislation.
FN 5 The Alberta and British Columbia Securities Acts use the phrase “is necessary in the course of business”. The Québec Securities Act uses the phrase in the “course of business”.
FN 6 Securities legislation defines a “material fact” as follows: “material fact, where used in relation to securities issued or proposed to be issued means a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of such securities”.
FN 7 “Privileged information” is defined under the Québec Securities Act as “any information that has not been disclosed to the public and that could affect the decision of a reasonable investor”.
FN 8 Material facts and material changes are collectively referred to as “material information”. When used in the Policy, material information means both “material facts” and “material changes.”
FN 9 The Québec Securities Act uses the term “generally known”.
FN 10 For the purposes of the prohibition against illegal insider trading, a “security of the reporting issuer” is deemed to include a security, the market price of which varies materially with the market price of the securities of the issuer (see subsection 76(6)(b) of the Ontario Securities Act).
FN 11 Section 187 of the Québec Securities Act provides that “no insider of a reporting issuer having privileged information relating to securities of the issuer may trade in such securities except in the following cases: (i) he is justified in believing that the information is generally known or known to the other party; (ii) he avails himself of an automatic dividend reinvestment plan, automatic subscription plan or any other automatic plan established by a reporting issuer, according to conditions set down in writing, before he learned the information”. Section 189 further expands the number of persons who are subject to the prohibition in section 187.