Entering into the plan by insider
To address concerns that a plan may be contrary to the public interest, ASDPs should be entered into by an insider in good faith, and not for the purpose of evading the insider trading prohibition. In addition, the Legal Defense will not be available if the plan is entered into when the insider is in possession of MNPI with respect to the issuer.
We note that many issuers have adopted an insider trading policy that imposes trading blackouts at certain times [FN 1]. This is intended to prevent trading at times when there is a heightened risk that insiders have MNPI. Trading blackouts are also intended to prevent the appearance of questionable trading, and to protect the reputation of the issuer. Insiders should review and comply with the issuer’s insider trading policy, including any stipulations on when plans may be entered into. In the absence of such stipulations, we recommend that issuers consider amending their insider trading policies to include a specific restriction against entering into ASDPs during trading blackouts.
Oversight by issuer
We recommend that the issuer oversee the establishment and use of ASDPs by its insiders to ensure that the plans and the insiders comply with securities legislation and any insider trading policy or other relevant internal policies that the issuer may have adopted [FN 2].
Oversight of ASDPs by an issuer contributes to their legitimacy and the issuer and its insiders would, in Staff’s view, benefit from the involvement of the issuer. This involvement could reduce reputational exposure for the issuer and litigation risks potentially linked to the improper use of ASDPs by the insider. If the ASDP is not established by the issuer, then we encourage insiders to notify the issuer of their intent to enter into an ASDP in order to enable the issuer to provide guidance and oversight of the ASDP to the insider.
As part of its oversight and to minimize its risks, we recommend that the issuer review the terms and conditions of ASDPs to assess whether they are automatic in substance and contain protections against inappropriate trading activities by insiders. In addition, we recommend that the insider request that the issuer certify to the dealer that, to the best of the issuer’s knowledge, the insider is not in possession of MNPI when entering into the ASDP and that the ASDP is entered into in accordance with any insider trading policy or other relevant internal policies of the issuer.
As part of its risk mitigation, we recommend that the issuer take reasonable steps to periodically confirm that the insider continues to comply with the terms and conditions of the ASDP and any insider trading policy or other relevant internal policies adopted by the issuer.
We also particularly recommend that the issuer monitor the use of the ASDP upon the occurrence of significant events in the life of the issuer before those significant events are publicly disclosed. Examples of significant events include transactions such as a merger, an acquisition or a divestiture, or a material change affecting an issuer’s business, operations or capital. Staff is of the view that monitoring the use of the plan when a significant event occurs in this manner would also assist the issuer in considering whether any amendment, suspension or termination of the plan is appropriate during a period in which the insider may be in possession of MNPI.
FN 1 We note that section 6.10 of National Policy 51-201 Disclosure Standards contains guidance as to insider trading policies and trading blackout periods.
FN 2 In Quebec, contrary to what is provided under securities legislation in other provinces and territories, an automatic plan must be established by an issuer in order to be used for the purposes of the Legal Defense.