CSA Staff Notice 55-312 Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization)

Example 2

On March 1, 2011, John purchases a put option from InvestBank which gives John the right, but not the obligation, to sell to InvestBank, at any time between March 1, 2011 and March 1, 2016, 10 shares of ABC Inc. at a price of $90 per share. [FN 3] The put option is not transferable. John pays $10 to InvestBank in consideration for the put option. InvestBank hedges its risk under the contract through a hedging strategy involving short sales into the secondary market.

Insider Reporting Requirement: John is required to file an insider report within five (calendar) days of March 1, 2011. (See Part 3 of NI 55-104.) For an example of how to report this transaction, see below. Unless InvestBank is also a reporting insider of ABC Inc., InvestBank is not required to file an insider report.

Instructions for Example 2

  • Repeat steps 1 to 8, inclusive, under example no. 1.

SCREEN: File insider report – Add insider-defined security designation

9. Under the heading Security designation, in the drop-down menu under the subheading Security name, select and highlight OTC Puts (including Private Options to Sell).

10. Then, for the Additional description, briefly describe. For example, “10 common shares -expires March 2016”.

Note: This adds the security designation “OTC Puts (10 common shares -expires March 2016)” to your list of insider-defined securities.

Note: Not all of this text will currently be visible in the Additional description box. (The box will only show a limited number of characters at any one time.) However, the full text in this example will be accepted, and will be visible at later stages of the filing process.

  • Repeat steps 11 to 24, inclusive, under example no. 1 (substituting references to “OTC Put” for references to “Forward sale” in the text of the example).

25. Under the field Unit price or exercise price, enter 10.

26. Under the field Conversion or exercise price, enter 90.

Note: Under the put option, John has the right, but not the obligation, to sell to InvestBank 10 ABC Inc. shares at $90 per share at any time up to March 1, 2016. Since John paid $10 in consideration (in this example) for the put option, he would enter 10 in the field Unit price or exercise price. Since the put option exercise price is $90 per share, John would enter 90 in the field Conversion or exercise price.

27. In the Date of expiry or maturity field, select March 1, 2016.

Note: Since the anticipated date of settlement is March 1, 2016, this will be the date of expiry or maturity.

28. Enter the following information in the General remarks field:

Private option contract to sell 10 shares of ABC Inc. at a price of $90 per share at any time between March 1, 2011 and March 1, 2016. Consideration paid for option was $10.

Note: If it is not possible to adequately describe a transaction or to include all of the material terms of a transaction in the space provided, consider making reference to a public document (e.g., a news release issued by the issuer) that further describes the transaction. Alternatively, this information may be included in a schedule that may be filed in paper format by facsimile in accordance with the provisions of Part 3 of NI 55-102. Fax the schedule to the facsimile number of the securities commission set out on Form 55-102F6. We recommend that you refer to this filing by facsimile in the General remarks field on SEDI. Staff will make this schedule available to the public on request.

  • Repeat steps 29 to 36, inclusive, under example no. 1, with necessary changes (i.e., substituting references to “OTC Puts” for references to “forward sale” in the text of the example).

FN 3 This example and the subsequent examples assume a fixed exercise price of $90 per share for the sake of simplicity. If the exercise price is based upon a formula, a note to this effect can be included in the General remarks field.