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

Example 3

On March 1, 2011, John purchases a put option from InvestBank and simultaneously sells a call option to InvestBank. (The combination of a put option and call option is sometimes referred to as a collar.) The put option 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. The call option gives InvestBank the right, but not the obligation, to require John to sell to InvestBank at any time between March 1, 2011 and March 1, 2016, 10 shares of ABC Inc. at $115 per share.

The options are not transferable. John finances the purchase of the put option by the simultaneous sale of the call 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 3

In the above example, a separate report will be filed for the put option component and the call option component.

Instructions for filing a report in respect of the put option component are contained in example 2. Under the General remarks field (step 28), a reference to the call option can be made as follows:

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. Acquisition of put option financed by simultaneous sale of call option (see separate report).

The following instructions relate to the call option component.

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

SCREEN: File insider report – Add security designation

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

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

Note: This adds the security designation “OTC Calls (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 22, inclusive, under example no. 1 (substituting references to “OTC Calls” for references to “Forward sale” in the text of the example (step 11)).

23. Enter a number in the Number or value of securities or contracts disposed of field. Enter 1 here.

Note: Since John has entered into a new contract that requires John to sell, if and when called upon, 10 shares of ABC Inc. at a price of $115 per share at any time between March 1, 2011 and March 1, 2016, enter a 1 after the field Number or value of securities or contracts disposed of. Since John has sold a call option (i.e., written an option to purchase shares of ABC Inc.), John is considered to have “disposed” of an OTC Call contract for the purposes of this field. Leave the field Number or value of securities or contracts acquired blank.

Note: Since John has specified a derivative as the security, there are additional fields in which to enter the equivalent number or value of the underlying securities to which the derivative relates.

24. Enter a number in the Equivalent number or value of underlying securities disposed of field. Enter 10 here.

25. Next to the field Unit price or exercise price, click the Not Applicable box.

Note: In example no. 2, John paid $10 as a premium for the acquisition of the put option. Accordingly, in example no. 2, John would enter 10 in the field Unit price or exercise price. In the present example, the consideration for the put option component of the collar is the sale of the related call option. Accordingly, John will click the Not Applicable box next to the field Unit price or exercise price, and make reference to the related put option in the General remarks field.

26. Under the field Conversion or exercise price, enter 115.

Note: Since the call option exercise price is $115 per share, John would enter 115 in the field Conversion or exercise price.

27. In the Date of expiry or maturity field, enter 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 requiring John to sell 10 ABC Inc. shares at $115 per share at any time between March 1, 2011 and March 1, 2016. Proceeds from sale of call option used to finance acquisition of put option (see separate report).

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.