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

Example 5

On March 1, 2011, John enters into a swap agreement with InvestBank whereby he agrees to pay InvestBank, on March 1, 2016, an amount equal to dividends paid on the 10 shares of ABC Inc. plus any appreciation in value over $100 per share. In return, InvestBank agrees to pay John the London interbank offered rate (LIBOR) on a notional principal amount of $1,000 (i.e., the FMV of the 10 ABC Inc. shares) plus any depreciation in the value of the shares below $100 per share. 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 5

  • 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 Equity Swap – Short Position.

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

Note: John is considered to have the short position on the equity swap since John has swapped the cash flows associated with ownership (i.e., a long position) for cash flows generated by another instrument, a notional investment of $1,000 at the LIBOR rate.

Note: This adds the security designation “Equity Swap – Short Position (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, with necessary changes.

25. Under the field Unit price or exercise price, enter 0.

26. Under the field Conversion or exercise price, enter 0.

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.

Note: If the terms of a derivative cannot easily be expressed in the fields noted above, or if a description is necessary to clarify ambiguity, include additional information in the General remarks field.

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

Equity swap involving exchange of payments on March 1, 2016: an amount equal to dividends paid on 10 shares of ABC Inc. plus any appreciation in value over $100 per share, for LIBOR rate on $1,000 notional principal amount plus any depreciation in value below $100 per share.

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.