CSA Staff Notice 55-315 Frequently Asked Questions about National Instrument 55-104 Insider Reporting Requirements and Exemptions
Question 5

How Do I Report Additional DSUs Received as Dividends?

Background

1. Same facts as in preceding FAQ.

2. The Issuer has a dividend reinvestment plan (the DRIP) that provides that a holder of common shares may choose to receive additional common shares in lieu of cash dividends.

3. On June 30, 2010, the Issuer declared a dividend on its common shares. Under the Issuer’s DRIP, a holder of common shares would receive one additional common share for each 10 common shares held.

4. Similarly, under the DSU Plan, additional DSUs are received as dividend equivalents. A participant in the DSU Plan cannot exercise any discretion in terms of the receipt of additional DSUs as dividend equivalents (i.e., the participant cannot choose between receiving DSUs or cash).

5. Accordingly, on June 30, 2010, I received an additional 20 DSUs as a dividend on the 200 DSUs I currently hold.

Question

1. Do I need to file an insider report about the additional 20 DSUs received on June 30, 2010 within 10 days of the acquisition?

Response

1. If the issuer files an issuer grant report about a grant of DSUs after April 30, 2010, and the issuer grant report discloses, in addition to all other required information, the fact that each time the issuer issues common shares as dividends on its common shares, holders of DSUs will automatically receive corresponding DSUs as dividends, staff will accept that the exemption in section 6.2 of NI 55-104 is available for the issuance of the additional DSUs as dividend equivalents.

2. In this case, the information required by section 6.3 will be readily determinable based on the issuer grant report and public disclosure by the issuer about the declaration of a dividend. You would need to file an alternative report by March 31, 2011 showing all DSUs received as dividend equivalents.

3. Alternatively, so long as the reporting insider cannot exercise any discretion in terms of the issuance of additional DSUs as dividend equivalents under the DSU Plan, staff would accept that aspect of the DSU Plan as coming within the definition of “automatic securities purchase plan” for the purposes of Part 5 of NI 55-104. (Note that we would not accept that the DSU Plan generally constitutes an automatic plan for the purposes of the initial grant of DSUs under the Plan. This is because timely disclosure of grants of securities and similar instruments, whether through the insider reporting system or through the issuer filing an issuer grant report, can provide important information to investors and allows investors to monitor whether insiders may be causing issuers to engage in improper or unauthorized dating practices including backdating, spring-loading and bullet-dodging. See section 5.1 of Policy 55-104CP.)

4. Accordingly, you can rely on the exemption in Part 5 of NI 55-104 for acquisitions of securities and related financial instruments under an automatic plan. You would need to file an alternative report by March 31, 2011 showing all DSUs received as dividend equivalents.