One of the most common forms of share-based compensation is granting options that, upon exercise, are converted into the issuer’s common shares. However, there are other types of share-based compensation. For example, restricted share awards (RSAs) and deferred share units (DSUs) entitle recipients to an award of the issuer’s common shares after a specified period or cash payments based on the value or growth in value of the issuer’s common shares over a specified period. In contrast, stock appreciation rights (SARs) typically only entitle employees to cash payments based on the value or growth in value of the issuer’s common shares over a specified period.
Historically, there has been some uncertainty as to whether, as a matter of law, certain derivative instruments involving securities are themselves securities. Under NI 55-104, it is not necessary to determine whether a particular derivative instrument is a security or a related financial instrument since the insider reporting requirement in Part 3 of NI 55-104 applies to both securities and related financial instruments. To the extent DSUs, RSAs and SARs do not, as a matter of law, constitute securities, they will generally be related financial instruments.
- RSAs and DSUs
Step 1 – Grant of RSAs or DSUs:
Report the number of RSAs or DSUs awarded and report the equivalent amount of underlying common shares using nature of transaction code 56 – Grant of rights. On SEDI, report the underlying common shares in the “Equivalent number of underlying securities” box. In SEDI, issuers should have created a security designation for the RSAs or DSUs in the issuer profile supplement, and selected the “Issuer derivative” category.
Step 2 – Vesting and distribution of underlying common shares or cash:
When the RSAs or DSUs vest and are settled in underlying common shares, report an acquisition of the relevant number of underlying common shares as one transaction using nature of transaction code 57 – Exercise of rights. You will also need to report a disposition of the corresponding number of the RSAs or DSUs, using nature of transaction code 57, as another transaction.
When the RSAs or DSUs vest and are settled by a cash payment, report a disposition of the relevant number of the RSAs or DSUs using nature of transaction code 59 – Exercise for cash.
- SARs
Step 1 – Grant of SARs
Report the number of SARs awarded, and the exercise price, and report the equivalent amount of underlying common shares using nature of transaction code 56 – Grant of rights. Issuers should have created a security designation for the SARs in the issuer profile supplement, and selected the “Issuer derivative” category.
Step 2 – Vesting and distribution of cash
Report a disposition of the relevant number of SARs using nature of transaction code 59 Exercise for cash.