An underlying security is a security you would acquire or dispose of if you exercised the rights you acquired when you purchased a different security. For example, if you have options that are exercisable into common shares, the common shares are the “underlying securities”. On SEDI, you must report both the initial securities you acquired and their underlying securities and related financial instruments.
Example: You were granted options under your company’s stock option plan. The options are convertible into common shares on a 1:1 basis when you exercise your options.
You must report the grant as follows:
- Report the number of options granted as an acquisition. Use nature of transaction code 50 to report the acquisition. Report the equivalent number of underlying securities acquired. Enter the date of the transaction, the grant price, etc. and then go through the steps required to certify and file your report.
If you exercise the options, you must report the exercise as follows:
- Report the number of options being exercised as a disposition. Use nature of transaction code 51 to report the disposition. Enter the date of the transaction, the exercise price, etc. and then go through the steps required to certify and file your report.
- Show an acquisition of the underlying security (e.g., common shares) equal to the appropriate number of options exercised. Use nature of transaction code 51 to report the acquisition of the common shares.
- If you subsequently sell the common shares, you must file a separate report for the sale.