Insider trading amendments could impose "special relationship" where take-over "considered"

Simon Romano -

As we discussed last week, the Ontario government recently released its 2013 budget plan, which included discussion of amending the Securities Act to clarify the statute's insider trading provisions. The text of the budget bill now provides further detail of the government's intentions. 

Among the proposed amendments to the Act would be a change to the definition of "person or company in a special relationship with the reporting issuer" in respect of those to whom the insider trading restrictions apply. Specifically, the definition would be expanded to include not only persons and companies associated with those proposing to make a take-over bid of a reporting issuer (as is currently the case), but also those associated with a party considering or evaluating whether to make a take-over bid. Similar changes to the wording respecting those considering or evaluating whether to engage in business or professional activities are also proposed. Thus, current provisions of the Act that prohibit persons or companies in a special relationship with a reporting issuer, and with knowledge of an undisclosed material fact or change, from trading in the issuer's securities would, subsequent to the amendments, also prohibit trading by those associated with a party considering or evaluating whether to make a take-over bid or become party to a similar transaction.

The changes appear intended to address an OSC decision released last year that limited the application of insider trading provisions in a case where an executive of a potential acquiror, began purchasing shares of a potential target after learning of his company's interest during a company golf tournament. Ultimately, the OSC found the executive not to have been in a special relationship because the company had not yet proposed a take-over.

Whether the amendments are ultimately adopted, however, remains to be seen. The amendments, and the budget bill as a whole, must still withstand the legislative process, which is more uncertain this year due to the governing Liberals' minority position at Queen's Park.

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