Rules Notice
Guidance Note
UMIR
Please distribute internally to:
Legal and Compliance
Trading
Contact:
Kevin McCoy
Acting Vice-President, Market Regulation Policy
Telephone: 416.943-4659
Fax: 416.646.7265
e-mail: [email protected]
15-0135
June 24, 2015
Alternative Guidance on “Insider” Order Marking
Executive Summary
Under UMIR 6.2, an order entered on a marketplace for the account of a person who is an
insider of the issuer of the security must be marked as “insider”. A Participant may comply
with the insider marking obligation in one of two ways, by either:
• following IIROC’s insider marking guidance issued in 2010 (the “2010 Guidance”) 1
under which the need to mark an order as “insider” is tied to the requirements of
National Instrument 55-104 - Insider Reporting Requirements and Exemptions (“NI 552
104”), such that it applies to orders of “reporting insiders” not otherwise exempted
from reporting obligations under securities legislation in respect of the particular
transaction; or
• marking as “insider” all orders entered on a marketplace for the account of a person
who is a statutory insider 3 of the issuer of the security, irrespective of whether any
1
See IIROC Notice 10-0121 – Rules Notice – Guidance Note – UMIR – Guidance on “Insider” and “Significant Shareholder” Markers (April 28,
2010). This guidance repealed and replaced earlier guidance set out in Market Integrity Notice 2006-014 - Guidance – “Insider” and
“Significant Shareholder” Markers” (June 16, 2006) and Market Integrity Notice 2007-016 - Guidance – Specific Questions Related to
“Insider” Marking Requirements (August 10, 2007).
2
“Reporting Insider” is defined in NI 55-104.
3
A statutory insider is a person who is an insider of an issuer for the purpose of applicable securities legislation.
resulting trade would be subject to insider reporting requirements under applicable
securities legislation, as set out in this guidance note (the “Alternative Guidance”);
provided that the Participant is consistent in its approach to the marking of orders.
A Participant whose general practice is to mark based on the statutory insider definition may,
however, take direction from institutional clients whose transactions may be exempt from
insider reporting obligations under securities legislation and adopt the approach to insider
marking under the 2010 Guidance for such institutional clients.
This Rules Notice provides guidance on compliance with insider order marking under the
method of designating as insider all orders entered on a marketplace for the account of a
person who is a statutory insider of the issuer of the security. Participants that mark orders
based on the “reporting insider” definition should continue to reference the 2010 Guidance.
Rules Notice - Table of Contents
1.
Background ................................................................................................................. 2
1.1
Purpose of Insider Order Marking .......................................................................... 2
1.2
Evolution of Insider Order Marking Guidance ......................................................... 3
1.3
Compliance with Insider Order Marking Requirement............................................. 4
2.
Questions and Answers ................................................................................................ 4
3.
Impact on Existing Guidance ........................................................................................ 7
1.
Background
1.1
Purpose of Insider Order Marking
UMIR 6.2 requires that an order entered on a marketplace for the account of a person who is
4
5
an insider of the issuer of the security be marked as “insider” or “significant shareholder” .
These order designations, “IA” for insiders and “SS” for significant shareholders, are referred
to as the “Regulation ID Order Markers”. The Regulation ID Order Markers were implemented
to enable IIROC to monitor the trading activity on Canadian marketplaces of insiders and
4
Rule 1.1 of UMIR defines the term “insider” as a person who is an insider of an issuer for the purpose of applicable securities legislation.
For further clarification, reference must be made to the securities legislation of every jurisdiction in which the issuer is a reporting issuer
or equivalent.
5
Rule 1.1 of UMIR defines the term “significant shareholder” as a person who holds separately, or in combination with any other persons,
more than 20 per cent of the outstanding voting securities of an issuer. As part of a separate initiative on order marking requirements,
IIROC expects to propose an amendment to UMIR to change the term “significant shareholder” to “designated shareholder”. The
purpose of this proposed change is to avoid confusion given the adoption by the Canadian Securities Administrators (“CSA”) of the term
“significant shareholder” to refer to the holder of 10% or more of the voting securities of an issuer in relation to the insider reporting
regime in NI 55-104.
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significant shareholders in respect of UMIR requirements and for the purpose of assisting the
securities regulatory authorities by providing initial detection of possible violations of
securities legislation principally related to insider trading.
1.2
Evolution of Insider Order Marking Guidance
Since the introduction of the Regulation ID Order Markers, the guidance issued to assist
Participants in complying with the insider order marking obligation has evolved. The
Regulation ID Order Marker was initially interpreted to apply to all “insider” orders.
6
Subsequent guidance narrowed the application of the insider marker to orders of “insiders”
not otherwise exempted from reporting obligations under securities legislation in respect of
the particular transaction. The 2010 Guidance tied the use of the “IA” order marker to the
requirements of NI 55-104, applying only to orders of “reporting insiders” not otherwise
exempted from reporting obligations under securities legislation in respect of the particular
transaction. 7
Certain Participants did not follow the 2010 Guidance; instead marking all orders by statutory
insiders irrespective of whether any resulting trade would be subject to insider reporting
requirements under applicable securities legislation. IIROC consulted with the CSA which
confirmed that insider order marking may be broader in scope than the insider reporting
requirements, to enable IIROC to assist the securities regulatory authorities with initial
detection of possible violations of securities legislation principally related to insider trading 8.
In 2011, IIROC further proposed guidance 9, to permit the marking of orders by statutory
insiders irrespective of whether any resulting trade would be subject to insider reporting
requirements under applicable securities legislation, and permitted a Participant to follow
either the proposed guidance (i.e. all “statutory insiders”) or the 2010 Guidance (i.e. only
“reporting insiders”), provided the Participant was consistent in its approach to the marking
of orders. The coexistence of these alternative approaches to insider order marking has since
worked well without requiring Participants to implement systems changes or incur additional
costs. As a result, IIROC has implemented the proposed guidance as the Alternative Guidance.
6
See Market Integrity Notice 2006-014 and Market Integrity Notice 2007-016, op.cit., which were repealed by IIROC Notice 10-0121.
7
The 2010 Insider Order Marking Guidance was also intended to align with the production of publicly disseminated daily reports of insider
trades for the accounts of insiders of each listed issuer on the TSX and TSXV, consolidated on a per-security basis (as ordered by the
Ontario, Alberta and British Columbia Securities Commissions in September, 2006). These reports were designed to provide public
disclosure in a timely manner of the views of an issuer’s core group of insiders (having insider reporting obligations), with information
publicly available on the System for Electronic Disclosure by Insiders (“SEDI”).
8
IIROC also acknowledged that any potential “over-marking” of trades with the “IA” designation will not compromise IIROC’s ability to
effectively monitor insider trading and is consistent with the broad supervision obligations and liability provisions imposed with respect to
trading by statutory insiders and not just reporting insiders.
9
See IIROC Notice 11-0269 – Rules Notice – Request for Comments – UMIR – Proposed Guidance on “Insider” Order Marking (September
20, 2011).
IIROC Notice 15-0135 – Rules Notice - Guidance Note – UMIR – Alternative Guidance on “Insider” Order Marking
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This Alternative Guidance confirms that a Participant is permitted to mark
orders of statutory insiders irrespective of whether any resulting trade would be
subject to insider reporting requirements under applicable securities legislation.
1.3
Compliance with Insider Order Marking Requirement
A Participant may comply with the insider marking obligation in one of two ways, by
following either:
•
the 2010 Guidance under which the need to mark an order as “insider” is tied to the
requirements of NI 55-104, such that it applies to orders of “reporting insiders” not
otherwise exempted from reporting obligations under securities legislation in respect of
the particular transaction; or
•
this Alternative Guidance under which all orders entered on a marketplace for the
account of a person who is a statutory insider of the issuer of the security, are marked
insider, irrespective of whether any resulting trade would be subject to insider
reporting requirements or exemptions under applicable securities legislation;
provided that the Participant is consistent in its approach to the marking of orders.
A Participant that follows the approach under this Alternative Guidance consistently may
nonetheless take direction from its institutional clients whose transactions may be exempt
from insider reporting obligations under securities legislation, to adopt the approach under
the 2010 Guidance for these institutional clients.
This Rules Notice provides guidance on compliance with the insider order marking
requirement using the method of designating as insider all orders entered on a marketplace
for the account of a person who is a statutory insider of the issuer of the security.
Participants that mark orders based on the “reporting insider” definition should
continue to reference the 2010 Guidance.
2.
Questions and Answers
The following is a list of the “most frequently asked” questions regarding the UMIR
obligations relating to the use of Regulation ID Order Markers to designate as insider all
orders entered on a marketplace for the account of a person who is a statutory
insider of the security, and the response of IIROC to each question:
1. Must every order entered on a marketplace for an “insider” of the particular security
contain a Regulation ID Order Marker?
Yes. All “insider” orders are required to be marked with the Regulation ID Order Marker
notwithstanding the availability of any exemption from insider reporting under securities
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regulations in regard to a particular transaction. 10 For the purposes of the Regulation ID
Order Marker, a person will be an insider of an issuer if the securities legislation of the
jurisdiction in which the person resides or the securities legislation governing the
marketplace on which the order is entered considers such person to be an insider of an
issuer.
2. May a Participant rely on “know your client” information when establishing whether
an order must contain a Regulation ID Order Marker?
Yes. In completing the Regulation ID Order Marker field, a Participant may rely on the
“know your client” information which has been collected from the account holder,
provided such information is “current” in accordance with IIROC’s rules relating to the
periodic review and update of client information. A Participant will not be expected to
inquire, prior to accepting or executing an order, whether the client owns or has direction
or control over more than 10 per cent or 20 per cent of the voting rights in an issuer’s
securities. However, if the Participant has actual knowledge that a client, including an
institutional client, does exceed these levels of ownership or control of an issuer (for
example, through the monitoring of news releases required under “early warning”
requirements), the Participant will be under an obligation to ensure the proper marking of
any order by that client in the securities of that issuer.
3. Does it matter how an order is marked if the client fits into more than one of the
categories requiring a Regulation ID Order Marker?
Yes. For the purposes of the Regulation ID Order Marker, a person who is an “insider” will
be a significant shareholder of an issuer if the person beneficially owns, directly or
indirectly, individually or in combination with other persons, more than 20% of the voting
securities of the issuer. While a person who is a significant shareholder will also be an
insider, the most accurate applicable Regulation ID Order Marker should be employed,
which would be the significant shareholder or “SS” designation.
4. Must an order contain a Regulation ID Order Marker if it is for the account of a
person who is exempt under the applicable securities regulation from aggregating
10
NI 55-104 governs the substantive legal insider reporting requirements and exemptions which clients are responsible to comply with. A
number of other CSA instruments also contain exemptions from the insider reporting requirements including: National Instrument 51102 Continuous Disclosure Obligations (NI 51-102); National Instrument 62-103 The Early Warning System and Related Take-Over Bid and
Insider Reporting Issues (NI 62-103); National Instrument 71-101 The Multijurisdictional Disclosure System (NI 71-101); and National
Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102).
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its holdings for the purposes of “early warning requirements” or “control block
distributions”?
Not necessarily. For example, if a person holds securities in separate business units and is
therefore granted relief from aggregating securities owned or controlled for the purposes
of determining whether a transaction involving those securities constitutes a “control
block distribution” or gives rise to “early warning requirements” under the applicable
securities legislation, the order may not need to contain a Regulation ID Order Marker if
the person is not also an “insider” or “significant shareholder” of the issuer of the
securities. To establish whether a person is granted relief from the aggregation
requirement, reference should be made to Part 5 of NI 62-103.
5. Should an order contain a Regulation ID Order Marker if it is for the account of a
spouse or other relative of an insider?
Not necessarily. The order should only contain the appropriate Regulation ID Order Maker
if the insider has “control or direction” over the securities in the account of the spouse or
related person. Reference should be made to the Companion Policy to NI 55-104 for
guidance as to the meaning of “control or direction” over securities.
6. Do purchases under a normal course issuer bid need to be marked “insider”?
Yes. Under the definition of “insider” in securities legislation, a reporting issuer becomes
an insider of itself if it “has purchased, redeemed or otherwise acquired a security of its
own issue, for so long as it continues to hold that security”. In certain jurisdictions, a
reporting issuer may also become an insider of itself if it acquires and holds securities of its
own issue through an affiliate, because in those jurisdictions a person is deemed to
beneficially own securities beneficially owned by affiliates. Accordingly, a reporting issuer
for whose account orders are entered onto a marketplace under a normal course issuer bid
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must be marked with the Regulation ID Order Marker for an “insider”.
11
TSX Rule 4-403(1)(f) requires Participating Organizations to mark each order entered on the Exchange with a designation acceptable to
the Exchange if the order is for the account of an issuer that is purchasing pursuant to a normal course issuer bid. Reference should also
be made to TSX Rule 6-501 and TSXV Policy 5.6 for applicable procedures and policies respecting normal course issuer bids, including
circumstances when a trustee or other purchasing agent (“Plan Trustee”) for a pension, stock purchase, stock option, dividend
reinvestment or other plan in which employees or security holders of a listed issuer may participate, is deemed to be making an offer to
acquire securities on behalf of the listed issuer where the trustee is deemed to be “non-independent” and is subject to certain Exchange
normal course issuer bid rules. In those circumstances, the orders of the Plan Trustee entered onto a marketplace for the account of the
issuer must contain the Regulation ID Order Marker for an “insider”.
See also Aequitas Neo Exchange’s normal course issuer bid procedures, which will apply to all purchases of securities listed on Aequitas
Neo Exchange by a Plan Trustee in the circumstances described in s. 7.19(1)(b) of the Listing Manual. Orders of a Plan Trustee to which
the Aequitas Neo Exchange normal course issuer bid procedures apply that are entered onto a marketplace for the account of the issuer,
must contain the Regulation ID Order Marker for an “insider”.
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7. May an order which must contain a Regulation ID Order Marker be bundled
together with orders for persons who are not insiders?
Yes. From the perspective of facilitating an accurate audit trail as required by Rule 10.11 of
UMIR, IIROC generally discourages the bundling of such orders. Nonetheless, if a
Participant or Access Person enters a bundled order on a marketplace, the entire bundled
order must be marked with the most “restrictive” applicable Regulation ID Order Marker.
In the case of orders for an “insider” or “significant shareholder” that are bundled with
orders that do not require a Regulation ID Order Marker, the entire bundled order is to be
marked “insider” or “significant shareholder” as appropriate. The obligation to mark a
bundled order with the most restrictive applicable designation ensures that orders are not
intentionally bundled to avoid marking an order with the applicable Regulation ID Order
Marker.
A Participant or Access Person that has entered a bundled order that has executed in whole
or in part must file with IIROC a “Regulatory Marker Correction Form” indicating the volume
of the trades which were applicable to persons other than insiders and significant
shareholders. The Regulatory Marker Correction Form should be filed as soon as practicable
after the execution of the trade and, in any case, by the later of 5:00 p.m. and 15 minutes
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following the close of trading on the marketplace on which the trade was executed .
3.
Impact on Existing Guidance
This Rules Notice repeals and replaces effective June 24, 2015 that portion of Market
Integrity Notice 2002-012 – Regulation ID Order Markers and Order Inhibition During Regulatory
Halts & Suspensions (July 9, 2002), that is under the heading “Regulation ID Order Marker”.
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The Canadian Securities Exchange (“CSE”) and does not have rules governing purchases by an issuer of its own securities on the CSE
marketplace.
For details on the use of the Regulatory Maker Correction Form in these circumstances, see “Specific Guidance on the Reporting of
Order Marker Correction Involving Insiders and Significant Shareholders” in IIROC Notice 08-0050 – User Guide for the Regulatory
Marker Correction Form (July 30, 2008).
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