Canadian regulator addresses derivatives-based insider trading

The Canadian regulator published the proposed instrument late last week. If implemented, it would require insiders to disclose derivatives-based transactions such as equity monetisations. An OSC spokesman told RiskNews that the regulator decided to act because it is “concerned” by anecdotal evidence about the narrow way that some insiders interpret current regulations.

By explicitly addressing derivatives transactions – particularly equity monetisations where insiders sell shares and immediately receive cash, despite not having to deliver the shares for five years, for example – the OSC said it seeks to “maintain the integrity of and public confidence in the insider reporting regime".

Paul Moore, OSC vice-chairman, conceded that it is currently possible to argue that, for technical reasons, monetisations are not covered by existing insider reporting requirements, but said such transactions “clearly come within the spirit of the insider reporting requirements".

The comment period for the proposed rule lasts three months. But an OSC spokesman told RiskNews that the new regulation could be implemented before September.