FAIR Canada December Newsletter

FAIR Canada Calls for Reform of M&A Timely Disclosure Rules:

Eliminate the Opportunity for Insider Trading

Timely disclosure is a cornerstone policy of securities regulation. It stands for the proposition that investors and shareholders in public companies are entitled to equal access to material information that may affect their investment decisions. Timely disclosure requirements in provincial securities laws were written with material changes in the business and affairs of a listed company in mind. The disclosure laws were not written with takeover and merger transactions in mind. M&A transactions generally involve an offer to shareholders rather than the listed company so they do not fit neatly into the concept of disclosure relating to the business and affairs of a listed company.

M&A Insider Trading Commonplace
It is generally acknowledged that illegal insider trading in advance of formal M&A announcements is common place in Canada. Prior to a formal announcement, knowledge of the impending takeover or merger may have expanded to include senior management of the bidder, its directors, lawyers, financial advisors, bankers, support staff and other service providers. Sometimes the board and management of the target and its advisors are also aware of the price sensitive information.

Enforcement actions by regulators (including the recent OSC charges against a partner of a major law firm and prior OSC charges against directors, lawyers and investment bankers) demonstrate that most M&A activity is not kept confidential prior to an announcement and that regulators are only detecting a small percentage of insider trading related to M&A activity. Furthermore, failed prosecutions for insider trading show that regulators have a difficult time proving the offence under a criminal standard of proof.

Click here for full story on how we can eliminate much of the opportunity for insider trading and put all investors on an equal footing.