Timely disclosure is a cornerstone policy of securities regulation.  It stands for the proposition that investors and shareholders must have equal access to information that may affect their investment decisions.  Timely disclosure is required by law in provincial securities laws and by the rules of the Toronto Stock Exchange.

It is clear from trading activity in advance of formal announcements of takeovers and mergers that insider trading is common place in Canada and the current timely disclosure requirements are inadequate.  Clearly investors do not have equal access to material information on takeovers and mergers in Canada. The solution is better timely disclosure rules specifically targeted at mergers and takeover bids.

There has been many instances of rumours or speculation of a possible offer (often the bidder is identified by name by the media) where the rumour or speculation is confirmed by a takeover days or weeks later. Almost every takeover bid announcement in Canada is preceded by undue movement in the share price and significant increases in volume of share trading more often than not.  These price movements and increases in volume of trading are the result of leaks and insider trading, though it is rare for anyone to be successfully prosecuted by securities regulators.

There have been a number of instances in Canada where companies were approached with a serious offer which was rejected by management or the board but the shareholders and investing public were not informed. The shares continued to trade with “insiders” being aware of this event. Given that the board of directors of the target, lawyers, investment banks, banks and others would be involved, it is highly likely that information of the proposed offer was not limited to a small group of people who did not trade with knowledge of the proposed offer. In some cases directors and senior management of the target company (i.e. true insiders as opposed to tippees) either traded or were granted stock options subsequent to the approach or initiation of merger discussions. Here again we have not seen intervention by regulators or disciplinary action.

FAIR Canada has raised this issue with the OSC and proposes to make submissions to the CSA that it consider adopting disclosure requirements comparable to those in the U.K. Takeovers Code where companies are required to make announcements (1) of any serious offer or (2) where there are negotiations or discussions that might lead to an offer and where there is unusual trading activity in the shares.