OSC Proposes Amendments to OSC Rule on Trading During Distributions

October 21, 2020

Amendments to OSC Rule 48-501 would remove prohibitions considered duplicative in light of existing restrictions in the Universal Market Integrity Rules (UMIR).

  • Existing trading restrictions concerning dealers, insiders and affiliated entities are intended to prevent market manipulation.
  • According to the OSC, the restrictions are duplicative of similar provisions in the UMIR applicable across Canada and overly broad when compared to similar U.S. rules.
  • The OSC is accepting comments on its proposals until November 4, 2020.

Changes Applicable to Dealers

On August 6, the Ontario Securities Commission (OSC) published proposed amendments to OSC Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions that would repeal the trading restrictions imposed on dealers acting as or in a similar capacity to underwriters or dealer managers in connection with certain distributions and transactions. OSC Rule 48-501, which also includes restrictions applicable to issuers, insiders and affiliates, is intended to prevent market manipulation by those interested in the outcome of transactions such as private placements, take-over bids and issuer bids. To achieve this goal, OSC Rule 48-501 generally restricts both bids and purchases of securities where they may affect the market price of a security subject to these types of transaction.

According to the OSC, the trading restrictions applicable to dealers duplicate existing provisions found in IIROC’s UMIR that apply to IIROC Dealer Members across Canada and are thus no longer required in a local rule.

Changes Applicable to Insiders

OSC Rule 48-501 also includes trading restrictions that apply to insiders and their associated entities. According to the OSC, the rule is “broader than necessary” and the proposed amendments would remove insiders and associated entities from the definition of “Issuer-Restricted Person”. The changes would ultimately make the restrictions on issuer-related persons more consistent with similar rules in the United States.

Subsequent to the proposed amendments, OSC Rule 48-501 would continue to apply where a person or company acted jointly or in concert with the issuer. In the Notice, OSC Staff have noted that controlling shareholders of an issuer are presumed to be acting jointly or in concert with the issuer. Insiders would also still be subject to the Securities Act in respect of insider trading and market manipulation provisions, which prohibit, among other things, purchases or sales with knowledge of material non-public information.

According to the OSC, the proposed amendments would also alleviate the rule’s negative effects on at-the-market (ATM) distributions for insiders. The continuous sales of securities by issuers during ATM distributions means that OSC Rule 48-501 typically applies for a much longer period of time than in the case of traditional distributions, where the restrictions end once the transaction has closed. While dealers may take advantage of various exemptions in order to trade, including an exemption for trading in “highly-liquid securities”, the exemptions available to issuer-restricted persons are much more limited. As a result, OSC Rule 48-501 has a greater impact on insiders than on dealers during an ATM distribution.

The proposed amendments would also codify some of the circumstances that have lead  the OSC to provide exemptive relief to insiders. According to the OSC, such exemptions “should now be considered routine”, which suggests the OSC will continue the practice of providing exemptions until such time that the amendments are formally adopted.

The OSC is accepting comments on the proposals until November 4, 2020.

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