The purpose of this guide is to inform employees of the University who are engaged in a research and development relationship with companies of what constitutes inside information.

In recent years, the University and its employees have received shares as a part of compensation from companies which have become licensees for various technologies developed at the University. In other circumstances, neither the University and/or its employees may hold shares of such companies, however, the University and/or its employees may possess what can be considered “inside information” as a result of the University’s and/or employees’ on-going research and development of the technologies licensed to the companies.

An "insider" or a person in a "special relationship" with a company who has inside information about that company is prohibited from purchasing or selling that company's shares or from passing on that inside information to another person. The penalties for “insider trading” are severe and include fines and imprisonment. In addition, a person found guilty of insider trading is liable to compensate a purchaser or seller of the shares for any damages suffered and to account to the company for any benefit received by them as a result of their insider trading. These insider trading laws apply to companies who are "reporting issuers" in Canada as later defined in this guide and to all companies (regardless whether or not they are "reporting issuers") which are incorporated under the federal Canada Business Corporations Act.

Are You and Insider or in a Special Relationship?

At law, the definitions of "insider" or a person "in a special relationship" with a company tend to be very broad and are intended to encompass all persons who by virtue of their position may receive or have access to material confidential information about the company.

You are considered to be an "insider" of a company if you are a director, or officer of the company or its affiliates, or if you own, directly or indirectly, or exercise control or direction over, more than 10% of the voting shares of the company.

For the purposes of the insider trading laws, you are also considered to be an "insider" or "in a special relationship" with a company if you are employed or retained by the company or engage in or propose to engage in any business or professional activity with or on behalf of the company and you know of, or have received, material confidential information.

Because of this wide definition of "special relationship", employees of the University who are engaged in or who propose to engage in, for example, research and development of the technology licensed to a company would be subject to the insider trading laws. These laws continue to apply even after the business relationship between the employee and the company has been terminated if the employee has inside information which existed prior to termination of the business relationship and has not yet been generally disclosed to the public.

The definition of special relationship extends to any activity which can be characterized as a “business" or "professional" activity and is not restricted to research.

What is Inside Information?

Technically speaking, inside information is defined as being material confidential information or information that is a "material fact" or "material change" with respect to a company which material fact or material change has not been generally disclosed to the public.

A "material fact" is defined to mean, where used in relation to securities issued or proposed to be issued, "a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of those securities".

A "material change" is defined to mean, where used in relation to the affairs of a company, "a change in the business, operations, assets or ownership of the company that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the company".

A key difference in the definitions of "material fact" and "material change" is that the definition of "material change" applies only to changes “in business, operations, assets or ownership of the company” whereas the definition of "material fact" applies to any fact affecting specific securities. The definition of "material fact" is broader than the definition of "material change" in that it applies to facts (and changes in them), whether internal or external to the company, that significantly affect or would reasonably be expected to have a significant effect on the market price or value of the securities of the company.

What is a Reporting Issuer?

The law defines a "reporting issuer" as, among other things, an issuer that has issued securities in respect of which a prospectus was filed and a receipt was issued or one which has any securities which have been at any time listed and posted for trading on any stock exchange. Insider trading laws in Canada specifically relate to inside information held by insiders and persons in a special relationship with "reporting issuers" and all federally incorporated companies (both reporting and private).

It is the University's position that its employees be careful not disclose inside information with respect to, or to trade in securities on the basis of inside information of, any company, regardless of whether or not they are a "reporting issuer" or where they are incorporated.

Tipping

In addition to insiders and persons in a special relationship being unable to purchase or sell securities of a company with knowledge of any inside information, such persons are also prohibited from passing on such information to any other person other than in the necessary course of business. This is known as a prohibition on "tipping". The penalties for tipping are similar to the penalties for insider trading and include the "tipper" is liable to compensate the purchaser or seller of securities from the person who received the inside information and to account to the company for any benefit.

Summary

Under the insider trading and confidential information laws of Canada, employees of the University who are, or who propose to become engaged in any form of business relationship with a company or other form of business entity which has licensed technology from the University, is prohibited from:

(a) trading in securities of that entity while in possession of inside information as defined above; and
(b) passing on to another person material information that has not been generally disclosed to the public, i.e. the so-called “anti-tipping provision” which is part of the insider trading laws.

The University wishes to make its employees who may find themselves in the situation described in this guide aware of their responsibilities with respect to the handling of inside information. The University believes that it is in the interest of the University and its employees to be generally aware of the laws governing the usage of inside information and this guide is meant to be a general outline of these principles and should not be considered a substitute for specific legal advice on this topic.

Last updated: April 2005