Financial Crime World

New Scrutiny on Insider Trading Laws in Canada: A Look at the Canada Business Corporations Act (CBCA)

Insider trading, the unlawful practice of buying or selling securities based on material, non-public information, remains a contentious issue in Canada’s financial circles. As the federal government considers updating the insider trading provisions in the Canada Business Corporations Act (CBCA), let’s explore the evolution of insider trading laws in Canada and the current regulatory framework.

Historical Context

  • Insider trading provisions in the CBCA and related discussions in the Insider Trading Discussion Paper published by Industry Canada in 1996 (Margaret Smith, 1999).
  • Dual jurisdiction over insider trading laws: federal government (CBCA) and provincial governments.

Insider Trading Regulations in the CBCA

The CBCA contains three primary components of insider trading regulations:

  1. Reporting Requirements: Insiders are required to file reports following the acquisition of securities or any changes to their holdings. Failing to comply could lead to fines and imprisonment.

  2. Prohibition of Speculative Trading: Insiders are prohibited from engaging in short selling or purchasing certain options related to shares of distributing corporations where they hold an insider position.

  3. Civil Liability: Insiders are held accountable for profiting from the use of confidential information, compensating those directly harmed, and returning benefits gained.

Insider Trading Discussion Paper (1996)

  • Offered three potential approaches:
    • Remove insider trading provisions entirely.
    • Eliminate only reporting provisions.
    • Maintain provisions and harmonize with provincial requirements.
  • Proposed improvements: reducing reporting timeframes and increasing penalties.
  • Recommendation: continuation of the insider trading provisions.

As the federal government debates modifications to Canada’s insider trading laws, the historical context and current state of insider trading regulations provided in this extensive background paper offer invaluable insights.

References

  • Margaret Smith, Insider Trading: An Overview of the Canada Business Corporations Act and Related Discussions, Industry Canada, 1999.