The Canadian Securities Administrators has issued an FAQ to answer a number of the questions they have recently received regarding “management” cease trade orders that may be issued as a consequence of the failure by a reporting issuer to file financial statements in a timely manner.

The CSA also notes that it may publish additional guidance in relation to this issue in the future. Regulators may issue a management CTO when a reporting issuer fails to file financial statements instead of a conventional cease trade order against the issuer.

An MCTO is part of a voluntary process by which specific insiders and management of a reporting issuer are subject to a cease trade order that prohibits them from trading in securities of the defaulting reporting issuer. In contrast, an issuer CTO generally provides that no person may trade in securities of the defaulting reporting issuer, the CSA notice states. Under the MCTO system, investors who are not members of the specified management and insider group are permitted to continue trading the issuer’s securities while the MCTO is in effect.

Not all securities regulators have the ability to issue an MCTO. In the interest of regulatory harmonization, however, they will normally refrain from issuing an issuer CTO for so long as an MCTO imposed by an issuer’s principal regulator remains outstanding, it notes.

Also, in certain circumstances, the regulators may issue an MCTO for reasons other than a failure to file financial statements in a timely manner. For example, they may issue an MCTO against the chief executive officer or chief financial officer of a reporting issuer for failing to certify their financials.