The Toronto Stock Exchange (TSX) will seek regulatory approval to scrap the requirement to publish daily insider trading reports, according to an equities trading notice published on Monday.
Earlier this year, the TSX issued a request for comment seeking feedback on the continued value of publishing daily insider reports.
In the wake of that process, which generated seven comments from the industry, “TSX and [the TSX Venture Exchange] have determined that the best course of action would be to discontinue the required insider reports,” the notice states.
As a result, the exchange will be submitting an application to the provincial securities regulators by the end of May, seeking to revoke their decisions that currently create the obligation to publicly disseminate these reports. In the meantime, pending regulatory approval, the TSX and TSXV will continue to provide these reports.
During the consultation the exchange heard from the industry that the publication of these reports is detrimental to large investors, who are considered “insiders” because they hold a large portion of a company’s stock, not because they are insider with access to “material non-public information” about the company, according to the notice.
In particular, there’s a concern that other investors can use these reports, along with other required reports, to figure out the trading intentions of large portfolio managers, and then trade ahead of those orders to generate trading profits for themselves, at the expense of the institutional investors.
In the initial request for comment, the TSX noted that it had heard complaints from institutional investors that these reports are negatively impacting their trading efforts, and potentially increasing market impact costs. As a result, the exchange set out to consider whether to do away with these reports, or continue to produce them, but with a delay in publication that would potentially lessen the impact on large investors.
According to a summary of the comments received by the exchange, some investors believe that these reports only benefit short-term investors that use them for speculative purposes. Rather than levelling the playing field between investors and insiders as originally intended, “in practice, the reports are used by short-term oriented participants to detect trading activity from large security holders and take advantage of short-term market moves.”
“The increase to the portfolio manager’s market impact costs negatively affects the investment performance of their managed accounts and investment funds and ultimately impairs the investment returns realized by end retail and institutional investors (and in turn, their retirement savings and/or other investment objectives),” the summary states. “This impact can be significant over the long term and creates investor protection issues.”
Some commenters also argued that this generates disincentives to create large positions in the first place. And, for inter-listed securities, it can increase the incentive to trade in the U.S., rather than Canada, which harms liquidity in Canada.
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