Automatic Share Purchase and Disposition Plans May Protect Against Charges of Illegal Insider Trading

Given the focus on corporate ethics, many public companies have instituted extensive blackout periods during which insiders are prohibited from trading in securities of the company. Blackout periods usually span quarter-ends, year-end and other periods during which there may be material information about the company that is undisclosed. Insiders who purchase or sell securities with knowledge of undisclosed material information are guilty of illegal insider trading. Although trading during a blackout period is not illegal if the insider has no knowledge of undisclosed material information, it can be a risky practice and therefore is prohibited by most public companies.

Many insiders would like to establish a plan that would permit their broker to effect trades based on a prearranged set of instructions notwithstanding that the insider later becomes aware of undisclosed material information. The regulations to the Securities Act (Ontario) provide a safe harbour from insider trading