Pre-Arranged Option Exercise Plans For CEOs: Something For Boards To Consider

It is fundamental to the integrity of the capital markets that trading in securities takes place on a "level playing field," i.e., that buyer and seller have equal access to all relevant material information. To this end, Canadian securities laws, inter alia, require that reporting issuers make public, on a quarterly and annual basis, their financial results and related MD&A; disclose on a timely basis all "material changes";¹ and prohibit insiders and others in a "special relationship" with the issuer from trading when in possession of a "material fact" or "material change" that has not been generally disclosed (i.e, "insider trading").²

The prohibition against insider trading creates a particular hardship for CEOs and others in senior management. On the one hand, CEOs are encouraged, and very often required, to hold a significant amount of the issuer's stock, and will generally have been granted a sizable number of stock options as an important component of their