Insider reporting
What is insider reporting?
Insiders
are typically the people who make up a company’s management team, its directors and officers, and key shareholders. For reporting purposes, the company itself is sometimes considered an insider.
Canadian securities regulators require reporting insiders to file information about their trades, and you can research insider trading activity, using SEDI, Canada’s System for Electronic Disclosure by Insiders.
Reporting insiders must file insider reports within 10 days of becoming a reporting insider, and then within five days after trading the company’s securities. In certain circumstances, insiders who are also control persons must file insider reports within three days of when they sell their shares.
To find out about trading by reporting insiders of a company whose shares you own, go to the SEDI website, ‘Access public filings’, and then choose ‘View summary reports’.
The ‘Insider information by issuer’ report gives you a list of all insiders that own securities of the company and have filed reports. The list also shows how many shares, options, or other securities of the company they currently hold. This report shows the date of the last transaction for each insider.
If some of the trading dates are relatively recent, it’s a good idea to review the ‘insider transaction detail’ report.
What should you focus on?
When reviewing insider trading reports, look for trends involving most or all the insiders, and compare recent and past activity.
There are many reasons why an insider might sell shares. Officers of junior issuers, for example, are often paid in stock options rather than a salary. They may sell their options routinely in lieu of salary or they may sell periodically to generate cash for other personal expenses that have nothing to do with the company’s business. You might also see insiders exercising stock options and then immediately selling the same number of shares. There is nothing wrong with any of these practices as long as the insiders aren’t acting on important information that the company hasn’t yet disclosed to the public in a news release.
Pay attention if you notice that most of the reporting insiders are substantially changing their holdings at the same time, whether buying or selling. This can be a sign that the insiders believe the stock is over or under performing and are changing their holdings accordingly.
What questions should you ask yourself?
- Have there been transactions by reporting insiders within the past 3 months?
- Is there a pattern of a majority of reporting insiders selling shares and reducing their holdings?
- Is there a pattern of a majority of reporting insiders buying shares or exercising options and increasing their holdings?