1. Who are insiders?
2. What are insider trading reports and what is SEDI?
3. What are Marker Trading Reports (also known as TSX Insider Summaries)?
4. Why sometimes do marker (TSX Insider Summary) reports not match the list of SEDI insider transactions?
5. Do you cover US stocks?
6. How far back does the history go?
7. I can't find a company on your system, why not?
8. Why are insider-trading reports important?
9. Where can I read more about insider trading and stock returns?
10. Should I simply do what the insiders do?
1. Who are insiders?
The definition of an "insider" includes CEO's, CFO's, and others as outlined in National Instrument 55-104 and its companion policy (55-104CP). In our view, basically anyone who has access to material information about the company and who can influence the direction of the firm must file insider reports. In addition, generally anybody or organization that owns or has claims on 10% or more of a company's equity is also an insider and must file insider trading reports although there are some important exceptions for eligible institutional investors through National Instrument 62-103 (Part 4). In addition, an issuer will have to file insider trading reports if it buys back its own shares.

2. What are insider trading reports and what is SEDI?
Securities regulations in Canada generally require corporate insiders of publicly listed companies to report the details of all their buys and sells of company securities within 5 days of a transaction. Insider reports are filed electronically into the national System of Electronic Disclosure by Insiders (SEDI) and reported by INK on this web site.

Company insiders have the right to buy and sell securities in their own firm so long as they are complying with securities laws and rules. This means, for example, that they cannot trade in their own securities when they are in possession of "material" non-public information, such as a pending take-over bid.

Insiders must report transactions done both on and off stock exchanges in any securities issued by a reporting issuer or in derivatives that result in a claim on securities issued by the company. So, the requirements cover not only stocks, but also warrants, options and other derivatives.

Investors should be aware that there are a number of exceptions to the 5 day reporting rule. In particular, companies engaging in buy-backs have until the 10th day of the following month to report their public-market transactions. Some employee stock plan purchases can be exempted from the 5 day rule. Recently, securities regulators have also been granting relief from the 5 day rule for insiders who have applied for an exemption and have entered into automatic sales plans. There are also important exemptions available for certain 10% holders such as mutual funds who can be given relief under National Instrument 62-103 (Part 4) from reporting on SEDI and instead file Alternative Monthly Reports on SEDAR (www.sedar.com).

This discussion is not meant to be an exhaustive or legal summary of insider reporting in Canada. For more information on the definition of insiders and insider reporting obligations as well as links to National Instrument 55-104 and its companion policy, please refer to the package provided by the Alberta Securities Commission on insider reporting and exemptions. Those looking for detailed information with respect to insider reporting as governed by Ontario, please consult information available on the Ontario Securities Commission web site.

3. What are Marker Trading Reports (also known as TSX Insider Trade Summaries)?
Marker data is collected on an anonymous and aggregated basis by the TSX from third parties. The term "marker" is used because brokers put a special "flag" beside any buy or sell order executed by insiders or significant holders on either the TSX or TSX Venture Exchange. At the present time, Marker Trading reports are not available for insider trades made on alternative Canadian exchanges such as Alpha Trading Systems or on US and other foreign stock markets.

INK uses marker trading data to provide investors with a "heads up" that insider or significant shareholder trading may be taking place in a stock. INK's Marker reports and daily Marker Alerts (available through a Canadian Insider Alert subscription) tell you if the TSX has identified trades that may have been made during the previous trading day by company officers, directors, and other insiders along with shareholders who own 10% or more of company shares. Unlike insider filings in SEDI (see FAQ#2), marker data does not tell you who bought or sold.

The details of who bought and at what price will be reported by INK in its Filings tabs for an issuer after an insider filing is made on SEDI for the relevant marker trading transaction. This may involve a delay of a number of days.

Marker data should be considered as preliminary information which is subject to error. Once a correction is received from the exchange, INK will make every reasonable effort to publish the corrected information.

This discussion on marker data is not meant to be exhaustive or to provide a legal opinion or advice. For more information on the marking process and requirements of insiders, significant shareholders and brokers, please contact the TSX.

4. Why do Marker (TSX Insider Trade Summary) reports sometimes not match the list of SEDI insider transactions?
There are times when marker trades will not show up in SEDI. To the best of our knowledge, this may be due to the following:
  • The trade was mistakenly marked; this can happen in a basket trade of stocks by one large player
  • The trade was made by a former insider but has been mistakenly marked as a current insider
  • The trade was made by an institution that reports on SEDAR using the Alternative Monthly Reporting system under National Instrument 62-103 (Part 4) and marked as an insider
  • The insider has not filed the trade on SEDI yet (see FAQ#2)
There are also a number times when SEDI insider activity will not show up on marker lists:
  • The insider trades were not made on the TSX or Venture Exchanges
  • The transactions were executed off an exchange such as through option exercises or private placements
  • The insider trade was missed through the marker data collection process
There may be other reasons for the discrepancies. As such, extreme caution should be used when looking at marker data.

For a case study discussing the differences between marker and SEDI information, please read our September 13, 2010 Morning INK.

5. Do you cover US stocks?
We cover US SEC insider filings at insidertracking.com which is also a free service.

6. How far back does the history go?
SEDI electronic records now go back to June 2003. Until June 2003, insider reports were only available through each provincial securities commission. Subscriptions to Canadian Insider Alert Interactive and Institutional provide 2 and 5 years of charting history respectively.

7. I can't find a company on your system, why not?
There may be some companies or insiders that do not show up on our system. While each case is different, one of the most common reasons for not being able to find an entry is that we cannot track companies or insiders that do not have SEDI (electronic) filings. If a company has just listed, it may be a while before it has its first insider reports.

8. Why are insider-trading reports important?
Academic studies using US data suggest that corporate insiders may earn above normal profits on their trades (For example, see Lakonishok and Lee, "Are Insider Trades Informative?" The Review of Financial Studies, spring 2001). The findings suggest that company insiders, as a group, may be better informed than the average investor about the prospects for their respective firms. Other US studies (see FAQ#9) have found that insider buying tends to provide better information than insider selling. Please keep in mind, however, there is no guarantee that results from these US studies will be duplicated in Canada in the future.

9. Where can I read more about insider trading and stock returns?
  • Moreland, Jonathan. Profit From Legal Insider Trading. Dearborn Financial Publishing, 2000.
  • Seyhun, H. Nejat. Investing Intelligence from Insider Trading. The MIT Press, 1998.
  • Taulli, Tom. "Chapter 11." The Edgar ® Online Guide to Decoding Financial Statements. J.Ross Publishing.
  • Beneish, M.D. and Vargus, Mark E. "Insider Trading, Earnings Quality and Accrual Mispricing." The Accounting Review (October 2002): 755-791.
  • Cohen, L., Malloy, C. and Pomorski, L. "Decoding Inside Information". (October 2010). Available at NBER.
  • Lakonishok, J. and Lee, F. "Are Insider Trades Informative?" The Review of Financial Studies (spring 2001).
  • Miller, Edward M. "Investment Intelligence from Insider Trading." The Journal of Social, Political and Economic Studies (winter 1999): 477-484.
  • Purnanandam, Amiyatosh K. and Seyhun, Hasan Nejat. "Shorts and Insiders." (July 30, 2007). Available at SSRN.
  • Scott, J. and Xu, P. "Some Insider Sales Are Positive Signals." The Financial Analysts Journal (May/June 2004): 45-51. Available at CFA Institute.
  • Tartaroglu, Semih. "Insider Trading During the Technology Bubble." (February 2009). Available at SSRN.

New research is being produced all the time. Investors may want to periodically search the Social Science Research Network data base at www.ssrn.com

10. Should I simply do what the insiders do?
While we believe insider activity can be an important screen and a potential indicator of a company's prospects, it is usually used in conjunction with other indicators. It is important to keep in mind that academic research has shown that following insider buying signals in isolation can result in holding stocks with both losses and gains. In the past, a few "big wins" among stocks with insider buying has been shown to compensate for the inevitable number of stocks that still go down despite insider buying. It is best to use insider trading data to identify potentially profitable trading ideas by incorporating insider signals into an overall diversified portfolio strategy and due diligence process. Insider signals can be used by either contrarian (value) or momentum (growth) investors. For an overview, please see our Investing Style guide.