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Filing Process for Writing an OTC Call Option

When an insider writes an option contract to a third party, the insider includes the option contract as a separate class of security and reports it separately from other classes of securities, including call or put options acquired from a third party. The writing of an OTC call option is reported in a manner similar to other options:

• Designation of class of security: select the appropriate security designation, OTC call option (with the underlying security designation), from the insider-defined securities list (the insider will need to create an insider-defined security designation if this is the first time filing the OTC Call Option, see note below.)

•  Nature of transaction: Code 70 - Acquisition or disposition (writing) of third party derivative

•  Indicate the number of contracts (or securities) disposed of in the Number or value of securities or contracts disposed of field

•  Indicate the equivalent number of underlying securities that may be disposed of in the Equivalent number or value of underlying securities disposed of field.

Note that until the options are exercised by the third party, the equivalent number of underlying securities is not reduced from the actual holdings of the insider in the underlying securities as it does not mean and should not be taken to indicate that the underlying securities have, in fact, been disposed of by the insider.

•  Unit price or exercise price: consideration for the option (e.g. premium), if applicable

•  Conversion or exercise price: option exercise price

•  Date of expiry or maturity: indicate the expiry date of the call option.

Note: Insiders are required to add an insider-defined security designation when writing a third party derivative such as an OTC Call Option.

An initial report recording the opening balance of securities held for the insider-defined security and ownership type is required to be completed prior to posting any related transactions on SEDI. The steps are similar to Filing an Opening Balance on Initial Report with the exception that an insider-defined security is added when filing the report instead of selecting a security from the issuer’s list.

Once a transaction has been posted as an insider-defined security designation, all other transactions for those securities must be filed under that security designation to ensure proper balances of securities. SEDI calculates separate balances for insider-defined securities and issuer-defined securities.

When an insider writes OTC options, these options are created for the transaction. Consequently, the OTC options are not included in the insider opening balance of securities held and the opening balance amounts are zero. The transaction could therefore result in a negative closing balance of securities/contracts held and/or equivalent underlying securities in the OTC options, depending on the type of option, until they are exercised or when they expire.

Related Documents

See:

Insider Report to Add an Insider-Defined Security Designation (e.g. Third Party Derivatives)

Insider Report for Stock Options
Preliminary Information for Stock Option Filings