Good news or bad news can be equally profitable to illegal insider traders. They win either way, as advance information — positive or negative — gives insiders a chance to buy or sell stock before everyone else.

Market regulators have always been aware of this problem and continually take steps to ensure no one takes advantage of inside information. Their newest weapon in this battle is SEDI, the system for electronic disclosure by insiders, and its Web site (www.sedi.ca).

SEDI, which will be three years old this summer, is a massive electronic database that allows regulators, the industry and the investing public to track all insider trades across Canada.

The concept is simple: anyone who may have access to inside information about a public company must let regulators know, through SEDI, when they are buying or selling company stock or other investments. Such transactions are legitimate, and often have nothing to do with forthcoming news.

Tracking the trading history of a company’s top executives, however, lets regulators keep an eye on insiders. It’s one way they can learn whether an illegal inside trade does actually take place. Many advisors and their clients also like to follow internal trading patterns, hoping to find hints of what lies ahead for a company’s shares.

Regulators also closely watch daily volume and stock-trading patterns on each exchange in search of any aberrations. If a stock that normally trades 50,000 shares a day, for example, suddenly moves 350,000 shares — particularly if this precedes any type of important news — the market cops can check for any illegalities.

The SEDI system presently carries information about 35,000 insiders and 4,500 issuing companies across the country, says Janet Comeau, manager of corporate communications at the Canadian Depository for Securities Ltd. Through subsidiary CDS Inc., it runs SEDI, sister system SEDAR (the system for electronic document analysis and retrieval) and many other industry filing and reporting services on behalf of the industry and the Canadian Securities Administrators, which represents the country’s securities commissions.

An average of 22,000 insider reports are filed on SEDI each month, Comeau says. In the same period, the public uses the Web site to download details of more than 105,000 insider transactions and about 21,000 reports on insider information.

Before SEDI, small investors were largely made aware of insider trading activity by the print media. Now, however, anyone can pore over any of the thousands of the documents whenever they want, free of charge.

Here’s how SEDI works:

> Any publicly traded company that was part of the old print system had to be plugged into SEDI by May 2003, and any issuer companies created since have to connect as part of their regulatory obligations.

> The issuing companies have long been required to let regulators know the names, job titles and holdings of anyone who may have access to insider information. If Martha replaces Joe as a vice president of ABC Ltd., for instance, regulators demand that SEDI be made aware Martha is now an insider and that details of her personal ABC holdings be made public through an insider profile.

> If Martha decides to buy or sell ABC stock, or is given stock, options or warrants as part of a revised compensation package, she or an agent must let SEDI know.

> Companies have one day to file a SEDI report after any “issuer event,” such as issuing a dividend, a stock split, a share consolidation, an amalgamation or a merger.

The SEDI Web site is quite basic, but it is extremely unwieldy and laborious to use. The site offers three basic categories: insider information, issuer information and summary reports.

This seems straightforward, but it isn’t — at least, not without an unusually large and unnecessary investment of time on the initial visits. The SEDI site is about as user-friendly as a rusting, three-wheeled shopping cart.

However, the CSA has just completed a survey of the system’s users, and it promises to revise the SEDI site to make it easier to use.

For the time being, the easiest way to view all the activity in one company is to click on “View insider information,” then go down to “Search Option 5” and type in the company’s name. A list of all insiders and their issuer numbers will appear. Jot down company or individual ID numbers for future use or investigation.

@page_break@The huge weekly summary can be read as a PDF file by looking under “View summary reports.” IE



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