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Canadian Pacific Railway Ltd. CEO Keith Creel, seen here on May 10, 2017, spent more than $4-million on nearly 15,000 shares.Jeff McIntosh/The Canadian Press

As markets tumbled in the early weeks of the coronavirus crisis, executives and directors at Canada’s largest companies did something they don’t ordinarily do: buy their own shares.

In the month of March, insiders bought more than 1.8 million shares of companies in the S&P/TSX 60 Index, spending more than $66-million.

The insider buys work out to an average of 30,000 shares and about $2-million a company. By the standards of typical insider buying and selling, it was like a modern-day bull run.

Typically, shares sold by insiders on the open market outnumber shares purchased by a factor of 10 to 1 or 20 to 1. In March, excluding the unusually large sales of one executive, insiders bought about 120,000 more shares on the open market than the 1.7 million they sold.

Some market observers regarded the buying activity as a positive sentiment, particularly in beaten-down industries such as energy.

After examining more than 200 companies in the S&P/TSX Composite Index, a group of analysts at Scotia Capital said March 30 that insiders’ buying peaks overlap quite closely with TSX lows, and “after a prolonged buying strike, insiders have started nibbling at their own stock in recent weeks.”

Energy sector analysts at RBC Dominion Securities flagged a number of companies they covered where they saw meaningful buying, led by Kelt Exploration Ltd., a Calgary company too small for either the S&P/TSX 60 or the Composite.

Ted Dixon of INK Research Corp., which tracks insider transactions and tries to gauge what they mean for the markets, said he’s not sure the level of buying so far is enough evidence to him that markets have bottomed. “At this point, we have not come to the conclusion that we’ve seen a peak in insider buying … and [that] the worst is over. … We do not have that signal.”

The reason for the normal buy-sell imbalance is that insiders don’t need to buy stock on the open market because their companies give it to them instead.

There has been an explosion of stock-based compensation over the past three decades, a response to past criticism that chief executive officers had fat salaries and no “skin in the game."

In a review of 2018 CEO pay at Canada’s 100 biggest companies for The Globe and Mail, Global Governance Advisors found that 62 per cent of the average $9.2-million paycheque came from stock-based awards – and the median CEO held almost $19-million in company shares. Many companies also make stock, not cash, the primary compensation for their boards of directors.

The way insiders turn that stock compensation to cash is by selling the shares on the open market.

From January until the Feb. 20 peak, insiders in the S&P/TSX 60 sold 2.85 million shares for a combined $185.9-million. During that same period of rising markets – as the S&P/TSX Composite advanced more than 5 per cent in the first seven weeks of the year – executives bought a total of just 141,392 shares for about $3.3-million.

In other words, the insiders, as a group, sold 20 shares for every one they bought, and pocketed $56 for every dollar they spent.

However, the buying picked up in late February as markets fell. The S&P/TSX Composite peaked Feb. 20, fell sharply for the remainder of the month and into March. While there’s been a rebound from the March 23 low point, when the index was down nearly 35 per cent for the year, Friday’s close represents a 2020 decline of 15 per cent.

In March, executives and directors sold 4.34 million shares for just under $180-million – although Barrick Gold Corp. executive chairman John Thornton was responsible for 2.6 million shares, and nearly $68-million, of the total. (Barrick said the sale – roughly half his holdings in the company – was made “due to personal portfolio considerations.")

Strip out his sales, and insiders sold 1.7 million shares in March, versus the 1.8 million purchased. It was a very different ratio from March, 2019, when shares sold outweighed shares bought by a ratio of 11 to 1, and insiders collected $269-million in proceeds versus spending $10.6-million.

According to securities filings, buyers in March included:

  • A dozen directors and executives at Brookfield Asset Management Inc. and two of its publicly traded limited partnerships, who spent more than $10-million acquiring nearly 200,000 shares.
  • Canadian Imperial Bank of Commerce CEO Victor Dodig, who spent nearly $4-million on 50,000 shares, with six other CIBC insiders spending an additional $1.5-million.
  • Canadian Pacific Railway Ltd. CEO Keith Creel, who spent more than $4-million on nearly 15,000 shares.
  • Nine directors and officers of Cenovus Energy Inc. who spent $2.6-million on nearly 450,000 shares, with CEO Alex Pourbaix spending $500,000 of that.
  • Five insiders of National Bank of Canada, who spent $11.2-million on 236,000 shares. CEO Louis Vachon spent $920,000 of that.
  • Power Corp. CEO Jeffrey Orr, who spent more than $1.1-million on 50,000 shares.
  • Insiders at TC Energy Corp. who spent $6.3-million on more than 100,000 shares. (Chief operating officer Francois Poirier exercised options for $2.77-million and then sold the stock for $3.85-million in March, offsetting some of the buys.)

To arrive at the numbers in the story, The Globe and Mail reviewed more than 20,000 records filed in the System for Electronic Disclosure by Insiders database maintained by Canadian securities regulators.

The data in this story comparing purchases and sales only considers transactions designated as occurring “in the public market.” They do not include sales as part of Automatic Securities Disposition Plans, which are prearranged plans that are intended to remove insiders’ discretion to sell based on market conditions.

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