Not All Penguins Are Short: Short Selling In Canada Consultation – Securities

The Canadian Securities Administration (CSA) and IIROC (as it was then called) issued Joint CSA and IIROC Staff Notice 23-329: Short selling in Canada (staff notice).The staff release states that CSA and IIROC believe it is time to review the regulatory framework to ensure it is appropriate given how markets have evolved and the public feedback received. A second CSA release contains a summary of comments and responses to the original CSA Consultation Paper 25-403 Activist short selling (the Previous Consultation Paper).

The consultation is a follow-up to the previous consultation paper. It makes interesting reading as it reviews current securities regulations and SRO rules for short selling in Canada, including National Instrument 23-101 trading rules,IIROC’s Universal Market Integrity Rules and securities laws prohibiting manipulative and/or deceptive activity. Based on further reviews since the initial request for comment, CSA and IIROC have determined this
(I) the current regulatory regime is consistent with the principles for the effective regulation of short selling as established by the International Organization of Securities Commissions; and (ii) the regulators did
Not specific evidence of problems obtained from activist short selling campaigns.

Nonetheless, the Staff Notice asks a number of specific questions in relation to whether there have been any changes in the Canadian market that support the introduction of new requirements at this time. These potential new requirements could include, for example, a requirement for a trader to confirm the ability to pre-borrow securities before accepting a short sale order. The staff announcement also revisits whether additional public transparency requirements should be considered for short selling activity or short positions, including specifically for subordinated issuers.

Comments can be submitted until March 8, 2023.

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