The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) today published a summary of responses and comments to CSA/IIROC Staff Notice 23-329 Short Selling in Canada.

Summary of responses and comments to CSA/IIROC Staff Notice 23-329 Short Selling in Canada.

Comments:

Wut Mean?:

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC/CIRO) published Staff Notice 23-329, requesting public feedback on short selling regulations.
They received 23 comments from various stakeholders. The comments showed no consensus on the ideal regulatory regime for short selling, ranging from minor amendments to substantial changes, with one suggesting a ban.
Key areas for further study and potential regulatory changes include:
- Pre-Borrow Requirements: Opinions varied on whether short sellers should arrange to borrow securities before short selling, with some suggesting a less stringent “locate” rule and others cautioning against increased costs.
- Different Treatment for Junior Issuers: Limited support and calls for more research before any specific rules are proposed.
- Shortening Timeline for Reporting Failed Trades: Mixed views, with some suggesting it should be reconsidered after adjusting to the T+1 settlement cycle.
- Transparency: Suggestions varied from EU-style public reporting to restrictions on anonymous broker numbers, balanced against concerns over excessive transparency affecting liquidity and price discovery.
- Mandatory Close-Outs/Buy-Ins of Short Positions: Support for introducing rules similar to those in the U.S. and EU.
The CSA and CIRO plan to form a staff working group in early 2024 to examine short selling issues, including potential mandatory close-out or buy-in requirements, with any proposed rule changes subject to public comment. CIRO also plans to clarify expectations for settling short sale trades, with proposals expected in early 2024.

TLDRS:

The CSA and IIROC/CIRO published a notice seeking feedback on short selling regulations in Canada, receiving 23 comments with no clear consensus on the ideal regulatory approach.
Key areas under review include pre-borrow requirements for short sellers, different regulations for junior issuers, shortening the timeline for reporting failed trades, and varying levels of transparency.
There is support for mandatory close-outs or buy-ins of short positions, akin to U.S. and EU rules.
The CSA and CIRO are forming a working group in early 2024 to further analyze short selling issues, including mandatory close-out/buy-in requirements, with CIRO also planning to propose clarifications on short sale trade settlements.