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.
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.
Source: https://www.osc.ca/sites/default/files/2023-11/csa_20231116_short-selling.pdf
Summary of responses and comments to CSA/IIROC Staff Notice 23-329 Short Selling in Canada.

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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 โ€œlocateโ€ 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.
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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.
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