CSA, CIRO stand pat on short-selling

Following the latest review of Canada’s short-selling regime, regulators are again grappling with how to clarify the rules without discouraging legitimate shorting.

In a joint notice on Thursday, the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) detailed the results of their latest consultation on the regulation of short-selling, in which no clear consensus on reforming the existing regime emerged.

The review considered a number of reform possibilities, including pre-borrow requirements, mandatory short position close-outs, enhanced transparency and reduced time to report failed trades.

“Some commenters believed the current rules governing short-selling were adequate and needed only minor amendments, if any,” the regulators reported. “Others believed that more substantial amendments were needed.”

Along with varying levels of support for some of the reform ideas, the regulators noted there was minimal interest in providing different rules for senior and junior issuers.

Ultimately, the regulators decided not to propose any specific reforms, but they pledged to continue reviewing whether changes are needed. Further, they said CIRO is “actively considering ways to clarify and support its existing requirement to have a reasonable expectation to settle a short-sale trade on the settlement date.”

Proposals in this area are expected to be published for comment in early 2024, the regulators said.

The regulators are also planning to form a staff working group early next year, which will continue to examine short-selling issues, starting with “an analysis of potential mandatory close-out or buy-in requirements.”

Any reform proposals that emerge from these efforts would be subject to the ordinary rulemaking process and public comment periods.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.