The Canadian Investment Regulatory Organization (CIRO) and the Canadian Securities Administrators (CSA) recently released Staff Notice 23-332 Summary of Comments and Responses to CSA/IIROC Staff Notice 23-329 Short Selling in Canada (the Staff Notice).

The Staff Notice describes the comments received in connection with the consultation, and concluded that there was no consensus amongst the commentators on the regime for short selling, with some people arguing for major changes, others for only minor amendments while one commentator suggested short selling should be banned altogether. No changes to regulatory provisions are currently being proposed, however the regulators noted they would continue to review whether any changes are required.

Proposals from CIRO can be expected in early 2024 with respect to its current requirement to have a reasonable expectation to settle a short sale on the settlement date. CIRO and the CSA also intend to study potential mandatory close-out or buy-in requirements. As referenced in the Staff Notice, a “buy-in” is started by a buyer who has not received the securities purchased on the date for settlement where they purchase securities in the market to cover the delivery failure, and the seller who failed to deliver is responsible for any increase in price between the failed trade and the buy-in trade. A “close-out” occurs when a dealer fails to deliver securities sold on the date for settlement and must close out the failed position by borrowing securities or purchasing them in the open market. The regulators indicated more than once that the upcoming transition to a T+1 settlement date would need to be considered prior to or at the same time as any changes to the short selling rules.

November 30, 2023