The Canadian Securities Administrators (CSA) and IIROC (as it was then known) released Joint CSA and IIROC Staff Notice 23-329: Short Selling in Canada (Staff Notice).The Staff Notice states that the CSA and IIROC believe it is time to review the regulatory framework, to ensure it is appropriate given the evolution of markets and public feedback received. A second publication by the CSA sets out a summary of comments and responses to the original CSA Consultation Paper 25-403 Activist Short Selling (the Prior Consultation Paper).

The consultation is a follow-up to the Prior Consultation Paper. It is an interesting read, as it reviews the current securities regulations and SRO rules governing short selling in Canada, which includes National Instrument 23-101 Trading Rules, IIROC’s Universal Market Integrity Rules, and securities legislation that prohibits activities that are manipulative and/or deceptive. Based on further review since the first request for comments, the CSA and IIROC have determined that (i) the current regulatory regime is consistent with the principles for the effective regulation of short selling as set out by the International Organization of Securities Commissions; and (ii) the regulators did not receive any specific evidence of issues from activist short selling campaigns.

Nevertheless, a number of specific questions are set out in the Staff Notice with respect to whether there have been any changes in the Canadian market to support the introduction of new requirements at this time. These potential new requirements could include, for example, the requirement for a dealer to confirm the ability to pre-borrow securities prior to accepting a short sale order. The Staff Notice also revisits whether additional public transparency requirements of short selling activities or short positions should be considered, including specifically for junior issuers.

Comments can be provided until March 8, 2023.

January 31, 2023