The Investment Industry Regulatory Organization of Canada (IIROC) has published for comment proposed amendments to the Universal Market Integrity Rules concerning the regulation of short sales and failed trades. The proposed amendments would repeal the restrictions on the price at which a short sale may be made on Canadian equity marketplaces.
IIROC has also released two studies examining trends in trading activity, short sales and failed trades for the period May 1, 2007 to April 30, 2010.
The first study, “Trends in Trading Activity, Short Sales and Failed Trades for the period May 2007 to April 30, 2010,” examines the relation between short sales and failed trades during a time frame that includes the period of the greatest market turmoil in generations—October 1, 2008 to April 30, 2009. The study confirms the findings of an earlier IIROC study (“Recent Trends in Trading Activity, Short Sales and Failed Trades”) that found no unusual patterns of short selling or trade failure.
The second study, “Price Movement and Short Sales Activity, the Case of the TSX Venture Exchange for the period May 1, 2007 to April 30, 2010,” examines the relationship between price movement and short sale activity during a period when all of the securities traded on the TSX Venture were subject to price restrictions on short sales. These restrictions (the “tick test”) require that a short sale can only be made at a price that is not less than the last sale price of that security on a marketplace. The study found that there were no “systemic” problems in the working of the short sale regime and that the tick test was not effective as a tool to restrict significant and rapid systemic declines in prices.
IIROC is encouraging investors, marketplace participants and other interested persons to provide comments by May 26, 2011 on the proposed amendments. The procedure for providing comments and responses is set out in the IIROC Notice.