The OSC and SEC have changed the expiry dates of their emergency orders on short selling and issuer repurchases of their own securities as follows: 

  • The orders prohibiting short selling of certain financial firms’ securities will be in place in both jurisdictions only until 11:59 p.m. tomorrow, October 8, 2008.1 
  • The relaxed restrictions on issuer repurchases of their own securities will be in place in both jurisdictions until 11:59 p.m. on October 17, 2008.2 
  • The SEC expects to publish rules to keep in place the requirement for institutional money managers to report new short sales of “section 13F securities.” For now, reports filed under the emergency order will be disclosed only to the SEC, not made public two weeks after filing as originally ordered.3 
  • The SEC’s order prohibiting naked short selling of equity securities will be in place until 11:59 p.m. on October 17, 2008.4

Upon expiry of the OSC’s order, short sales of financial firms’ securities will be permitted in Canadian marketplaces under existing Canadian rules. Although these rules generally provide that short sales of securities cannot be made unless the price is at or above the last sale price for that security (or unless certain other exemptions apply), there is an exemption from these price restrictions for securities that are interlisted on a Canadian and a U.S. stock exchanges.

Canada’s marketplace regulator, IIROC, published a notice on October 6, 2008 reminding marketplace participants that under Canadian rules that will continue to apply following expiry of the OSC’s order, if a market participant is aware that a particular security is not available to be borrowed, no short sales of that security can be made by the participant. Furthermore, if a market participant makes a short sale that fails because the required securities cannot be borrowed for settlement, no further short sales of that security can be made by the participant unless adequate arrangements have been made to borrow the securities required for the settlement of the short sale.

In light of current market conditions and the above regulatory developments, we expect that Canadian securities regulators will be carefully reviewing amendments to the short-selling rules that were originally proposed last year. Details about these proposals can be found in New Rules on Short Selling: Canada Regains Its Advantage (November 5, 2007).