On February 4, the Investment Industry Regulatory Organization of Canada (IIROC) released two studies related to short sales. The first study, "Recent Trends in Trading Activity, Short Sales and Failed Trades", reviewed trading trends during the period of May 1, 2007 to September 30, 2008 with a particular focus on short selling and failed trades. The study found that despite the fact that the average number of daily trades increased "significantly" during the study period, "there was no significant change" with respect to short sales.

The second study released was the "Study on the Impact of the Prohibition on the Short Sale of Inter-Listed Financial Sector Issuers". The purpose of this study was to review the impact of recent restrictions by the OSC in September and October of 2008 (see below) to curb short selling in the face of increased market volatility. Notably, the study found that the OSC Orders "did not appear to have had any appreciable effect on the price of securities" of either the securities of restricted or non-restricted financial issuers. The Orders, however, had "a significant impact on market quality" for the trading of restricted financial securities, as the Orders reduced the liquidity available in the restricted financials and increased the spread between the ask price and closing bid.

The effect of the studies on future regulatory action is not yet clear, however, IIROC's release stated that the studies "provide data and analysis that are integral to our effective policy-making."

For more information on short sales, see our earlier posts:

IIROC publishes notice regarding short sales and failed trades (October 16, 2008)

IIROC provides short selling guidance (October 7, 2008)

OSC extends short selling Temporary Order (October 3, 2008)

SEC extends prohibition of short selling financial institutions (October 3, 2008)

SEC extends Order prohibiting naked short selling (October 2, 2008)

Further short selling measures from the OSC and IIROC (September 23, 2008)

OSC issues temporary short selling order (September 22, 2008)

SEC introduces new short selling rules (September 18, 2008)