• CSA issued consultation paper to facilitate discussion of concern re activist short sales.
• The paper sets out findings from CSA research, on the subject, which began in 2019.
• Summarizes stakeholder concerns, Canadian and international regulatory frameworks.

Background

• Activist short selling involves taking a short position in a security and then publicly sharing information that is expected to negatively impact a company’s stock price.
• Concerns raised over less strict Canadian regulations compared to other jurisdictions.
• Also that there is inadequate deterrence due to limited number of enforcement actions.

Key Research Findings

• Activist short sellers gravitate to securities where there is perceived overvaluation.
• Between 2010-2020, 73 Canadian issuers were target of 116 activist short sellers.
• About 75% of Canadian campaigns analyzed experienced a negative price impact on the day of the first campaign announcement and up to one month afterwards.
• 40% involved allegations of fraud at the issuer, most often stock promotion scheme.

Consultation

• Comments on the consultation paper must be submitted by 3 March 2021.