• CAN IIAC issued blog on current short sales regulation in Canada and US alignment.
• Follows CIRO proposed amendments to align with SEC on close out.

Short Sales Regulation Alignment

• Since move to T+1, no data in Canada to determine whether short selling problem.
• Marketplaces should provide year of post T+1 data re buy ins, failure to deliver, short sales showing frequency, credit risk, market conditions so materiality can be assessed.
• Missing relevant data would inform whether rule changes necessary; if necessary, missing relevant data would provide materiality of credit risk to inform timelines.
• CIRO proposed amendments give rise to regulatory arbitrage because of CIRO’s limited jurisdiction over securities lending or enforcement of marketplace buy in requirements.
• US clearing houses used by Canadian securities lending participants generates opportunities for regulatory arbitrage by those participants with related parties.
• Proposed amendments only address continuous net settlement (CNS) positions and not trade-for-trade (TFT); the key consideration is one set of unified requirements.

Alternative Approach Needed

• Current regulatory requirements respecting short selling are fulsome; they include recent amendments described as supporting and clarifying the short selling framework.
• The ongoing reporting of FTD by CDS and marketplaces and post surveillance may achieve the same objectives of the Proposed Amendments with less burden.
• In interim, recommendations for the principles and considerations that should apply to Canada’s short selling framework include attributes for a necessary credit analysis.