Canadian regulators target ‘abusive’ short selling
Canada’s securities watchdogs are teaming up to determine whether and how much “abusive” short selling is taking place in the country’s capital markets.
The Canadian Securities Administrators, an umbrella organization that co-ordinates the activities of Canada’s 13 provincial and territorial market watchdogs, is in the preliminary stages of a project that involves reviewing “the nature and extent of abusive short-selling in Canadian capital markets,” Brian Kladko, a public affairs manager at the British Columbia Securities Commission, said Thursday. “We are in the information-gathering phase of this initiative,” he said, speaking on behalf of the CSA.
His comments followed the publication of a CSA notice on a separate topic: problematic promotional activities by companies. While that report was concerned with promotional campaigns that “appear to be undertaken for the specific purpose of artificially promotinginterest”inthecompanies’ securities, the CSA said it was planning a separate project to analyze the impact of activist short sellers on Canada’s capital markets.
Activist short selling has been on the rise in Canadian markets in the past few years, with some prominent short sellers using social media outlets such as Twitter to publicize their positions. This has added a new dimension to the friction between investors seeking growth and those who borrow shares in a bet the price will fall so they can profit from the difference when they return the shares.
The regulators declined to comment further on whether their focus on short selling will be on trading rules, communications, or some other aspect of short campaigns. They were clearer on their response to “problematic” promotional activities they are seeing in emerging sectors such as cryptocurrency, pot, block-chain and mining.
In Thursday’s notice, the CSA warned that its concerns extend beyond the venture marketplace and may result in a regulatory response ranging from requiring a company to issue a “clarifying ” news release to referring the matter to enforcement. “We will continue to monitor promotional activity and we will consider whether the scope and extent of problematic promotional activities require compliance or enforcement regulatory action to protect investors and the integrity of our capital markets,” it said in the notice.