Is This The Beginning Of The End Of Naked Short Selling In Canada?
James Stafford, 11 May 2021
Finally, after years of watching dubious short-sellers manipulate stocks and destroy companies, Canadian regulators are ready to do something about it, and unscrupulous short-sellers who have been living lives of obnoxious luxury paid for by ordinary shareholders have every reason to worry.
The only question now is whether the Canadian regulators have the teeth to follow through.
The first move came in January 2021, when the Ontario Capital Markets Modernization Task Force recommended a new prohibition against “misleading or untrue statements” about public companies. Why? Because Canadian markets are being threatened severely by “short and distort” and “pump and dump” campaigns. The same legislation was already enacted in British Columbia.
The prohibition would do one very important thing: It would mean that Ontario regulators would only have to prove “intent” and not “causation”, making them far more powerful if they choose to use that power.
That starts the regulatory ball rolling … but it isn’t enough. Now, the Ontario task force wants to take things further, requiring short sellers to actually confirm they can borrow the securities they’re attempting to short.
The task force also wants to make them subject to a mandatory buy-in if a sale fails to settle only two days after the settlement day or four days after the trading date. That would be the death of one of the free market’s biggest threats: Naked shorting, when shorters sell shares they don’t own and have made no arrangements to buy.
As we noted in our recent expose on naked short selling, this harmful setup gives traders the ability to endlessly sell phantom shares and manipulate the share prices to their benefit in a direct challenge to the free market.
