CSA, IIROC seek input on trade transparency

The notice indicates that a joint CSA and IIROC working group has been monitoring and reviewing international regulatory approaches to issues arising from short selling and failed trades, and it believes that Canada’s regulatory regime governing short sales is generally consistent with the principles established by the International Organization of Securities Commissions for the effective regulation of short selling.

However, it also believes that it may be appropriate to consider whether additional measures are warranted to: enhance the regulatory reporting and transparency of short sales; and, introduce some transparency of failed trades. The notice says that while recent amendments to IIROC’s trading rules promote improvements in these areas, the working group is requesting further input on whether additional measures are desirable or needed, and whether CSA rulemaking may be necessary to ensure the requirements capture a broader scope of market activity.

Under the latest trading rule amendments, IIROC is proposing to release semi-monthly short sale summaries, showing the aggregate proportion of short selling in the total trading activity of a particular security. These summaries are expected to start publication after the amendments come into effect on September 1.

The regulators are now seeking comment on whether more frequent aggregate short sale summaries should be made publicly available; and whether there should be public disclosure of individual short sale transaction data on an anonymous basis. They are also asking whether data on the usage of the ‘short-marking exempt’ designation in relation to trading activity of a particular security be made publicly available.

It also asks whether public disclosure of short positions in unlisted securities, such as debt securities, and foreign-listed securities traded on ATSs should be required; and whether custodians and dealers that are not considered market participants should have to report their short positions.

According to the notice, the working group also observed that, since the global financial crisis, many countries have implemented permanent requirements to disclose significant individual short positions by the ultimate investor. However, for now, Canadian regulators are not proposing any similar reporting requirements, noting that they are not convinced that the potential benefits of such reporting would outweigh the costs.

In terms of failed trades, the working group is seeking comments on whether measures targeting specific settlement failures or participants that cause fails should be considered. It says that the CSA could arrange for the public disclosure of information on failed trades in individual securities, and asks whether measures to provide failed trades transparency are warranted.

“Effective disclosure and transparency practices are fundamental to maintaining fair and efficient capital markets,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission. “A key consideration in our consultation will be striking the appropriate balance between enhancing trade transparency and maintaining a cost-efficient structure that encourages greater market participation.”

“This consultation effort complements a series of measures IIROC has pursued to improve the regulatory framework for short sales in Canada and to strengthen the integrity of the Canadian marketplace,” added Susan Wolburgh Jenah, IIROC’s president and CEO.

Comments are due by May 31.