Provincial regulators have approved amendments that would, among other things, allow the Investment Industry Regulatory Organization of Canada to stop certain securities from being sold short.

IIROC reports that it has received approval to put in place various provisions that will provide it with additional tools to address potential abusive short selling and failed trade activity. The amendments allow the market regulator to designate a particular security or a class of securities as being ineligible to be sold “short”.

“The purpose of this provision is to provide additional flexibility to the market regulator to respond to developments in trading of a particular security or class of securities if rates of failed trades become, in the opinion of the market regulator, excessive,” it explains.

The amendments also limit the ability to vary or cancel a trade after execution unless notice has been provided to a market regulator; and, requires a report of a “failed trade” be made if the reason for the failure is not resolved within 10 trading days following the original settlement date of the trade.

These provisions had previously been published for public comment in September 2007. However, a couple of the provisions originally proposed are now being deferred; they would have: removed the restrictions on the price at which a short sale may be executed; and, eliminated the requirement to file “short position reports”.

“A proposal to remove all price restrictions at which a short sale may be made has been deferred at this time because of the current market conditions and the fact that the regulatory framework governing short selling is under active review in the United States and other foreign jurisdictions,” it says.

IIROC adds that it will continue to monitor developments in the Canadian market and new initiatives taken by foreign regulators to determine what additional actions should be taken.