To address concerns of investors and marketplace participants in light of the current and unprecedented market turmoil, the Investment Industry Regulatory Organization of Canada announced on Monday that it has increased its regular monitoring of trading on equity markets in Canada, including heightened surveillance of all short-selling activity.

In particular, IIROC has found high levels of compliance with the Ontario Securities Commission’s Setp. 19 order prohibiting the short sale of certain financial issuers listed on the Toronto Stock Exchange that are interlisted with exchanges in the United States.

The OSC’s action was taken as a precautionary measure to prevent regulatory arbitrage with respect to short-selling in Ontario of the restricted financials as a result of the U.S. Securities and Exchange Commission’s short sales ban.

IIROC’s surveillance of short-sale activity prior to the issuance of the OSC order has not revealed any significant issues with naked short sales in the Canadian marketplace. There is no evidence of manipulation using short sales for restricted financials or for any other securities.

IIROC’s surveillance of short-selling since the OSC order was issued has revealed few problems and settlement failure rates continue to remain low. While IIROC’s increased surveillance of equity markets has focused in particular on securities of issuers in the financial sector that are not covered by the order, it has also extended our increased scrutiny to the non financial sector and to stocks that are interlisted with other markets.

In addition, IIROC’s analysis of surveillance data has found that:
– There has been a reduction in volume of trading in the restricted financials;
– There has been no appreciable impact on the price of securities of either restricted or non-restricted financials due to the order;
– There has been an increase in volatility in the non-restricted financials and a more significant increase in the volatility of restricted financials in the first week following the issuance of the order;
– There has been a decline in trade rates and volumes of trading post-order for both the restricted and non restricted financials with the decline more marked in the restricted financials.

IIROC will continue its increased surveillance of trading activity on Canadian equity marketplaces during the terms of the order and while current market turmoil and uncertainty persist. It will also continue close monitoring of the regulatory capital position of all dealer member firms during this period of market volatility.