The Investment Industry Regulatory Organization of Canada (IIROC) is planning to undertake some work on short selling to determine whether more transparency is warranted in an effort to address some of the concerns raised by small-cap issuers
IIROC on Thursday issued a report detailing the results of a roundtable held earlier in the year to examine market structure issues for small caps. Many of the issues raised at the roundtable are outside of IIROC’s jurisdiction, the report notes.
Junior firms are concerned about an apparent decline in small-cap liquidity, an overall reduction in participation in the venture market, and. the regulatory burden on venture issuers generally, the report says.
Rarticipants in the roundtable expressed concern about the demise of small dealers; the impact of the Client Relationship Model (CRM) rules on the willingness of dealers to recommend small caps, the report says, and suggested that prohibitions on advisors using social media is preventing contact with millennials, and making it tougher for dealers to connect with prospective investors.
While the roundtable heard a variety of suggestions for dealing with these issues, the report indicates that IIROC plans to focus on issues surrounding short selling, which is seen as possibly harming investor confidence and limiting market participation.
For example, the self-regulatory organization says that it will consider enhancing transparency around short selling activity by reviewing the requirements and frequency of short activity reporting. It also plans to “refresh” a study that it carried out in 2007 on failed trades, with a focus on small caps, “which may lead to further targeted work on short selling to determine if any policy steps are required.”
Additionally, IIROC pledges to “actively look for opportunities to assist stakeholders to better understand market structure issues affecting small-cap securities.”
“We are committed to working with our partners to strengthen this market and foster confidence in its fairness and integrity, and will actively seek opportunities to broaden the understanding of market structure issues affecting this important sector,” says Victoria Pinnington, senior vice president, market regulation, at IIROC, in a news release.
“IIROC recognizes the significance of the small-cap market. We listened carefully to our stakeholders and are taking a data driven approach and concrete steps to address their concerns,” adds Warren Funt, IIROC vice president, Western Canada.