Following a similar decision by U.S. regulators, Market Regulation Services Inc. has granted an exemption from the price restrictions on short sales for securities that are also listed on an exchange in the United States.

The move follows the U.S. Securities and Exchange Commission’s June 13 approval of amendments to remove the price restrictions on short sales, as well as any short sale price test of any self-regulatory organization, including the requirements of the New York Stock Exchange and Nasdaq. The amendments prohibit any SRO from having a price test.

The notice from RS indicates that inter-listed securities account for approximately 55% of the value of securities traded and approximately 30% of the volume of securities traded in Canada. Additionally, approximately 25% of trades on a Canadian marketplace involve a short sale. “These numbers indicate the significant extent to which trading on Canadian marketplaces may be impacted by the decision of the SEC to repeal price restrictions on short sales.”

“In the view of RS, to have a markedly different standard for short sales on a marketplace as compared to trades in the same security on an organized regulated market in the United States would put marketplaces at a competitive disadvantage,” the notice says.

“In light of the decision of the SEC to remove price restrictions on short sales, RS granted, effective July 6, 2007, an exemption from the price restrictions on a short sale in respect of securities which are inter-listed on an exchange in the United States,” it adds. Securities which trade on an ECN in the United States but are not otherwise listed on an exchange in the US do not qualify for the exemption.

The notice also says that RS staff are participating in an informal working group comprised of staff from the Canadian Securities Administrators, Investment Dealers Association, Canadian Depository for Securities Limited, TSX and the Bourse de Montréal that has been examining various issues related to failed trades and short sales. The working group has considered a number of options and proposals related to short sales and failed trades, including a series of proposals for the amendment of the trading rules submitted by RS for its comment.

RS expects that this series of proposals regarding short sales and failed trades will be submitted to the Rules Advisory Committee of RS for its consideration. The comments received from the working group and RAC will be considered by RS staff in the preparation of the amendments submitted to the board of directors for their approval, it notes.