James E.Twiss, Chief Policy Counsel,

Market Policy and General Counsel’s Office,

Market Regulations Services Inc.,

Suite 900, 145 King St. West,

Toronto, On      M5H 1J8

 

 

 

 

Dear Sirs,

 

Re: Provisions respecting short sales and failed trades – No 2007-17

The Canadian Security Traders Association, Inc. is pleased to have this opportunity to respond to the request by Regulation Services for comments on provisions respecting Short Sales. Our association will not respond in the matter of provisions respecting failed trades as this is not a trading issue.

 

The Canadian Security Traders Association, Inc. (CSTA) is a professional trading association that works to improve the ethics, business standards and working environment for members who are engaged in the buying, selling and trading of securities (mainly equities). The CSTA represents over 900 traders nationwide in Canada, and is led by a Governor from each of three distinctive regions. The organization was founded in 2000 to serve as a national voice for our affiliate organizations. The CSTA is also affiliated with the Security Traders Association (U.S.A) which has 5200 members globally, making it the largest organization of its kind in the world.

 

The CSTA supports the proposed amendments on the short sale rules i.e., repeal all restrictions on the price at which a short sale may be made and to delete provisions for the “short exempt” order marker.

 

The RS proposed amendments will help Canadian marketplaces to compete globally with exchanges who have already implemented similar rules. The changes should also help to increase liquidity, identify “overvalued” securities and enhance best execution of client orders.

 

The CSTA believes that RS should conduct a short sale price pilot project by selecting non-interlisted stocks in the “highly liquid” group and stocks in the “highly illiquid” group similar to the trials conducted by the SEC before implementing the proposed amendments. This trial should help confirm the empirical data collected by RS in regards to market manipulations, failed trades and any unintended consequences.

 

Interlisted securities should remain exempt from this trial period in order to remain competitive with other marketplaces.

 

We believe the pilot project should last for a period of six months. The TSXV should follow the lead of the TSX and support the “short exempt” marker to ensure a complete evaluation of the repealing of the price restrictions on short selling.

 

The CSTA believes in light of the elimination of short sale price restrictions that it will be critical that regulatory bodies continue their efforts to detect manipulative activity and respond with enforcement penalties.

 

The CSTA supports the view of RS that the continued requirement to mark orders as “short” is essential to the proposal of replacing the “Consolidated Short Position Report” (CSPR). We also concur with the RS view that in order to more accurately ensure the true short position in a particular security, CSPR could be retained to categorize a short position as “covered, hedged, naked or closing out of a short sale” to give a more accurate reading of a company’s “true” short position and increase public confidence in the markets.

 

The CSTA believes that Market Regulators need to further quantify the reasons that they would designate a particular security or a class of securities as being ineligible to be sold “short”, failed trades may not be the only consideration of their decision to classify a security as such.

 

In closing, the CSTA appreciates the opportunity to submit our view on the proposed amendments to the Canadian securities markets and look forward to working closely with regulators on future issues.

 

Best regards,

 

 

 

 

Colin Fraser

Chair, Trading Issues Committee

Vice Chair, Canadian Security Traders Association, Inc.

 

c.c. Ms. Cindy Petlock, Manager, Market Regulation,

Ontario Securities Commission,

Suite 1903, Box 55,

20 Queen St. West,

Toronto, On      M5H 3S8