IIROC today issued the initial semi-monthly Short Sale Trading Summary Report (“Report”) setting out the proportion of “short sales” in the total trading activity of each listed security across all equity marketplaces during the period January 1, 2013 to January 15, 2013.
Description of Short Sale Trading Summary Report
As part of its initiatives on shorting selling and failed trades, 1 IIROC undertook to produce and to make publically available a semi-monthly report on the proportion of “short sales” in the total trading activity of each listed security across all marketplaces in order to help establish a better appreciation for the “normal” levels of short selling for each security.
Each Report will summarize for each listed security all short selling activity traded on all marketplaces during the semi-monthly period based on orders containing the “short sale” order designation at the time the order is executed. Each Report will provide details in respect to the number of trades, volume traded and value traded both in absolute terms and as a proportion of total trading activity. The reporting periods are:
- the 1st – 15th of each month; and
- the 16th to the end of each calendar month.
IIROC intends to post Reports to its website on the fourth business day following the end of each period. The Reports may be accessed through the “News and Publication” section of the IIROC website (www.iiroc.ca).
These reporting periods and the target publication dates are the same as for the Consolidated Short Position Report (“CSPR”), which will continue to be produced and disseminated by The Toronto Stock Exchange.2 The CSPR is an aggregation of short positions in each listed securities in each account of a Participant as of the 15th and the last day of each calendar month.
Order Marking Requirements
Effective October 15, 2012,3 Rule 6.2 of the Universal Market Integrity Rules (“UMIR”) requires each order entered on a marketplace contain certain designations acceptable to IIROC, including the obligation of a Participant or Access Person to correctly designate whether an order is either:
- a “short sale” order; OR
- a “short-marking exempt” order.4
If an account qualifies for the use of the “short-marking exempt” order designation, as described below, the entry of orders by the account will only carry the “short-marking exempt” designation and will not also carry the “short sale” designation, even though the sale order may be from a short position.
“Short Sale” Order Designation
UMIR defines a short sale as a sale of a security, other than a derivative instrument, which the seller does not own either directly or through an agent or trustee. A seller is considered to own a security if the seller:
- has purchased or has entered into an unconditional contract to purchase the security, but has not yet received delivery of the security;
- has tendered such other security for conversion or exchange or has issued irrevocable instructions to convert or exchange such other security;
- has an option to purchase the security and has exercised the option;
- has a right or warrant to subscribe for the security and has exercised the right or warrant; or
- has sold a security that trades on a “when issued” basis and the seller has entered into a contract to purchase such security, which is binding on both parties and subject only to the condition of issuance or distribution of the security.
A seller is considered not to own a security if:
- the seller has borrowed the security to be delivered on the settlement of the trade and the seller does not otherwise own the security (e.g. none of the five circumstances listed above apply to the seller);
- the security held by the seller is subject to any restriction on sale imposed by applicable securities legislation or by an Exchange or QTRS as a condition of the listing or quoting of the security; or
- the settlement date or issuance date pursuant to:
- an unconditional contract to purchase,
- a tender of a security for conversion or exchange,
- an exercise or an option, or
- an exercise of a right or warrant
would, in the ordinary course, be after the date for settlement of the sale.
“Short-Marking Exempt” Order Designation
UMIR defines a “short-marking exempt order” as an order for the purchase or sale of a security from an account that is:
- an arbitrage account; 5
- the account of a person with Marketplace Trading Obligations in respect of a security for which that person has obligations; 6 or
- a client, non-client or principal account:
- for which order generation and entry is fully-automated, and
- which, in the ordinary course, does not have, at the end of each trading day, more than a nominal position, whether short or long, in the particular security; or
- a principal account that has acquired during a trading day a position in a particular security in a transaction with a client that is unwound during the balance of the trading day such that, in the ordinary course, the account does not have, at the end of each trading day, more than a nominal position, whether short or long, in a particular security.
The “short-marking exempt” designation will be used by accounts that have not adopted a “directional” position on the security and are entering orders based solely on trading opportunities then available in the market. In particular, clients using automated trading systems will only be able to use the “short-marking exempt” designation if the account only carries a nominal position in a particular security at the end of each trading day.7
- 1See IIROC Notice 12-0078 – Rules Notice – Notice of Approval – UMIR - Provisions Respecting Regulation of Short Sales and Failed Trades (March 2, 2012). In particular, reference should be made to Appendix C – IIROC Initiatives on Short Sales and Failed Trades.
- 2The TSX publicly disseminates certain information regarding the CSPR.
- 3See IIROC Notice 12-0078, op. cit. and IIROC Notice 12-0158 – Rules Notice – Notice of Implementation – UMIR – Changes to Implementation Date for Provisions Respecting Regulation of Short Sales and Failed Trades and for Provision Respecting Dark Liquidity (May 8, 2012).
- 4For more details on applicable order marking requirements, see IIROC Notice 12-0300 – Rules Notice – Guidance Note – UMIR – Guidance on “Short Sale” and “Short-Marking Exempt” Order Designations (October 11, 2012).
- 5Rule 1.1 of UMIR provides that an “arbitrage account” means an account in which the holder makes a usual practice of buying and selling:
(a) securities in different markets to take advantage of differences in prices available in each market; or
(b) securities which are or may become convertible or exchangeable by the terms of the securities or operation of law into other securities in order to take advantage of differences in prices between the securities.
- 6Rule 1.1 of UMIR provides that “Marketplace Trading Obligations” means obligations imposed by:
(a) Marketplace Rules on a member or user or a person employed by a member or user to guarantee:
(i) a two-sided market for a particular security on a continuous or reasonably continuous basis, or
(ii) the execution of orders for the purchase or sale of a particular security which are less than a minimum number of units of the security as designated by the marketplace; or
(b) contract between a marketplace and a member, user or subscriber to guarantee the execution of orders for the purchase or sale of a particular security which are less than a minimum number of units of the security as stipulated by the terms of the contract provided such number is less than one standard trading unit and the orders for the member, user or subscriber are automatically generated by the trading system of the marketplace.
- 7See IIROC Notice 12-0300, op. cit. As a general guideline, IIROC would accept that an account with automated order generation and entry would satisfy the requirements necessary to designate orders as “short-marking exempt” if the sole strategy of the account is to be “directionally neutral” on the price of securities traded. IIROC would accept this to be the case if on approximately 90% of the trading days in the previous month, the aggregate net position of the account in respect of any security at the end of the trading day, whether short or long, did not exceed 5% of the volume of that security traded by the account on that trading day.