Canadian Short Ban Raised Mkt Volatility

The Investment Industry Regulatory Organization of Canada (IIROC) has released two studies examining recent trends in trading activity of listed securities on Canadian equity marketplaces and the impact of the prohibition on the short sale of inter-listed financial sector issuers.

The first study looked at the relation between short sales and failed trades over a 17-month period in 2007 and 2008. The study showed that the Canadian marketplace did not experience problems with abusive short selling and naked short selling that the US or other jurisdictions may have experienced.

While the second study found that the short selling order appeared to have a significant impact on market quality, including an increase in both volatility and the spread. It also revealed there was also no appreciable difference between changes in prices of restricted stocks.

IIROC President and CEO, Susan Wolburgh Jenah commented: "We constantly monitor marketplace trends. We responded to the recent market turmoil by heightening our surveillance activities, with an emphasis on short selling."