March 2, 2012 (Toronto, ON) – The Investment Industry Regulatory Organization of Canada (IIROC) today announced it is repealing the “tick test” restrictions on the price at which a short sale may be made on Canadian equity marketplaces.

The repeal and other amendments to the Universal Market Integrity Rules (UMIR) are part of a package of related policy and surveillance initiatives intended to strengthen Canada’s regulatory regime with respect to short sales and failed trades. The amendments are effective September 1, 2012.

“Together with enhancements to transparency and monitoring, these reforms contribute to fair and efficient regulation that supports both investor protection and competitive capital markets,” said Susan Wolburgh Jenah, IIROC’s President and Chief Executive Officer.

These enhancements include other protections and restrictions to curb abusive short selling practices. For example, among the reforms are the requirement that arrangements be made to borrow securities prior to a short sale in certain circumstances and the introduction of a new biweekly public report that will illustrate the level of short selling for each security.

IIROC’s studies have demonstrated that the tick test has had no appreciable impact on price movement and IIROC currently employs other mechanisms, such as real-time alerts to detect and curtail abusive short selling practices.

IIROC continues to work with other Canadian regulators to improve transparency and disclosure related to short sales and failed trades in Canada.

Background & Highlights

It is important to note that since 2007, Canada has had no price restrictions on short sales for securities which are inter-listed with the United States. The exemption to the Canadian “tick- test” rules coincided with the removal of all short sale price restrictions in the United States. Consequently the amendments announced today effectively extend the same principles to all Canadian securities.

IIROC currently has an effective trade monitoring regime to address any abusive short selling practices. This regime includes an industry-leading surveillance system which generates real- time alerts on trading activity across all Canadian marketplaces. These monitoring capabilities have been further enhanced with a specific alert for increased rates of short selling activity during periods of significant price declines. IIROC also has specific intervention abilities which include the power to vary or cancel any trade that is deemed “unreasonable”, to impose a halt on trading of any security across all Canadian marketplaces in the interest of a fair and orderly market, and to designate a security as short sale ineligible. Additionally in February of this year, IIROC implemented single stock circuit breakers as a tool to help mitigate volatility in the trading of certain securities.

IIROC and CSA/IIROC Notices issued today:

• Provisions Respecting Regulation of Short Sales and Failed Trades: A summary of the various UMIR rule amendments, IIROC’s strategic approach to short sale policy reforms and a discussion of the obligations for dealer firms under the rule changes. Includes an appendix of industry comments received and IIROC’s responses.
• Effects of Short Sale Circuit Breakers in the United States on the Trading of Inter-listed Securities in Canada: A summary of IIROC’s study, released today, which examined trading activity in Canada of inter-listed stocks that had triggered a short sale circuit breaker in the US. It found no evidence of migration to Canadian marketplaces of short- selling activity in these stocks that were subject to price restrictions only in the US. Last year, IIROC released two studies which found no unusual patterns of short selling or trade failure and concluded the tick test was not effective as a tool to restrict significant and rapid price declines.
• Proposed Guidance on “Short Sale” and “Short-Marking Exempt” Order Designations: A request for comments on IIROC’s revised draft guidance to dealers related to the marking of orders. Order marking will assist IIROC in focusing its monitoring on trading where investors take a “directional” position in a stock. That focus will increase the effectiveness of a new surveillance alert in monitoring for possible evidence of trading violations such as abusive short selling when there is a combination of increased short selling and a significant price decline in a security.
• CSA-IIROC Joint Notice 23-312 – Transparency of Short Selling and Failed Trades: A request for comments to solicit feedback on approaches to enhancing disclosure of short sales and introduce some public disclosure of failed trades. IIROC is working to increase public transparency of short sales with new disclosure, including a semi- monthly report that shows short sales as a percentage of total trading activity for each listed security.

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IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc., IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.

IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.

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