Policy 1.1 - Definitions

Part 1 – Definition of “connected security”

The definition of a “connected security” includes, among other things, a security of the issuer of the offered security or another issuer that, according to the terms of the offered security, may “significantly determine” the value of the offered security. The Market Regulator takes the view that, absent other mitigating factors, a connected security “significantly determines” the value of the offered security, if, in whole or in part, it accounts for more than 25% of the value of the offered security.

Part 2 – Definition of “Exempt Exchange-traded Fund”

An “Exempt Exchange-traded Fund” is defined, in part, as a mutual fund for the purposes of applicable securities legislation, the units of which are a listed security or a quoted security and are in continuous distribution in accordance with applicable securities legislation. The definition excludes a mutual fund that has been designated by the Market Regulator to be excluded from the definition.

As guidance, a mutual fund may be designated by the Market Regulator if it is determined that the trading price of units of the fund may be susceptible to manipulation due to a particular feature of the mutual fund. Factors which the Market Regulator would take into account in making a designation to exclude a particular mutual fund would be:

• the lack of liquidity or public float of the security (or the underlying securities which comprise the portfolio of the mutual fund);
• the absence of the ability to redeem units at any time for a “basket” of the underlying securities in addition to cash;
• the absence of the ability to exchange a “basket” of the underlying securities at any time for units of the fund;
• the fact that the fund does not frequently make a net asset value calculation publicly available; and
• the fact that there are no derivatives based on units of the fund, the underlying index or the underlying securities are listed on a marketplace.

None of these additional five factors is determinative in and of itself and each security will be evaluated on its own merits. 

Part 2.1 – Definition of “Pre-Borrow Security”

Under the definition of a “Pre-Borrow Security”, the Market Regulator may designate a security in respect of which an order that on execution would be a short sale may not be entered on a marketplace unless the Participant or Access Person entering the order has made arrangements to borrow the securities that would be required to settle the trade prior to the entry of the order. In determining whether to make such a designation, the Market Regulator shall consider whether:

• based on information known to the Market Regulator, there is an increase in the number, value or volume of failed trades in the particular security by more than one Participant or Access Person;
• the number or pattern of failed trades is related to short selling; and
• the designation would be in the interest of maintaining a fair and orderly market.

Part 3 – Definition of “Short Sale” 

Under the definition of “short sale”, a seller shall be considered to own a security under various circumstances including if the seller, directly or through an agent or trustee:

• owns another security that is convertible or exchangeable into that security and 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; or
• has a right or warrant to subscribe for the security and has exercised the right or
• warrant.

In each of these circumstances, the seller must have taken all steps necessary to become legally entitled to the security, including having:

• made any payment required;
• submitted to the appropriate person any required forms or notices; and
• submitted, if applicable, to the appropriate person any certificates for securities

to be converted, exchanged or exercised.

Part 4 – Definition of “Short Sale Ineligible Security”

Under the definition of a “short sale ineligible security”, the Market Regulator may designate a security or class of securities in respect of which an order that on execution would be a short sale may not be entered on a marketplace for a particular trading day or trading days. In determining whether to make such a designation, the Market Regulator shall consider whether:

• based on reports of failed trades submitted to the Market Regulator in accordance with Rule 7.10 or other information known to the Market Regulator, there is in a particular security or class of securities an unusual number or pattern of failed trades by more than one Participant or Access Person;
• the number or pattern of failed trades is related to short selling; and
• the designation would be in the interest of maintaining a fair and orderly market.