On December 3, 2020 the  Canadian Securities Administrators (CSA) published a consultation paper ( Consultation Paper) is to facilitate discussion of concerns relating to activist short selling and its potential impact on Canadian capital markets. The Consultation Paper summarizes stakeholder concerns about activist short selling, outlines the Canadian and international regulatory frameworks for this activity and sets out CSA Staff’s findings regarding the nature and extent of activist short selling in Canada.

According to press release accompanying the Consultation Paper, activist short selling involves an individual or entity that takes a short position in a security and then publicly shares information that is expected to negatively impact a company’s stock price. If the value of the security declines, the short seller realizes a profit. The CSA’s research and analysis on short selling began in 2019 and the key findings of that review as set out in the Consultation Paper have been:

  • Activist short sellers tend to gravitate towards the securities of issuers and sectors where there is perceived overvaluation.
  • U.S. issuers are more frequently targeted by activist short sellers than Canadian issuers.
  • Canadian short selling campaigns tended to focus on larger issuers.
  • The majority (75%) of Canadian campaigns analyzed experienced a negative price impact on their price in the short-term and also over time.
  • Approximately 40 per cent involved allegations of some type of fraud at the issuer, the most common being a stock promotion scheme.

The CSA is requesting feedback on the Consultation Paper by March 3, 2021.

For more information please see: CSA Consultation Paper 25-403 Activist Short Selling can be found on CSA members’ websites.

For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication.  No part of this publication may be reproduced without the prior written permission of BAX Securities Law.