On January 22, 2021, the Capital Markets Modernization Taskforce (Taskforce) released its final report (Report). The Taskforce was established by the Ontario Provincial Government to help transform the regulatory landscape for the capital markets sector, and advise the Minister of Finance on how to improve the innovation and competitiveness of the Province’s capital markets and best help build Ontario’s economy.

The Report includes 74 policy recommendations designed to amend securities laws in the following areas including regulatory structure to enhance governance; improving competitiveness through regulatory measures; ensuring a level playing field between large and small market players; improving the proxy system, corporate governance and the process of mergers and acquisitions; fostering innovation and modernizing enforcement; and enhancing investor protection.

Because of the far reaching nature of the numerous recommendations, BAX will do a series of articles over the next few weeks on recommendations of interest to small and midcap issuers and the registrants that service them.

Recommendation #13 – Prohibit short selling in connection with prospectus offerings and private placements

In its Report, the Taskforce addressed the issue of short selling referring to the submissions of multiple stakeholders who advised that short selling in connection with prospectus offerings is making pricing and execution of prospectus offerings more difficult. According to the Task Force, because prospectus offerings are generally priced at a discount to the market price, market participants and investors who expect to purchase under the offering may seek to profit through aggressive short selling prior to the offering to depress the price of the offering. The Report points out that short selling is particularly problematic where the underwriters are engaged in market stabilization in connected with the prospectus offering.

The Taskforce recommended that the Ontario Securities Commission (OSC) adopt a rule that would prohibit market participants and investors that have previously sold short securities of the same type as offered under a prospectus or private placement from acquiring securities under the prospectus or private placements which, in the view of the Taskforce, results in greater clarity for all market participants.

For a full copy of the Report:

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.