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CIRO – Proposed Amendments Respecting Mandatory Close-Out Requirements
Letter Summary:
The Canadian Investment Regulatory Organization (CIRO) is proposing amendments to the Universal Market Integrity Rules (UMIR) and Investment Dealer Partially Consolidated Rules (IDPC) that would require applicable Dealer Members that are Investment Dealers (Investment Dealer Members) to:
- close out a fail-to-deliver position in the event of a settlement failure in a listed security at the recognized clearing agency by specified timelines by buying or borrowing shares,
- pre-borrow the affected security where there has been a failure to close out by specified timelines for all future short sales in the security at issue,
- provide certain reporting and notifications in connection with mandatory close-out requirements, and
- have a reasonable expectation to settle on settlement date for Investment Dealer Members that are not Participants under UMIR (Proposed Amendments).
CIRO is publishing the Proposed Amendments in order to solicit comments on the best approach to:
- introduce mandatory close-out requirements to reduce fail-to-deliver positions involving securities with persistent failures to deliver, and
- establish a reasonable expectation to settle a trade on the expected settlement date for Investment Dealer Members that are not Participants.
Overview of the Council’s Comments:
The CAC responded to CIRO’s request for comment on its consultation regarding proposed amendments to mandatory close-out requirements.
Key points from the letter included:
The CAC responded to CIRO’s request for comment on its consultation regarding proposed amendments to mandatory close-out requirements.
- The CAC emphasized the important role force of short selling in price discovery, market efficiency, liquidity, and risk management.
- The CAC advocated for data-driven regulatory changes that address specific concerns without unintentionally and generally suppressing short-selling activity.
- The CAC supported reforms aligning Canadian regulations with those of comparable markets and believed the proposed changes would not undermine short selling’s core functions. The CAC was pleased that CIRO considered multiple jurisdictions in its analysis.
- The CAC endorsed the introduction of mandatory close-out requirements, stating that they would strengthen the regulatory framework by closing gaps without inordinately impeding responsible short-selling.
- The CAC also agreed that aligning the amendments with U.S. regulations would minimize the burden on market participants and facilitate a smooth transition, given the interconnectedness of Canadian and U.S. markets.