Friday, September 19, 2008


US, the UK, and now Canada. Incredible! Which country is next and why is the world starting to team up against the small group of short-sellers who are not the reason for the recent troubles? This is officially a war that will prove to be disastrous for global financial markets.

After the U.S. markets closed on September 19, the Ontario Securities Commission (OSC), supported by the Canadian Securities Administrators (CSA), issued a temporary order to ban short-selling effective until October 3. The following financial securities are affected:

  • Aberdeen Asia-Pacific Income Investment Company Ltd. (FAP)
  • Bank of Montreal (BMO)
  • Bank of Nova Scotia (BNS)
  • Canadian Imperial Bank of Commerce (CM)
  • Fairfax Financial Holdings Ltd. (FFH)
  • Kingsway Financial Services Inc. (KFS)
  • Manulife Financial Corp. (MFC)
  • Quest Capital Corp. (QC)
  • Royal Bank of Canada (RY)
  • Sun Life Financial Inc. (SLF)
  • Thomas Weisel Partners Group Inc. (TWP)
  • Toronto-Dominion Bank (TD)
  • Merrill Lynch & Co, Canada Ltd. (MLC)

The entire order can be found here (4 pages).

Jean St-Gelais, Chair of the CSA and President & Chief Executive Officer of the Autorité des marchés financiers (Québec) stated:

“The CSA is supportive of the action taken by the OSC today, other jurisdictions in the CSA will be taking similar action today, or in the coming days.”

If that’s the case, we’re talking about a possible 12 agencies to follow the OSC (Ontario):

  • Alberta Securities Commission
  • British Columbia Securities Commission
  • Manitoba Securities Commission
  • New Brunswick Securities Commission
  • Newfoundland & Labrador Dept. of Gov’t Services – Consumer & Commercial Affairs
  • Northwest Territories Registrar of Securities – Legal Registries Division
  • Nova Scotia Securities Commission
  • Nunavut Registrar of Securities – Legal Registries Division
  • Prince Edward Islands Securities Office – Consumer, Corporate & Insurance Division
  • Quebec Autorité des marchés financiers
  • Saskatchewan Financial Services Commission
  • Yukon Territory Superintendent of Securities – Community Services

Short-selling provides a vital liquidity function in the markets, especially during bear market panic attacks. Shorts are the first ones buying (to cover) at or near short-term bottoms, giving the market the fuel it needs for a rally. If the longs lose a significant amount of capital, and shorts are not present to buy, then who are the buyers? This leads to a free fall in the market. The regulations that are being imposed not only cut off the first wave of buyers (shorts) but also scares shorts from shorting in the future. Think of this as a band-aid on a gunshot wound - it just doesn’t work.

And what message does this send to the rest of world? The governments of the US, UK, and Canada pretty much run their markets whatever way they want to and fundamentals and technicals come don’t really mean too much as a result. Market manipulation and anti-free market policy does not instill confidence. In fact, I believe it instill more fear due to the uncertainty of when world governments will strike again. At this rate, I wouldn’t be surprised if shorts just threw in the towel and permanently lost confidence in their regulators.

Short-sellers are not the enemy in this war and these governments will learn that they just shot themselves in the foot.

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