Uptick Rule needed by Kelsey Rolfe Short sellers – investors who bet against public companies by borrowing shares and immediately selling them with the expectation the price will drop so they can repurchase at a lower value – serve an important price-discovery role in the public market and have even unearthed cases of fraud and corporate malfeasance. But experts say Canada’s lax regulations around the practice have allowed “short and distort” campaigns (spreading negative rumours about a company to artificially drive its value down) and other abusive forms of short selling to flourish in the country.
Mining companies have been frequent targets. In the past decade, Silvercorp Metals, Pretium Resources, Asanko Gold and Northern Dynasty Minerals have been caught in particularly high-profile campaigns. Most recently, Novagold Resources sued J Capital Research for defamation in a New York court over the firm’s May 2020 report that questioned the viability of the company’s Donlin gold project in Alaska, a joint venture with Barrick Gold. The miner’s stock took a tumble from roughly $16 to $10.75 in the 10 days following the report and is trading around $11 as of press time.
In January, the Ontario Capital Markets Modernization Taskforce recommended the provincial regulator create a new prohibition against “misleading or untrue statements” about public companies to prevent both short and distort campaigns and “pump and dump” (investors try to build up cheaply purchased stocks by spreading positive rumours) schemes. The prohibition, similar to legislation recently enacted in British Columbia, would require the Ontario Securities Commission only to prove intent, rather than causation.