Short Selling "There are existing requirements in Canadian securities legislation and UMIR that prohibit manipulative and deceptive activities. UMIR specifies that entering an order to sell a security without having a reasonable expectation of settling the resulting trade on settlement date is considered a false or misleading appearance of trading activity and thus a manipulative and deceptive activity." (citation omitted)
It is illegal and prohibited to short a stock with prior knowledge of an impending placement with intention to settle the short trades from the new shares issued after the placement.