IIROC Cracks Down On Naked Shorts https://www.iiroc.ca/news-and-publications/notices-and-guidance/guidance-participant-obligations-have-reasonable-expectation-settle-any-trade-resulting-entry-short
IIROC expects that prior to the entry of a short sale order a Participant has reasonable certainty that it can access sufficient securities for it to settle any resulting trade on settlement date, which generally is two days following the trade date. If the Participant knows or ought reasonably to know that it is unlikely that sufficient securities will be available and accessible to deliver on settlement date, the order is not permitted to be entered. For example, a Participant may not be able to demonstrate a reasonable expectation that sufficient shares would be available on settlement date in cases where:
- the person on behalf of whom the short sale order is entered has previously executed trades where shares were not available to deliver on settlement date, or
- the securities being sold short are difficult to borrow.
For added clarity, where a client expects to receive securities after the settlement date of a short sale trade, the Participant is not permitted to rely on those securities to establish a “reasonable expectation” to settle because the securities would not be available to deliver on the settlement date of the short sale trade.