The Investment Industry Regulatory Organization of Canada (IIROC) may lift its restrictions on short selling in Canadian equities markets after releasing two studies that found that its limitations have not helped to reduce the number of failed trades.
IIROC has released for comment amendments to the Universal Market Integrity Rules, primarily including a repeal of the infamous tick test. The test, meant to protect companies in falling markets, forbids short selling on a stock if the price is lower than the last trade price.
The first IIROC study, which examined trades from May 2007 to April 30, 2010, found no unusual patterns of short selling or trade failure. The second study examined the period during which the tick test was in effect, and found that the test was not effective as a tool to restrict significant and rapid systemic declines in prices.
The US repealed its own decades-old tick test limitations in 2007 but considered reinstating it briefly after the collapse of Lehman Brothers and resulting market turmoil.