The Ontario Securities Commission has published proposed amendments to the rules of the Canadian Depository for Securities Ltd. (CDS) concerning adherence to U.S. short-selling rules.

On January 26, CDS’ board of directors approved amendments to the CDS rules which will facilitate adherence to Regulation SHO by CDS Participants utilizing Cross-Border Services offered by CDS. Regulation SHO imposes requirements on broker-dealers engaged in trading activity on markets regulated by the U.S. Securities and Exchange Commission with respect to short sales of equity securities.

Regulation SHO requires short sellers to locate securities to borrow before selling short, and imposes additional requirements when trading in securities in which a substantial number of failures to deliver have occurred (threshold securities).

The proposed amendments include: an explicit requirement that participants utilizing Cross-Border Services comply with Regulation SHO; a provision allowing CDS to release information to any self-regulatory organization of which the participant is a member or the primary Canadian regulatory body relating to that participant’s compliance with Regulation SHO; a provision authorizing CDS to restrict a participant’s access to Cross-Border Services where there is non-compliance with Regulation SHO; and, a provision mandating that CDS take the necessary steps to close out a participant’s fail to deliver position in a threshold security.

In addition to the proposed amendments to its rules, CDS is proposing to implement changes to procedures to facilitate adherence to Regulation SHO by its participants. CDS is proposing to generate reports identifying threshold securities and outstanding positions in relation to these threshold securities both on an aggregate basis, for all CDS participants, and by individual participant.

To comply with the proposed amendments CDS participants will be expected to adopt internal procedures or policies when utilizing Cross-Border Services to ensure compliance with Regulation SHO.

Comments on the proposed amendments are due by March 6.