An effort to unmask securities dealers that are suspected of being engaged in abusive short-selling failed, as an adjudicator at the Information and Privacy Commissioner Ontario (IPC) largely upheld the decisions of the Ontario Securities Commission (OSC) about the records it would release from a study of failed trades and the regulators’ policy work on activist short-selling.
According to the decision from the IPC, following the release of a study on failed trades by the Investment Industry Regulatory Organization of Canada (IIROC) in December 2022, the OSC received an access to information request from a lawyer representing an advocacy group for issuers.
That request led to the OSC identifying relevant records and deciding what it could release. While the OSC turned over certain records, it denied access to other records on various grounds, including that they contained privileged information, advice that’s exempt from disclosure and law enforcement information.
That decision was appealed to the IPC, which largely upheld the regulator’s ruling, finding that “most of the withheld information is exempt and that the OSC exercised its discretion appropriately.”
According to the decision, the records that the regulator refused to disclose include a version of the original IIROC study that identifies the dealers and securities that are involved with failed trades, rather than the anonymized version that was publicly released.
The undisclosed records also include emails between various regulators discussing certain policy issues including the OSC’s work on the Canadian Securities Administrators’ (CSA) project on activist short-selling, certain briefing notes, internal communications and emails that disclose how IIROC’s successor, the Canadian Investment Regulatory Organization (CIRO), tracks industry social media activity.
While the IPC adjudicator, Jonathan Batty, largely agreed with the OSC’s disclosure decisions, he also ruled that certain information should be disclosed, as it was largely just factual information and didn’t qualify to be kept confidential.
However, the IPC upheld the OSC’s decision not to release the version of the failed trades study that named certain dealers and securities.
According to the decision, the OSC argued that releasing that version of the study could harm the dealers and issuers that were identified as “outliers” by the study, because they accounted for a larger share of the failed trading activity. It also argued that disclosure could hamper future efforts by CIRO to collect data from dealers.
The IPC agreed, ruling that identifying the outliers could create a perception in the market “that will prejudice significantly the competitive position or interfere significantly with the contractual or other negotiations of the dealers and securities issuers who are identified.”
The adjudicator also rejected the argument that there was an overriding public interest in compelling disclosure of certain records, finding that the disclosure is being sought primarily for a private purpose, to further possible litigation.
“[The appellant’s] concern is that some dealers are intentionally engaging in manipulative short-selling and it is having a disproportionate impact on some securities issuers,” the decision noted.
However, the OSC argued that the failed trades study “is too general to be used to conclude malfeasance on the part of specific dealers,” and that, as a result, it doesn’t engage the public interest.
“Considering all this evidence, the information I have found exempt does not meet the ‘compelling public interest’ threshold,” the IPC said.
On the question of whether to release a series of emails between the OSC and staff of CIRO that set out how the self-regulatory organization (SRO) monitors social media, the IPC also sided with the OSC, saying that the records are exempt from disclosure as they contain “a detailed description of the tools and strategies that the CIRO uses to monitor how security market participants use social media.”
“I accept that disclosure could reasonably be expected to reveal investigative techniques and procedures currently in use or likely to be used by the [SRO],” it said.
The IPC also declined to order the disclosure of records that contained communication between the OSC and other members of the CSA, which the OSC argued could harm its ability to communicate and cooperate with the other provincial regulators.
“These emails contain the views of regulatory agencies in other jurisdictions on substantive matters. The OSC’s evidence shows that this information was exchanged in confidence,” the IPC’s Batty wrote. “From my review of the records, it is clear disclosure would reveal the substance of the confidential deliberations of these securities regulators.”
The IPC also upheld the regulator’s decision to refuse to disclose certain records that contained policymaking advice, which is generally exempt from disclosure to ensure that policymakers can provide honest advice and make recommendations during the policymaking process.
While the adjudicator found that certain factual information contained in those records could be disclosed, in certain instances where the records were found to contain a mix of fact and advice, the IPC ruled against disclosure, saying, “The factual information is mostly mixed with the advice or recommendations. Even where that information is not mixed, it would, if disclosed, permit the drawing of accurate inferences about the nature of the actual advice or recommendations provided to OSC decision makers.”