The Ontario Securities Commission released Proposed Amendments to OSC Rule 48-501Trading during Distributions, Formal Bids and Share Exchange Transactions (Rule) on June 5, 2025. The proposed amendments would apply to distributions made by issuers who are reporting issuers in Ontario. The amendments would prohibit anyone who short sells a security starting five business days before the pricing of a prospectus or private placement offering of the same class of securities from buying securities in the offering, unless one of the limited exemptions is available. The prohibition will apply regardless of whether the short seller had any prior knowledge of the offering, whether the offering amounts to a material fact or change for the issuer, or whether the short sale had any impact on the market price of the securities being sold.
For the purposes of the Rule, a short sale is any sale of a security where the seller does not have title to the security sold or that is settled or intended to be settled by the delivery of borrowed securities. The Rule would apply to distributions of equity securities other than units of an exchange-traded fund where the securities are sold for cash.
The proposed amendments to the Rule address concerns expressed by various parties, including that traders may learn of an upcoming financing and short sell in advance of any public announcement. By closing out the short position through buying back securities in the financing at a discount to the current market price, the short seller would lock in a profit. The proposals would solve some potential issues in enforcing current insider trading prohibitions in securities legislation, as there would be no requirement to have proof of knowledge, materiality, or effect on market price. The Rule would also be broadly aligned with the U.S. Securities and Exchange Commission (SEC)'s Rule 105 of Regulation M: Short Selling in Connection with a Public Offering (albeit broader).
If the amendments to the Rule move forward, institutional investors and other traders that engage in short selling will need to ensure they have policies and procedures updated to ensure compliance.
The comment period endsSeptember 3, 2025.
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