OSC extends short-selling ban on 13 financial stocks

The Ontario Securities Commission has extended a ban on the short-selling of 13 major financial services stocks on the Toronto Stock Exchange until Oct. 3.

The prohibition, originally imposed on Sept. 21, prevents traders from engaging in the practice of shorting the shares of those companies — essentially betting that the stock will fall — until the agency reviews the order again.

The firms include the country's five largest chartered banks: Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Bank of Montreal.

Also affected is stock in Manulife Financial, Fairfax Financial Holdings, Sun Life Financial, Thomas Weisel Partners, Kingsway Financial, Quest Capital and Merrill Lynch Canada.

The OSC initially slapped the ban in place as a way of protecting stocks from foreign investors who, faced with a ban on shorting stocks in other countries, might try to make a similar transaction in Canada, regulatory officials said.

"The temporary order was put in place as a precautionary matter and to ensure that our markets are not used for purposes of regulatory arbitrage," an OSC official who asked not to be identified said Tuesday.

The practice of short-selling has been around for decades and occurs when an investor sells a stock he or she does not currently own. The investor buys the shares at a later date, hoping to make money if the stock's value falls in the meantime.

Stock watchers, however, argue that short-selling puts downward pressure on share prices and contributed to Wall Street's financial meltdown in September.

The United States has banned the short-selling of 799 stocks while Britain also placed restrictions on the practice at least temporarily.

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