March 2026

Short Selling in Canada: New Restrictions and Rule Updates

Canadian regulators are tightening the framework surrounding short selling. Significant changes are underway from both the Ontario Securities Commission (OSC) regarding trading during distributions and the Canadian Investment Regulatory Organization (CIRO) concerning the Universal Market Integrity Rules (UMIR).

1. OSC Rule 48-501: Restricting Short Sales Prior to Offerings

The OSC is moving forward with amendments to Rule 48-501 (Trading during Distributions, Formal Bids and Share Exchange Transactions). These changes are designed to prevent “offering-related arbitrage,” where market participants short a security shortly before a public offering or private placement and then cover those positions using the cheaper securities from that same offering.

Key Components Under Review:

• The Prohibition: Investors who make a short sale of a security within five business days prior to the pricing of a prospectus offering or private placement are prohibited from purchasing securities in that offering.
• Strict Liability: The restriction applies even if the short seller had no prior knowledge of the offering, the offering wasn’t “material information,” or the short sale had no actual impact on the market price.
• New Definition of “Short Sale”: For the purposes of this rule, a short sale is defined as any sale where the seller does not have title to the security or where the trade is settled using borrowed securities.
  • Note: This aligns closely with SEC Rule 200, covering sales settled with borrowed shares even if the seller holds a long position elsewhere (e.g., in a separate account).

Current Status:

Following the consultation period that ended in late 2025, the amendments are currently under final regulatory review. Market participants should prepare for these rules to be formally enacted in the near term.

2. CIRO Updates: UMIR “Reasonable Expectation to Settle”

The updates to the Universal Market Integrity Rules (UMIR) are now fully in effect. Furthermore, as of March 27, 2026, CIRO has completed its UMIR Guidance Update Project, which modernized all guidance notes to provide greater clarity on these requirements.

Key UMIR Highlights:

• Positive Requirement (Rule 3.3): Before entering a short sale order, participants must have a reasonable expectation that they will be able to settle the trade on the settlement date.
• Gatekeeper Obligations: Dealers must maintain enhanced supervisory controls to ensure their clients meet the “reasonable expectation” standard before orders are accepted.
• Settlement Failure Clarification: While a failed trade does not automatically constitute a violation, CIRO uses failure data to trigger regulatory scrutiny of the participant’s prior expectation to settle.

Summary for Market Participants

Next Steps:

Investment firms and institutional investors should ensure their internal policies reflect the finalized CIRO guidance (March 2026) and monitor the OSC Bulletin for the final “Coming into Force” notice for Rule 48-501.

Artius Global Commentary

Canada’s evolving short selling landscape—marked by stricter prohibitions during offerings and rigorous “expectation to settle” requirements—highlights the growing complexity and cost of compliance. For firms operating across diverse jurisdictions, Artius Global provides solutions that automate regulatory monitoring, streamline trading workflows, and ensure alignment with specific market rules. By reducing operational risk through technology, we support consistent compliance in an increasingly scrutinised global market.

 The above content is purely for information and does not purport to offer legal or professional counsel.