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UPDATE 1-Canadian regulator places ban on short-selling

Fri Sep 19, 2008 7:07pm EDT

TORONTO, Sept 19 (Reuters) - Canada's largest provincial securities watchdog said late on Friday that it will follow other international authorities with a temporary ban on short-selling certain financial stocks.

The Ontario Securities Commission said the ban, coming on the heels of similar orders in the United States, Britain and other countries, will be in effect until Oct. 3.

Short-selling involves a bet that a security will fall in value.

International regulators reined in short-selling of financial stocks this week in a bid to smooth volatility in financial markets.

The largest Canadian financial stocks that trade in both New York and Toronto had already been put on the U.S. Securities and Exchange Commission's list of about 800 stocks in which short-selling was temporarily banned, including Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) and Manulife Financial (MFC.TO: Quote, Profile, Research, Stock Buzz).

The Ontario Securities Commission, which is the lead regulator of the Toronto Stock Exchange, said it was prohibiting short-selling of certain securities issued by financial companies that are listed on both the Toronto Stock Exchange and on a U.S. exchange.

These include the country's largest banks and insurers, and a few smaller financial players such as Thomas Weisel Partners Group Inc (TWPG.O: Quote, Profile, Research, Stock Buzz) and Kingsway Financial Services Inc (KFS.TO: Quote, Profile, Research, Stock Buzz).

In a separate statement, Ontario Finance Minister Dwight Duncan said he supported the move.

"We are confident that our financial markets are strong and well positioned to withstand the current economic challenges," Duncan said.

Some Canadian market participants said earlier in the day that they did not think it was necessary to halt short sales in Canada, since the country's financial system is under less strain than its U.S. counterpart.

"I don't think they need to. Some of the Canadian stocks are included in (the U.S. ban) because they're cross-listed in New York," said Gavin Graham, director of investments at BMO Asset Management.

"I don't think the Canadian market really had the same issues," said Paul Hand, managing director at RBC Capital Markets.

The SEC said early on Friday it was concerned that short-selling in financial institutions' securities may be causing "sudden and excessive fluctuations" in their prices, threatening fair and orderly markets.

In the domestic market, Canadian bank and insurance stocks shot higher on Friday, rising 5.7 percent, along with gains in all other sectors.

Financial companies were not among the largest 20 short positions on the Toronto Stock Exchange, as of Sept. 15.

But there had been an increase in short positions in Bank of Montreal (BMO.TO: Quote, Profile, Research, Stock Buzz) and National Bank of Canada (NA.TO: Quote, Profile, Research, Stock Buzz) since the previous report.

Financial companies and U.S. lawmakers had pushed the SEC to end abusive short selling after Lehman Brothers Holdings (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) was forced into bankruptcy protection early this week, and Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz) agreed to be bought by Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz). (Reporting by Lynne Olver and Cameron French; editing by Rob Wilson)

http://www.reuters.com/article/marketsNews/idUSN1931182520080919?sp=true