• Richard Shatto

Saving the Canadian Junior Mining Industry from Predatory Short Selling.

An important new mining advocacy initiative to save the Canadian Junior Mining Industry from Predatory Short Selling as been initiated by a group of mining executives led by Terry Lynch with support from Eric Sprott and other Canadian mining executives. SaveCanadianMining.com

In 2012 IIROC and CSA removed a trading rule known as the “tick test”, which restricted short selling to neutral or sales to positive price changes at the time of the sale. These changes were applied not only to the main listing venue of TSX Venture Exchange, but are equally applied across all Canadian trading venues, of which there are 14 today, reducing TSX Venture’s ability to effect any change. Since removal of the tick test, the Canadian markets have evolved, and there now exists a dynamic where short selling activities, high frequency trading, and algorithms are exploiting the lack of a tick test to the detriment of Canada’s junior markets. We call on CSA and IIROC to evaluate re-instituting the tick test.

The initiative has Two Anticipated Outcomes

Outcome #1

Restore the "no-short-on-the-uptick" rule, or abolish short selling on listed companies under a $250 million dollar market cap.

Outcome #2

Secure a public commitment from Investment Banks to allow listed Companies to sell private placements to brokers without having to be approved by a names committee. Brokers have a fiduciary responsibility to act in their clients best interest and that should govern whether or not they are able to have their investors invest in private placements. Brokers should receive compensation similar to the fees they get from participating in an IPO.

These ideas are based on three basic facts.

Fact #1

Mining financing has been on a steady decline since this rule change happened (specifically looking at Chart 2.4 on page 16 and Chart 3.1 here on page 26).

While commodity markets have been challenged, the combination of 14 different trading venues, and elimination of the tick test has created an environment that is difficult for TSXV issuers to build support of predominately retail shareholders who feel that algorithms are able to get "an inside track".

Fact #2

Oreninc's index demonstrates that this lack of financing activity is also contributing to a divergence between commodity prices, and the equities of junior commodity companies as junior companies have been unable to finance and continue exploration. Link to the Oreninc Report

Fact #3

Canada's resources markets are world leaders by share of number of listed companies, number of financings, dollar value raised, and ethical standards. The removal of the tick-test, and creation of alternative trading markets is something that many other jurisdictions have done, and this is an opportunity for Canada to lead in supporting junior markets through our globally unique platform, the TSX Venture Exchange by re-instituting the tick test and allowing TSX Venture issuers to trade on their home market only (the TSXV).

As one of the many Junior Mining Companies in Canada that has experienced this type of short selling, we at Deeprock support this initiative and recommend that others do as well.