The Short End of the Stick: Bolstering Legal Protections for Short Sellers in Ontario’s Secondary Market

AuthorJacob Medvedev
The Short End of the Stick: Bolstering Legal
Protections for Short Sellers in Ontario’s Secondary
Jacob Medvedev
: In this paper, the author surveys Ontario’s secondary market
civil liability framework. The author reviews the constituent continuous
disclosure obligations as well as the enforcement mechanisms that are
available under common law and statute. The author then explores how
short sellers f‌it into Ontario’s secondary market securities laws. Avenues
of legal recourse have seemingly crystallized for ordinary investors
who are misled by reporting issuers in the secondary market. However,
Ontario’s securities laws are unclear regarding the legal redress that is
available to aggrieved short sellers who are resigned to a similar fate. To
address this gap, the author argues in favour of strengthening legal pro-
tections for short sellers by: (1) recognizing a duty of care owed by public
issuers to short sellers; and (2) revising the damage calculation formulas
in Part XXIII.1 of Ontario’s Securities Act to ensure that they are capable of
compensating short sellers in a manner that is commensurate with their
investment position. In doing so, Ontario could better position itself as
a robust securities market that provides adequate legal safeguards for
diverse types of investors. Moreover, the implementation of remedial
measures for short sellers may create market conditions that encour-
age the spread of negative information about stocks, paving the way for
greater accuracy in the price discovery of shares and bolstered market
eciency overall.
Jacob Medvedev*
The overriding objective of Ontario’s securities laws is to “foster fair
and ecient capital markets.”1 This objective calls for the development
and implementation of safeguards that protect investors from unfair,
improper, or fraudulent practices of public companies.2 In July 2020,
Ontario’s Capital Markets Modernization Taskforce (the Taskforce) pub-
lished a consultation report that outlined policy recommendations for
the modernization and invigoration of Ontario’s capital markets.3 Among
other things, the Taskforce reiterated the importance of strengthening
prohibitions on misleading and untrue statements by public companies
and enhancing investor protections.4 The Taskforce’s calls-to-action are
especially important for the regulation of the secondary market, given
* Jacob Medvedev is a graduate from the JD/MBA program at the University of Ottawa
Faculty of Law and Telfer School of Management. Jacob will be joining Norton Rose
Fulbright LLP in Toronto, ON as an articling student in 2021. Jacob would like to
thank Erika Anschuetz, lawyer at Norton Rose Fulbright LLP in Toronto, ON, for her
guidance at the inception of this project.
1 Securities Act, RSO 1990, c S.5, s 1.1 [Securities Act].
2 Ibid. Throughout this paper, I interchangeably use the terms public company, publicly
traded company, publicly listed company, and reporting issuer in reference to
companies whose securities are traded on the primary and secondary markets.
3 Capital Markets Modernization Taskforce, Consultation Report July 2020, online:
report-july-2020 at 1 [Taskforce].
4 Ibid at 37 and 44.

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