Friday 6th December 2019

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Save Canadian Mining calls for short selling and private placement reform

by Greg Klein | November 22, 2019

With supporters including the TSX Venture Exchange, a new advocacy group has begun campaigning to improve investment regulations for junior miners. Officially launched this week, Save Canadian Mining intends to lobby government and regulatory agencies to reinstate the tick test on short selling and abolish the names committee requirement for private placements.

Along with the TSXV, supporters include Eric Sprott, the Ontario Prospectors Association, the Ontario Mining Association, newsletter writers and others.

Save Canadian Mining calls for short selling and private placement reform

Current market rules provide “an environment for predatory short-selling practices to thrive, particularly on our vulnerable junior markets,” said a news release from Terry Lynch. The SCM founder and CEO of Chilean Metals TSXV:CMX added, “For smaller-cap mining companies, short-selling activity spooks true investors into selling prematurely, effectively stunting the growth of these businesses at critical early stages.”

The group attributes increasing damage to a 2012 decision by the Investment Industry Regulatory Organization of Canada and the Canadian Securities Administrators, who cancelled a 142-year rule known as the tick test.

“The tick test restricted short selling to positive price changes at the time of the sale (i.e. an investor could only short a stock if it were on an upward trajectory),” according to the SCM statement. “This change was applied not only to the main listing venue of the TSX Venture Exchange, but was equally applied across all Canadian trading venues of which there are 14 today. Since the removal of the tick test, Canadian markets have evolved and there now exists a dynamic where Canada’s junior markets are finding it increasingly difficult to raise capital.”

Since then, Lynch added, “the advent of high-frequency trading and algorithmic trading are exploiting the combination of a lack of a tick test, with 14 different trading markets to the detriment of one of Canada’s most important industries.”

We look forward to working with Save Canadian Mining and industry stakeholders to engage Canada’s regulators in evaluating the reinstatement of a tick test, and in pursuit of continued improvements to our globally unique venture market.—Brady Fletcher
TSXV managing director

While maintaining that short selling contributes to a “healthy, efficient market,” TSXV managing director Brady Fletcher said, “The TSX Venture Exchange understands that certain changes to market operations in Canada, specifically related to the removal of the tick test, may have had unintended negative consequences for our junior, or more illiquid issuers.

“We look forward to working with Save Canadian Mining and industry stakeholders to engage Canada’s regulators in evaluating the reinstatement of a tick test, and in pursuit of continued improvements to our globally unique venture market, many of which were tabled for discussion in our 2019 Trading Roundtable report.”

SCM also calls on investment banks to allow companies to sell private placements to brokers without approval by a names committee. “Brokers can decide if it’s appropriate for a client, if their client has allocations with respect to investments that they’re able to invest without the names committee requirement, because that’s really just a barrier to trade,” Lynch tells ResourceClips.com.

The inspiration for SCM arose at last year’s PDAC conference, he says. “I was there on Sunday and it was just me and my boothmates, no investors. It was discouraging and we thought, ‘My God, we’re watching the demise of our industry.’ We’ve done okay in life and it’s not going to change our outlook, but we thought we should really try to make the changes we need, so that’s when I started it. I bought the domain that day.”

We think this is an across-the-board issue that every junior mining company, every junior mining investor, should be able to rally behind. The only guys who’d be against it would be the short sellers themselves.—Terry Lynch,
Save Canadian Mining founder

The group plans meetings with several offices, including Ontario’s ministries of mines and finance. “We’ll be lobbying the appropriate ministers in the Ford government to make them aware of the situation and hopefully get their support.

“There’s a lot of other issues but we’re not trying to re-invent PDAC. We’re really focused on these core junior mining issues.”

With short selling taking prominence, “we think this is an across-the-board issue that every junior mining company, every junior mining investor, should be able to rally behind. The only guys who’d be against it would be the short sellers themselves and they’re not being productive. They’re taking advantage of the situation and we think it’s got to stop. And if that stops, we could really turn the corner in junior mining and create a great market for our investors and allow companies to get the capital they need to go out there and make some discoveries.”

A clear focus and significant support might distinguish SCM from a previous group, the Vancouver-based Venture Capital Markets Association. Largely representing small-cap brokers and investors, the group formed in 2013 but petered out by 2016 with little attention from media, authorities or even the mining industry. Among other proposals, the VCMA wanted to place the B.C. Securities Commission under “a new independent board controlled by members who reflect the industry.”

See Save Canadian Mining’s website and petition.

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