We've managed to negotiate an agreement on free trade with the U.S., but when it comes to trading halts Canada and the U.S. have a long way to go as the situation on Friday in Sino-Forest Corp. shows.
Sino-Forest was halted at the open by Canadian market regulators because the Ontario Securities Commission levied a cease-trade order.
While Canadian investors were stuck with shares that closed Thursday at $4.81, with no way to sell.
It took until Friday evening for the U.S. regulator in charge, the Financial Industry Regulatory Authority, to halt. A huge amount of trading -- 15.7 million shares -- took place in the U.S. while Canadians were locked out.
Why was one market open and one closed?
The original message from FINRA to the market operator in the U.S. was that it wasn't policy to halt in such a situation.
In the meantime, OTC Markets, which runs the over-the-counter market on which Sino-Forest trades in the U.S., added a warning signal for investors. The market put its "skull and crossbones" tag on the company's page to denote for investors that the situation is one of "buyer beware" because "there is a public interest concern associated with the company."
When trading in Sino-Forest finally was halted, FINRA gave the reason as a "foreign market/regulatory halt," put in place because a foreign regulator "has halted trading in such security for regulatory reasons because of public interest concerns." ( Here's a link to the page of stocks that are halted on the U.S. over-the-counter trading system, with Sino-Forest at the top as the latest one.)
Sometimes, people who deal with halts say, it's poor communications between the regulators in Canada and the U.S. that could be at the root of a lag in halts. (The Ontario Securities Commission on Friday declined to comment on whether it tried to contact U.S. regulators.)
But traders say there's also a difference in philosophy, with the U.S. looking to let companies trade through problems, a caveat emptor approach, while the Canadian way is to halt to protect new buyers from buying on poor information if a company's disclosure isn't up to snuff. Perhaps that protects buyers, but it punishes would-be sellers.
The fact is, there will be advocates and critics of both approaches, but on cross-listed stocks there ought to be a common policy and much better coordination.
For two countries with a vast trading relationship on every level (we are still the world's largest trading partners), with a large number of inter-listed stocks and coordination on regulatory issues such as disclosure, it doesn't seem too much to ask.