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Except for a few rallies along the way, short sellers on the Toronto Stock Exchange (TSX) have been in full retreat in recent months – as highlighted by the short position in the iShares S&P/TSX 60 exchange-traded fund (ETF).

On Nov. 30, it stood at 70 million units, down considerably from 120 million units in July.

Investment Industry Regulatory Organization of Canada (IIROC)

Bearish bets at the sector level

The three most shorted sectors as of Nov. 30 were preferred shares, energy companies and banks, as represented, respectively, by the BMO Laddered Preferred Shares, iShares S&P/TSX Capped Energy and BMO Equal Weight Banks ETFs.

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Some sectors have managed to show increases in short interest since Aug. 31. The biggest were: BMO MSCI Emerging Markets (1,893.1 per cent), iShares S&P/TSX Capped Financials (113.0 per cent) and iShares Canadian Corporate Bond (85.4 per cent).

The 10 most short sectors on the TSX (as of Nov. 30).

ETF# of units short as of Nov. 30# of units short as of Aug. 31% change from Aug. 31% of units short as of Nov. 30
BMO Laddered Preferred Shares ZPR-T11,705,917.0012,810,920-8.6%5.5%
iShares S&P/TSX Capped EnergyXEG-T9,120,630.009,173,571-0.6%8.0%
BMO Equal Weight Banks ZEB-T4,558,415.004,875,785-6.5%9.5%
iShares S&P/TSX Capped REIT XRE-T4,523,625.003,213,59040.8%6.5%
Horizons Marijuana Life SciencesHMMJ-T1,249,040.001,425,587-12.4%2.3%
iShares S&P/TSX Global Gold XGD-T890,653.00833,0636.9%1.4%
iShares Canadian Corporate Bond XCB-T846,084.00456,42985.4%1.1%
iShares Core MSCI EAFEXEF-T796,969.00976,579-18.4%0.6%
BMO MSCI Emerging Markets ZEM-T768,769.0038,5721893.1%0.8%
iShares S&P/TSX Capped FinancialsXFN-T548,867.00257,671113.0%2.0%

Source: IIROC

Excludes Canadian market ETFs

Consultation paper on activist short sellers

Canadian Securities Administrators (CSA), which represents provincial securities regulators, released a consultation paper on activist short sellers on Dec. 3. The consultation paper reports that activist short sellers have launched 113 campaigns against 73 Canadian companies since 2010.

Campaigns by activist short sellers against Canadian companies past 10 years

CSA Consultation Paper 25-403: Activist Short Selling

As for the charge that activist short sellers “distort and short”, the CSA paper states that a U.S. study “found that separate investigations by the Securities and Exchange Commission and the Department of Justice reached similar conclusions as activist short sellers in 90% of the [U.S.] campaigns.” Sources are cited on other issues, including my Globe and Mail article, “Regulations to rein in short-sellers must not undercut activists’ positive effects”

Non-reporting of foreign short sales

A report by the Investment Industry Regulatory Organization of Canada publishes the number of shares short for public Canadian companies twice a month. However, it does not include short sales of Canadian stocks trading in other countries. This omission substantially understates short selling activity and bearish sentiment, according to databases developed by S3 Partners.

They show that close to 900 Canadian firms have foreign short sales, mostly in the U.S. Not only are inter-listed companies shorted in other countries but so are Canadian companies listed exclusively in foreign jurisdictions. Furthermore, many companies listed solely in Canada are shorted in foreign over-the-counter markets. The S3 Research data also reveal that well over a third of large-cap Canadian companies have more than 50 per cent of their short sales outside of Canada; the value is US$12.5-billion for the top 30 companies.

Top 30 companies with foreign short interest exceeding 50% of total

CompanyU.S. tickerShort interest outside Canada (in U.S. millions)Foreign short sales as % of totalLocation of foreign exchange
Shopify Inc.SHOP-N$1,637.20 89.7%U.S.
Barrick Gold Corp.GOLD-N$1,169.40 86.2%U.S. & U.K.
Canopy Growth Corp.CGC-N$1,031.60 77.2%U.S.
Brookfield Asset Mgt.BAM-N$842.00 73.6%U.S.
Lululemon AthleticaLULU-Q$769.90 100.0%U.S.
Restaurant Brands Intl.QSR-N$614.90 81.5%U.S.
Canadian Tire Corp.CDNAF$466.10 69.2%U.S.
Aurora Cannabis Inc.ACB-N$480.10 87.2%U.S.
First Majestic Silver Corp.AG-N$487.20 92.2%U.S.
Kirkland Lake Gold Ltd.KL-N$339.40 91.2%U.S. & U.K.
Nutrien Ltd.NTR-N$253.20 56.7%U.S.
Franco-Nevada Corp.FNV-N$286.70 67.1%U.S.
Cronos GroupCRON-Q$351.10 86.6%U.S.
Ballard Power SystemsBLDP-Q$364.80 93.0%U.S.
Imperial Oil Ltd.IMO-N$243.10 70.0%U.S.
Ovintiv Inc.OVV-N$322.10 94.9%U.S.
Canada Goose Holdings.GOOS-N$299.90 90.5%U.S.
Lundin Mining Corp.LUNMF$197.50 79.5%U.S. & Sweden
Open Text Corp.OTEX-Q$238.60 78.0%U.S.
Lightspeed Inc.LSPD-N$180.50 59.0%U.S.
Aphria Inc.APHA-Q$241.00 81.3%U.S.
Blackberry Ltd.BB-N$203.80 72.9%U.S.
Teck Resources Ltd. BTECK-N$181.30 66.1%U.S.
Tilray Inc.TLRY-Q$256.30 100.0%U.S.
GFL Environmental Inc.GFL-N$179.00 82.6%U.S.
Canadian Solar IncCSIQ-Q$208.00 100.0%U.S.
Gildan Activewear.GIL-N$135.30 68.5%U.S.
Cameco Corp.CCJ-N$148.30 78.9%U.S.
First Quantum MineralsFM-N$107.50 57.3%U.S.
SNC-Lavalin GroupSNCAF$135.90 78.4%U.S.
Total $12,371.40

Source: S3 Partners

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