UBC Theses and Dissertations

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UBC Theses and Dissertations

Some tests of the efficacy of security regulation in Canadian capital markets Kryzanowski, Lawrence 1976

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SOME TESTS OF THE EFFICACY Or SECURITY REGULATION IN CANADIAN CAPITAL MARKETS by LAWRENCE KRYZANOWSKI B .A . , Un ivers i ty of Calgary, 1968 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEC-REE OF DOCTOR OF PHILOSOPHY i n THE FACULTY OF COMMERCE AND . BUSINESS ADMINISTRATION We accept t h i s thes is as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA J u l y , 1976 @ Lawrence Kryzanowski, 1976 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d that c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t ten pe rm i ss ion . Department o f Commerce The U n i v e r s i t y o f B r i t i s h Co lumbia 2075 W e s b r o o k P l a c e V a n c o u v e r , C a n a d a V6T 1W5 Date ft u^x-w^" ^ 6 ^ 1 ° ! ^ ABSTRACT Wh i l e most l a w y e r s , government o f f i c i a l s and s e c u r i t y r e g u l a t o r s would f i n d i t d i f f i c u l t to c o n c e i v e o f an e f f i c i e n t and e q u i t a b l e s t o c k market w i t h o u t e x i s t i n g s e c u r i t y r e g u l a -t i o n ; a number o f b r o k e r s , i n v e s t o r s and e c o n o m i s t s would not f i n d i t d i f f i c u l t to do s o . A l t h o u g h the m e r i t s o f each v i e w -p o i n t have been deba ted a t l e n g t h , the e f f i c a c y o f s e c u r i t y r e g u l a t i o n i n i m p r o v i n g the e f f i c i e n c y o f s e c u r i t y marke ts has not been r e s o l v e d e m p i r i c a l l y . G i v e n t h i s d e f i c i e n c y i n the l i t e r a t u r e , the major purpose o f t h i s t h e s i s has been to d e r i v e s p e c i f i c hypo theses f rom the two compet ing v i e w p o i n t s and then to e m p i r i c a l l y t e s t the p r e d i c t i o n s o f each h y p o t h -e s i s on the e f f e c t i v e n e s s o f t r a d i n g s u s p e n s i o n s i n i m p r o v i n g the s t r o n g form e f f i c i e n c y o f Canad ian s t o c k m a r k e t s . The two hypo theses a re the n a i v e r e g u l a t o r (NR) h y p o t h e s i s , wh ich s t a t e s t h a t an u n r e g u l a t e d market i s e f f i -c i e n t , and the s o p h i s t i c a t e d r e g u l a t o r (SR) h y p o t h e s i s , wh ich s t a t e s t h a t an u n r e g u l a t e d market i s not e f f i c i e n t . The compet ing hypo theses were e m p i r i c a l l y t e s t e d u s i n g a sample o f 120 Canad ian s t o c k s t h a t had t h e i r t r a d i n g suspended t e m p o r a r i l y because o f a f a i l u r e to d i s s e m i n a t e r e q u e s t e d f i r m - s p e c i f i c i n f o r m a t i o n . Three subsamples o f the 120 s t o c k s ( a l l e g e d l y m a n i p u l a t e d , u n f a v o u r a b l e i n f o r m a t i o n and f a v o u r a b l e i n f o r m a t i o n ) were a l s o i d e n t i f i e d .and a n a l y z e d . A c c o r d i n g to the s t r o n g form of the e f f i c i e n t market i i h y p o t h e s i s (and i t l o g i c a l c o n s e q u e n c e , the NR h y p o t h e s i s ) , the e f f e c t o f any i n f o r m a t i o n d i s p e r s e d d u r i n g a t r a d i n g s u s p e n s i o n s h o u l d be z e r o , s i n c e any i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s would not be a v a i l a b l e to the r e g u l a t o r s . On the o t h e r hand , the SR h y p o t h e s i s p r e -d i c t s t h a t the e f f e c t may not be ze ro because i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t ock p r i c e s may be known to r e g u l a t o r s . The m a r k e t ' s r esponse to new i n f o r m a t i o n , such as the " n o n - p u b l i c " i n f o r m a t i o n s u p p o s e d l y d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n , was measured by the f i r m - s p e c i f i c com-ponent o f a s e c u r i t i e s ' r e t u r n . The s i g n i f i c a n c e o f t h i s market r esponse was then examined by u s i n g a number o f t e s t s , such as the F a m a - F i s h e r - J e n s e n - R o l 1 t e s t , the p o r t f o l i o t e s t , pa ramete r s e n s i t i v i t y t e s t s and a poo led c r o s s - s e c t i o n t ime s e r i e s r e g r e s s i o n t e s t . The s tudy i d e n t i f i e d r e g u l a t o r s as h a v i n g a c c e s s to s i g n i f i c a n t m o n o p o l i s t i c i n f o r m a t i o n wh ich i s d i s s e m i n a t e d to the market ( the p u b l i c ) d u r i n g a t r a d i n g s u s p e n s i o n . I t a l s o found t h a t w h i l e the market i s e f f i c i e n t i n the s e m i - s t r o n g form f o r f a v o u r a b l e new p u b l i c i n f o r m a t i o n , such i s not the case f o r u n f a v o u r a b l e new p u b l i c i n f o r m a t i o n . F u r t h e r m o r e , the f i n d i n g s o f the s tudy sugges t t h a t d e l i b e r a t e l y pu rsued s t r a t e g i e s o f d i s s e m i n a t i n g (and e x p l o i t i n g ) m i s i n f o r m a t i o n a re p r o f i t a b l e . i i i TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES AND EXHIBITS . . . , . . ACKNOWLEDGEMENTS Chap te r 1. INTRODUCTION THE ECONOMIC FUNCTION OF THE CAPITAL MARKET APPROACHES TO SECURITY REGULATION 8 " C o n t r o l o f Conduc t " R e g u l a t i o n s 8 " D i s c l o s u r e " Requ i remen ts 8 OPPOSING VIEWPOINTS ON THE EFFICACY OF SECURITY REGULATION 10 Na ive R e g u l a t o r H y p o t h e s i s 10 S o p h i s t i c a t e d R e g u l a t o r H y p o t h e s i s . . . . 11 THE EMPIRICAL EVIDENCE ON THE EFFECTIVENESS OF DISCLOSURE REQUIREMENTS . . . . . . . . 14 ORGANIZATION OF THE REMAINDER OF THE THESIS 16 FOOTNOTES 18 2 . CANADIAN REGULATION OF TRADING IN OUTSTANDING LISTED SHARES 24 REVIEW OF THE HISTORICAL DEVELOPMENT OF CANADIAN REGULATION OF TRADING IN SECONDARY MARKETS 25 H i s t o r i c a l Development o f " C o n t r o l o f Conduc t " R e g u l a t i o n s . . . . 25 H i s t o r i c a l Development o f " D i s c l o s u r e " Requ i remen ts 30 i v Page x x i i x i v 1 3 Chap te r Page Gene ra l d i s c l o s u r e r e q u i r e m e n t s 31 S p e c i f i c d i s c l o s u r e r e q u i r e m e n t s . . . . 31 PROVINCIAL SECURITIES LEGISLATION IN CANADA 33 The O n t a r i o S e c u r i t i e s A c t , 1966 and Companies A c t : D i s c l o s u r e Requ i remen ts f o r O u t s t a n d i n g Shares 34 The Quebec S e c u r i t i e s A c t and Companies A c t : D i s c l o s u r e Requ i remen ts f o r O u t s t a n d i n g Shares 34 The B . C . S e c u r i t i e s Ac t and Companies A c t : D i s c l o s u r e Requ i remen ts f o r O u t s t a n d i n g Shares 35 O f f e n c e s and P e n a l t i e s 35 FEDERAL SECURITIES LEGISLATION IN CANADA . . . 36 The Canad ian C r i m i n a l Code: D i s c l o s u r e P r o v i s i o n s 36 Fraud - a f f e c t i n g p u b l i c market 36 F r a u d u l e n t m a n i p u l a t i o n o f s t o c k exchange t r a n s a c t i o n s 36 O f f e n c e s i n r e l a t i o n to mines -p resump t i on 38 F a l s e p r o s p e c t u s , e t c . - "company" . . . 39 O f f e n c e s and p e n a l t i e s . . . . . . . . . . . 40 The Canada C o r p o r a t i o n s A c t : D i s c l o s u r e Requ i remen ts f o r O u t s t a n d i n g Shares . . . 40 REGULATORY AGENCIES: STRUCTURE, PROCEDURES AND ACTIONS 41 THE PROVINCIAL SECURITIES COMMISSIONS AND/OR REGULATORY BODIES 41 O n t a r i o S e c u r i t i e s Commiss ion 42 Quebec S e c u r i t i e s Commiss ion (Commiss ion des V a l e u r s M o b i l i & r e s du Quebec) . . . . 43 v Chap te r Page B . C . R e g u l a t o r y B o d i e s 44 R e g u l a t o r y A c t i o n s . 45 R e l a t i o n s h i p o f the P r o v i n c i a l R e g u l a t o r y B o d i e s to the S tock Exchanges 45 THE CANADIAN STOCK EXCHANGES 46 C h a r a c t e r i s t i c F e a t u r e s 47 R e l a t i v e S i z e 47 The To ron to S tock Exchange 48 S t r u c t u r a l o r g a n i z a t i o n 48 S tock L i s t Depar tment 49 Marke t O p e r a t i o n s Depar tment 50 I n t e l l i g e n c e Depar tment 51 D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y s t a t e m e n t s 52 D e t e c t i o n mechanisms 58 R e g u l a t o r y a c t i o n s 58 The M o n t r e a l S tock Exchange 60 D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y s t a t e m e n t s 61 D e t e c t i o n mechanisms 61 R e g u l a t o r y a c t i o n s 61 The Vancouver S tock Exchange 62 D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y s t a t e m e n t s 62 D e t e c t i o n mechanisms 63 R e g u l a t o r y a c t i o n s 63 THE R . C . M . P . AND THE MUNICIPAL FRAUD SQUADS 63 Lega l A c t i o n 64 v i Chap te r Page En fo rcemen t Prob lems 64 SUMMARY 65 EXHIBITS 1 to 9 66 FOOTNOTES 86 3. THE EFFECTIVENESS OF TRADING SUSPENSIONS: A REGULATORY ACTION DESIGNED TO PREVENT THE EXPLOITATION OF MONOPOLY INFORMATION 90 THE DESIRED IMPACT OF TRADING SUSPENSIONS . . 90 THE POSSIBLE IMPACT OF TRADING SUSPENSIONS ON MARKET EFFICIENCY AND THE BEHAVIOUR OF STOCK PRICES , 9 1 HYPOTHESES . . . . 95 H y p o t h e s i s 1 95 H y p o t h e s i s 2 95 THE SAMPLE AND DATA SOURCES 96 " I n t e r r u p t e d " S t o c k s 96 S t o c k s Suspended f o r A l l e g e d M a n i p u l a t i o n 103 Suspended S tock Sample C l a s s i f i e d by " F a v o u r a b l e n e s s " o f the I n f o r m a t i o n D i s s e m i n a t e d 103 Data C o l l e c t i o n f o r the Sample 108 DESCRIPTION OF THE VARIABLES . 108 ASSESSING THE MARKET'S REACTION TO NEW INFORMATION .109 E q u i l i b r i u m i n the C a p i t a l Marke t 110 D i s e q u i l i b r i u m i n the C a p i t a l Marke t . . . .111 Sou rces o f D i s e q u i l i b r i u m 112 Methods o f M e a s u r i n g Marke t D i s e q u i l i b r i u m 113 v i i Chap te r Page The s i n g l e f a c t o r market model 113 The two f a c t o r market model 114 THE IMPACT OF TRADING SUSPENSIONS USING THE SINGLE FACTOR MARKET MODEL 115 P o t e n t i a l L i m i t a t i o n s o f the S i n g l e F a c t o r Marke t Model 115 Agg rega te d i s e q u i l i b r i u m 115 Mean d i s e q u i l i b r i u m f o r a suspended s t o c k 117 V a r i a b i l i t y i n Rg t 117 E s t i m a t i o n o f Pa rame te rs 118 C a l c u l a t i o n o f E r r o r Terms (o r R e s i d u a l s ) 118 P r o c e d u r e f o r E s t i m a t i n g the Magn i tude o f the E r r o r Terms . 119 The E m p i r i c a l R e s u l t s 120 The F a m a - F i s h e r - J e n s e n - R o l 1 (FFJR) t e s t 120 P r o b a b i l i t y t e s t s 130 Measurement e r r o r s i n the e s t i m a t e d a l p h a s 135 Measurement e r r o r s i n the e s t i m a t e d be tas 141 N o n - s t a t i o n a r i t y o f be ta 143 THE IMPACT OF TRADING SUSPENSIONS USING A POOLED CROSS-SECTION TIME SERIES REGRESSION MODEL 143 P o o l e d C r o s s - S e c t i o n Time S e r i e s R e g r e s s i o n Mode ls 145 Model S p e c i f i c a t i o n 146 The E m p i r i c a l R e s u l t s 148 v i i i Chap te r Page SUMMARY 152 FOOTNOTES 153 4 . SUMMARY, MAJOR FINDINGS AND IMPLICATIONS . . . 158 MAJOR FINDINGS * 161 IMPLICATIONS FOR SECURITY REGULATION . . . . 162 E f f e c t i v e n e s s o f R e g u l a t o r y S u r v e i l l a n c e Techn iques 162 E f f e c t i v e n e s s o f the D i s s e m i n a t i o n P r o c e s s 163 SUGGESTIONS FOR FURTHER RESEARCH 163 A l t e r n a t i v e R e g u l a t o r y A c t i o n s 163 Impact o f R e g u l a t o r y A c t i o n s on I n v e s t o r E q u i t y 16 3 E f f e c t i v e n e s s o f Marke t S u r v e i l l a n c e T e c h n i q u e s 164 FOOTNOTES 165 BIBLIOGRAPHY 166 APPENDIXES I. THE SAMPLE OF STOCKS SUSPENDED BECAUSE OF A FAILURE TO DISSEMINATE REQUESTED INFORMATION 176 I I . PROBABILITY TESTS ON THE AVERAGE PORTFOLIO ERROR TERMS 192 I I I . SUMMARY OF THE CONSTRAINED PCTS REGRESSION RUNS 198 i x LIST OF TABLES Tab le Page I. Number and Type o f I n t e r r u p t i o n s o f R e g u l a r F l o o r T r a d i n g o f S t o c k s L i s t e d on the C S E , MSE, TSE a n d / b r VSE Du r i ng the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e : .: , 97 I I . A C l a s s i f i c a t i o n o f Reasons G iven f o r T r a d i n g S u s p e n s i o n s Under the O f f i c i a l P o l i c i e s o f the V a r i o u s Exchanges 99 I I I . Number and Type o f P o s t - S u s p e n s i o n P e r i o d R e g u l a t o r y A c t i o n s : S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich R e g u l a r F l o o r T r a d i n g was Suspended because o f a F a i l u r e to D i s s e m i n a t e Reques ted I n f o r m a t i o n Du r i ng the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e 101 IV. Number and Type o f P o s t - S u s p e n s i o n R e g u l a t o r y A c t i o n s : S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich R e g u l a r F l o o r T r a d i n g was Suspended because o f a F a i l u r e to meet Exchange Requ i remen ts Du r i ng the P e r i o d o f J a n u a r y 1, 1967 to December, 3 1 , 1973 , I n c l u s i v e . . . 102 V. R e a s o n s , For T r a d i n g S u s p e n s i o n s , That . ' . I n d i c a t e A l l e g e d M a n i p u l a t i o n 104 V I . Number and Type o f Pos t T r a d i n g I n t e r r u p t i o n P e r i o d R e g u l a t o r y A c t i o n s : S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich R e g u l a r F l o o r T r a d i n g was Suspended f o r A l l e g e d M a n i p u l a t i o n Du r i ng the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e 105 V I I . R a t i o n a l e f o r the C l a s s i f i c a t i o n o f Suspended S t o c k s by the " F a v o u r a b l e n e s s " o f the I n f o r m a t i o n D i s s e m i n a t e d D u r i n g a T r a d i n g S u s p e n s i o n 106 V I I I . Number of S u s p e n s i o n s and R e i n s t a t e m e n t s by C h r o n o l o g i c a l Time P e r i o d i n Q u a r t e r s 116 x T a b l e Page IX . Summary R e s u l t s o f Weekly Sample A n a l y s i s o f A l l and o f the A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n the E s t i m a t i o n o f Pa ramete rs 121 X. Summary R e s u l t s o f Weekly Sample A n a l y s i s o f U n f a v o u r a b l e and F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n the E s t i m a t i o n o f Pa ramete rs ; . 126 X I . P r o b a b i l i t y T e s t s on the Average P o r t f o l i o E r r o r Terms. A l l Suspended S t o c k s 132 X I I . P r o b a b i l i t y T e s t s on the Ave rage P o r t f o l i o E r r o r Terms. A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s 132 X I I I . P r o b a b i l i t y T e s t s on the Average P o r t f o l i o E r r o r Terms. U n f a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s 134 X IV . P r o b a b i l i t y T e s t s on the Average P o r t f o l i o E r r o r Terms. F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s 134 XV. Summary o f the PCTS R e g r e s s i o n Runs 149 x i LIST OF FIGURES AND EXHIBITS F i g u r e Page 1. P o s s i b l e market r e a c t i o n s i n the p o s t -s u s p e n s i o n p e r i o d to a d i s s e m i n a t i o n o f " u n f a v o u r a b l e new" or "no new" i n f o r m a t i o n d u r i n g the t r a d i n g s u s p e n s i o n : . 93 E x h i b i t 1. O n t a r i o S e c u r i t i e s C o m m i s s i o n ' s T i m e l y D i s c l o s u r e P o l i c y 66 2 . O n t a r i o S e c u r i t i e s C o m m i s s i o n ' s P o l i c y f o r A d m i n i s t e r i n g the T i m e l y D i s c l o s u r e P o l i c y : . 69 3 . Quebec S e c u r i t i e s C o m m i s s i o n ' s P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r r u p t i o n s o f R e g u l a r F l o o r T r a d i n g 70 4 . To ron to S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r r u p t i o n s o f R e g u l a r F l o o r T r a d i n g 73 5 . M o n t r e a l S tock Exchange Ru le D e a l i n g w i t h M a n i p u l a t i v e or D e c e p t i v e T r a d i n g Methods 75 6. M o n t r e a l S tock Exchange R u l e s D e a l i n g w i t h T i m e l y D i s c l o s u r e 77 7. M o n t r e a l S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r r u p t i o n s of R e g u l a r F l o o r T r a d i n g 80 8. Vancouver S tock Exchange Ru les D e a l i n g w i t h M a n i p u l a t i v e or D e c e p t i v e Methods o f T r a d i n g . 82 9. Vancouver S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r r u p t i o n s o f R e g u l a r F l o o r T r a d i n g 84 10 . C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Samp le . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa ramete rs . . . . . 123 x i i E x h i b i t Page 11 . C u m u l a t i v e Average E r r o r Terms - - Weekly Sample o f A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa rame te rs 125 12. C u m u l a t i v e Average E r r o r Terms - - Weekly Sample o f U n f a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa ramete rs . 128 13 . C u m u l a t i v e Average E r r o r Terms - - Weekly Sample o f F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa rame te rs 129 14. C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Sample - - A l l A l p h a s Se t to Z e r o . O b s e r v a - . ' . . t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa ramete rs 136 15. C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Sample o f A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa rame te rs and A l l A l p h a s Se t to Zero 137 16. C u m u l a t i v e Average E r r o r Terms - - Weekly Sample of U n f a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f , P a r a m e t e r s and A l l A l p h a s Set to Zero . 1 3 8 17. C u m u l a t i v e Average E r r o r Terms - - Weekly Sample o f F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s . O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa ramete rs and A l l A l p h a s Set to Zero . . . 139 18. C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Sample - - A l l Be tas Se t to One. O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f Pa rame te rs 142 19. 50 Week Moving Average E s t i m a t e d Beta - - T o t a l Weekly Sample 144 x i i i ACKNOWLEDGEMENTS I would l i k e to thank the F a c u l t y o f Commerce f o r p r o v i d i n g the g e n e r a l s u p p o r t t h a t f a c i l i t a t e d the c o m p l e t i o n o f my d i s s e r t a t i o n . In p a r t i c u l a r , I am i n d e b t e d to my s u p e r -v i s o r , Dr . M . J . B r e n n a n , f o r h i s encouragemen t , h e l p f u l s u g -g e s t i o n s , acumen and a v a i 1 a b i 1 i t y . I am g r a t e f u l to Dr . R.W. Whi te f o r e n c o u r a g i n g me to employ the p o o l e d c r o s s - s e c t i o n t ime s e r i e s r e g r e s s i o n m o d e l . I am g r a t e f u l to a l l the mem-bers o f my d i s s e r t a t i o n c o m m i t t e e , D r . M . J . B r e n n a n , Dr . R.W. W h i t e , D r . J . D . MacBeth and Dr . J . D . B o y d , f o r p r o v i d i n g c o n s t r u c t i v e c r i t i c i s m and a d v i c e . I am t h a n k f u l to t hose i n d i v i d u a l s and i n s t i t u t i o n s who p r o v i d e d the sou rce m a t e r i a l f o r the mammoth j o b o f da ta c o l l e c t i o n . In p a r t i c u l a r , I would l i k e to thank the F i n a n c i a l Research I n s t i t u t e o f M o n t r e a l ; members o f the C S E , MSE, TSE and V S E ; members o f the B . C . and Quebec S e c u r i t i e s C o m m i s s i o n s ; members o f the M o n t r e a l and To ron to R . C . M . P . F raud S q u a d s ; and members o f the b roke rage i n d u s t r y . In a d d i t i o n , I would l i k e to thank R i c h a r d s o n S e c u r i t i e s f o r s h i p p i n g f o u r boxes o f VSE D a i l y Shee ts to M o n t r e a l f rom Winn ipeg and N e s b i t t Thomson o f M o n t r e a l f o r p r o v i d i n g a c c e s s to the C S E , MSE and TSE D a i l y Sheets f o r the p e r i o d o f J a n u a r y 1, 1967 , to December 3 1 , 1 973 . I would a l s o l i k e to thank Pat P f e i f f e r f o r a s s i s t a n c e i n s e a r c h i n g the D a i l y Shee ts o f the f o u r exchanges f o r t r a d -x i v i ng i n t e r r u p t i o n s and Mar j McDouga l l f o r the e x c e l l e n t t y p i n g o f t h i s t h e s i s . F i n a l l y , I would l i k e to thank my good f r i e n d and f e l l o w g r a d u a t e s t u d e n t , M a r t i n K u s y , f o r h i s a d v i c e and encouragement . xv Chap te r 1 INTRODUCTION There a re two b a s i c aims o f s e c u r i t i e s r e g u l a t i o n : the p r o t e c t i o n o f the g e n e r a l p u b l i c ' s i n t e r e s t and the p r o -t e c t i o n o f the i n d i v i d u a l i n v e s t o r ' s i n t e r e s t . The p r o t e c -t i o n o f the g e n e r a l p u b l i c ' s i n t e r e s t r e l a t e s l a r g e l y to the use of r e g u l a t i o n to improve the economic pe r fo rmance ( e f f i -c i e n c y ) of s e c u r i t y m a r k e t s . The p r o t e c t i o n o f the i n d i v i d u a l i n v e s t o r ' s i n t e r e s t has been a p t l y s t a t e d by S t i g l e r as " t h e p r o t e c t i o n o f the i n n o c e n t (bu t a v a r i c i o u s ) i n v e s t o r " . 1 In o t h e r w o r d s , a w e l 1 - p e r f o r m i n g s e c u r i t y market s h o u l d s a t i s f y the i m p o r t a n t non-economic c o n s i d e r a t i o n o f m a i n t a i n i n g e q u i -t a b l e ( f a i r ) t r e a t m e n t among a l l market p a r t i c i p a n t s . The word " f a i r " , i n t u r n , i m p l i e s t h a t s e c u r i t y p r i c e s s h o u l d be d e t e r -mined c o m p e t i t i v e l y . Of the two a i m s , the l a t t e r has a lways r e c e i v e d the most a t t e n t i o n because of the l e g a l o r i e n t a t i o n o f the v a r i o u s gove rnmen ts , s e c u r i t y commiss ions and s t o c k e x c h a n g e s . The reason f o r t h i s t r e a t m e n t i s t h a t p r o t e c t i o n o f the i n d i v i d u a l i n v e s t o r ' s i n t e r e s t as an aim i s more s p e c i f i c , e a s i e r to make judgements a b o u t , and a p p e a l s to e l e m e n t a r y n o t i o n s o f e q u i t y (or f a i r n e s s ) . 2 M o r e o v e r , the p r i m a r y mechanisms t r a d i t i o n a l l y used to p r o t e c t i n d i v i d u a l i n v e s t o r s , l i k e f u l l , p l a i n , t i m e l y , t r u e and e q u i t a b l e d i s c l o s u r e o f r e l e v a n t i n f o r m a t i o n , the p r e -v e n t i o n o f s t o c k p r i c e m a n i p u l a t i o n , and c o n t r o l ove r c e r t a i n t ypes o f t r a d i n g a c t i v i t y , f i n a n c i a l s t r u c t u r e s and f i n a n c i a l 1 2 p r a c t i c e s , a re f r e q u e n t l y r e g a r d e d as a l s o hav ing a b e n e f i c i a l e f f e c t f o r the g e n e r a l p u b l i c . 3 Whi l e most l a w y e r s , government o f f i c i a l s and s e c u r i t y r e g u l a t o r s would f i n d i t d i f f i c u l t to c o n c e i v e o f an e f f i c i e n t and e q u i t a b l e s t o c k market w i t h o u t e x i s t i n g s e c u r i t y r e g u l a -t i o n , a number o f b r o k e r s , i n v e s t o r s , and e c o n o m i s t s would not f i n d i t d i f f i c u l t to do s o . A l t h o u g h the m e r i t s o f each v i e w p o i n t can be deba ted a t l e n g t h (and w i l l be s p e c i f i e d i n g r e a t e r d e t a i l i n t h i s c h a p t e r ) , the e f f i c a c y o f c u r r e n t r e g u -l a t i o n can be d e t e r m i n e d o n l y by e m p i r i c a l t e s t s . The e f f i c a c y o f s e c u r i t y r e g u l a t i o n i n a c h i e v i n g i t s b a s i c aims has been the s u b j e c t of a g row ing body o f e m p i r i c a l r e s e a r c h . To d a t e , however , most o f t h i s r e s e a r c h has d e a l t w i t h the r o l e p l a y e d by the U n i t e d S t a t e s S e c u r i t i e s and E x -change Commiss ion (SEC) 1 * and s p e c i f i c r e g u l a t o r y r e q u i r e m e n t s (such as the i n c r e a s e d d i s c l o s u r e o f a c c o u n t i n g d a t a 5 and r e -s t r i c t i o n s on i n s i d e r t r a d i n g ) 6 i n i m p r o v i n g the economic p e r -formance o f Amer i can s e c u r i t y m a r k e t s . The o n l y e x i s t a n t Cana-d i a n s t udy i s t h a t by Shaw whi-ch b r i e f l y examined the r o l e p l a y e d by Canad ian s e c u r i t y r e g u l a t i o n i n i m p r o v i n g the a l l o c a -t i o n a l e f f i c i e n c y o f the Canad ian market f o r both new and o u t -s t a n d i n g e q u i t y i s s u e s . 7 U n f o r t u n a t e l y , the e f f e c t i v e n e s s o f the many o t h e r : s p e c i f i c r e g u l a t o r y r e q u i r e m e n t s d e s i g n e d to p r o t e c t i n v e s t o r s has not been s u b j e c t e d to d e t a i l e d e m p i r i c a l i n v e s t i g a t i o n . I rw in F r i e n d , i n h i s 1973 p r e s i d e n t i a l a d d r e s s to the Amer i can F i n a n c e A s s o c i a t i o n , r e i t e r a t e d t h i s d e f i c i e n c y when he p roposed t h a t " f u r t h e r work i s r e q u i r e d . . . to e x p l o r e the impac t on 3 market e f f i c i e n c y o f s p e c i f i c r e g u l a t o r y r e q u i r e m e n t s . . . " . 8 G i v e n the i n a d e q u a c i e s no ted a b o v e , t h i s t h e s i s p roposes t o , f i r s t l y , d e r i v e s p e c i f i c hypo theses f rom the two compet ing v i e w p o i n t s on the v a l u e o f s e c u r i t y r e g u l a t i o n a n d , s e c o n d l y , to p r e s e n t e m p i r i c a l t e s t s o f the p r e d i c t i o n s of each h y p o t h e s i s . The e m p i r i c a l t e s t s w i l l dea l w i t h a s p e c i f i c r e g u l a t o r y p r a c t i c e wh ich i s i m p o r t a n t i n a Canad ian c o n t e x t : the i n t e r r u p t i o n of r e g u l a r f l o o r t r a d i n g i n a s t o c k f o r a p e r i o d o f t ime i n o r d e r to " b e t t e r " d i s s e m i n a t e " n o n -p u b l i c " c o r p o r a t e i n f o r m a t i o n . The economic f u n c t i o n o f the s t o c k market and the e f f i c i e n c y w i t h wh ich i t f u l f i l l s t h i s f u n c t i o n w i l l be d i s -cussed n e x t . THE ECONOMIC FUNCTION OF THE CAPITAL MARKET The economic f u n c t i o n o f the c a p i t a l market i s to o p t i m a l l y a l l o c a t e the l i m i t e d s u p p l y o f a p e r i o d ' s c u r r e n t s a v i n g s among the d i f f e r e n t u s e r s and u s e s , to a l l o c a t e r i s k 9 and to p r o v i d e m a r k e t a b i l i t y f o r l o n g - t e r m i n v e s t m e n t s by e n s u r i n g t h a t p o r t f o l i o s h i f t s can be made to the mutual a d v a n -tage o f a l l i n d i v i d u a l economic u n i t s , groups o f u n i t s , s e c t o r s and c o u n t r i e s . 1 0 The o p t i m a l a l l o c a t i o n i s one i n wh ich funds are a l l o c a t e d to t hose u s e r s and uses w i l l i n g to pay the most f o r the funds i n terms o f p o t e n t i a l r i s k - a d j u s t e d r e t u r n s . To f u l f i l l t h i s a l l o c a t i v e f u n c t i o n e f f i c i e n t l y , the s e c u r i t i e s market s h o u l d be i n f l u e n c e d s o l e l y by economic c o n -s i d e r a t i o n s . That i s , the p r i c e s o f the v a r i o u s s e c u r i t i e s 4 s h o u l d r e f l e c t t h e i r e x p e c t e d r e t u r n and r i s k c h a r a c t e r i s t i c s . In an e f f i c i e n t m a r k e t , the c u r r e n t p r i c e o f a f i r m ' s s e c u r i -t i e s s h o u l d r e f l e c t i n v e s t o r ' s bes t e s t i m a t e s o f the f i r m ' s expec ted p r o f i t a b i l i t y and o f the r i s k s a s s o c i a t e d w i t h t h e s e p r o f i t s . And s i n c e , o t h e r t h i n g s be ing e q u a l , r e l a t i v e l y h i gh e x p e c t e d r i s k - a d j u s t e d r e t u r n s a t t r a c t i n v e s t o r s (presumed to be r i s k a v e r s e ) , c a p i t a l w i l l f l o w towards f i r m s p r o m i s i n g such r e t u r n s u n t i l market e q u i l i b r i u m i s a c h i e v e d . 1 1 A b a s i c approach f o r a p p r a i s i n g market e f f i c i e n c y i s a l l o c a t i o n a l e f f i c i e n c y , wh ich measures the a b i l i t y o f the market to m a i n t a i n e q u i v a l e n t r a t e s o f r e t u r n o r f i n a n c i n g c o s t s on i n v e s t m e n t s o f equa l r i s k . 1 2 The a l l o c a t i o n a l e f f i -c i e n c y o f the market can be a s s e s s e d ex pos t by compar ing a c -t u a l market r e s u l t s w i t h r e s u l t s wh ich would be e x p e c t e d under a p e r f e c t l y c o m p e t i t i v e m a r k e t . The r a t i o n a l e beh ind t h i s ap -p roach i s t h e o r e t i c a l l y sound because a p e r f e c t l y c o m p e t i t i v e market i s by d e f i n i t i o n e c o n o m i c a l l y e f f i c i e n t . The n e c e s s a r y c o n d i t i o n s f o r a p e r f e c t c a p i t a l market may be summar ized as f o l l o w s : (1) a l a r g e number o f t r a n s a c -t o r s such t h a t no buyer o r s e l l e r o r i s s u e r o f s e c u r i t i e s i s l a r g e enough f o r h i s t r a n s a c t i o n s to have an impac t on the r u l i n g p r i c e , (2) a l l t r a d e r s have equa l and c o s t l e s s a c c e s s to i n f o r m a t i o n about the r u l i n g p r i c e and about a l l the r e l e -vant c h a r a c t e r i s t i c s o f a l t e r n a t i v e i n v e s t m e n t s , (3) no b r o -kerage f e e s , t r a n s f e r t a x e s or o t h e r t r a n s a c t i o n c o s t s a re i n -c u r r e d when s e c u r i t i e s a re b o u g h t , s o l d or i s s u e d , (4) no p e r -sona l or c a p i t a l g a i n t a x e s on g a i n s or d i v i d e n d s a re i n c u r r e d , or a t l e a s t no t a x e s the i m p o s i t i o n o f wh ich w i l l change e c o -5 nomic d e c i s i o n s , (5) f r e e e n t r y and e x i t to the c a p i t a l mar-ket e x i s t s , and (6) s h a r e s a re homogeneous (by r i s k c l a s s ) a n d i n f i n i t i v e 1 y d i v i s i b 1 e . Some o f t hese c o n d i t i o n s appear to be w e l l a p p r o x i -mated i n the s t o c k m a r k e t , p a r t i c u l a r l y i n a l o n g - r u n c o n -t e x t . 1 3 For i n s t a n c e , a l t h o u g h a s e c u r i t i e s market i s made up of a v a r i e t y o f s e c u r i t i e s , the s e c u r i t i e s o f each r i s k c l a s s a re homogeneous c o m m o d i t i e s . C e t e r i s p a r i b u s , one share o f a g i v e n r i s k c l a s s i s a p e r f e c t s u b s t i t u t e f o r any o t h e r a n d , t h e r e f o r e , must s e l l a t the same p r i c e . In a d d i t i o n , the market c o n s i s t s o f a l a r g e number o f r e l a t i v e l y s m a l l p a r t i c i -pants so t h a t i t i s u s u a l l y d i f f i c u l t f o r any i n d i v i d u a l to i n f l u e n c e p r i c e s . On the o t h e r hand , t r a n s a c t i o n and s e a r c h c o s t s i n the s h o r t - r u n a re o b v i o u s l y not n e g l i g i b l e . F u r t h e r m o r e , i n -v e s t o r s do not have equa l and c o s t l e s s a c c e s s to a l l r e l e v a n t i n f o r m a t i o n . These market i m p e r f e c t i o n s sugges t t h a t the U t o -p i a n c o n d i t i o n s f o r the e x i s t e n c e o f a p e r f e c t market a re not met p r e c i s e l y . However , even i f the above c o n d i t i o n s f o r a p e r f e c t l y c o m p e t i t i v e market a re not met , c a p i t a l marke ts can s t i l l be e f f i c i e n t i n terms o f the e f f i c i e n t - m a r k e t h y p o t h e s i s . The most common f o r m u l a t i o n o f the h y p o t h e s i s i s the one i n wh ich p r i c e s a re s a i d to a lways " f u l l y r e f l e c t " a l l known market i n -f o r m a t i o n . 1 1 * F u r t h e r m o r e , a c c o r d i n g to t h i s f o r m u l a t i o n , the type o f c a p i t a l market e f f i c i e n c y h y p o t h e s i z e d depends upon the i n f o r m a t i o n s u b s e t c o n s i d e r e d . A c a p i t a l market i s s a i d to be e f f i c i e n t i n the weak form when the i n f o r m a t i o n s u b s e t 6 i n c l u d e s o n l y t h a t i n f o r m a t i o n wh ich can be g l e a n e d f rom an e x a m i n a t i o n o f pas t s e c u r i t y p r i c e ( r e t u r n ) s e r i e s . 1 5 A c a p i t a l market i s s a i d to be e f f i c i e n t i n the s e m i - s t r o n g form when the i n f o r m a t i o n s u b s e t i n c l u d e s a l l p u b l i c l y a v a i l -a b l e i n f o r m a t i o n . And f i n a l l y , a c a p i t a l market i s s a i d to be e f f i c i e n t i n the s t r o n g form when the i n f o r m a t i o n s u b s e t embodies a l l i n f o r m a t i o n i n c l u d i n g t h a t p o s s e s s e d by i n s i d e r s . Depending upon the type o f market e f f i c i e n c y assumed, any new i n f o r m a t i o n t h a t e n t e r s the r e l e v a n t i n f o r m a t i o n s u b s e t i s s a i d to be r e f l e c t e d i n p r i c e s r a p i d l y and cannot be used to make abnormal r e t u r n s . 1 6 I f t h i s r a p i d a d j u s t m e n t o f s t o c k p r i c e s to new i n f o r m a t i o n i s such t h a t s t o c k p r i c e changes a r e i ndependen t ove r t ime and conform to some u n s p e c i f i e d r e t u r n d i s t r i b u t i o n , then s t o c k p r i c e s a re c o n f o r m i n g to a random w a i k . 1 7 The t h r e e n e c e s s a r y c o n d i t i o n s f o r a market to be e f f i c i e n t i n terms o f the e f f i c i e n t - m a r k e t h y p o t h e s i s a re l e s s s t r i n g e n t than those r e q u i r e d f o r a p e r f e c t ma rke t . These c o n d i t i o n s a r e : (1) i n f o r m a t i o n i s r e a d i l y a v a i l a b l e to a " s u f f i c i e n t " number o f i n v e s t o r s , (2) t r a n s a c t i o n c o s t s are " r e a s o n a b l e " , and (3) i n the absence o f agreement c o n c e r n -i ng the i m p l i c a t i o n o f c u r r e n t i n f o r m a t i o n on s t o c k p r i c e s and s t o c k p r i c e c h a n g e s , t h e r e be no e v i d e n c e o f c o n s i s t e n t s u p e r i -o r i t y o r i n f e r i o r i t y o f any s i g n f i c a n t p a r t i c i p a n t i n the marke t . The s a t i s f a c t i o n o f t h e s e l e s s s t r i n g e n t c o n d i t i o n s cannot be d e f i n i t i v e l y d e t e r m i n e d d i r e c t l y . However , the e m p i r i c a l e v i d e n c e on e f f i c i e n c y i m p l i e s t h a t the n e c e s s a r y 7 c o n d i t i o n s a re r e a s o n a b l y d e s c r i p t i v e o f a c t u a l m a r k e t s . In f a c t , most o f the e m p i r i c a l e v i d e n c e s u g g e s t s t h a t s t o c k p r i c e b e h a v i o u r i s c o n s i s t e n t w i t h the weak and s e m i - s t r o n g (bu t not s t r o n g ) forms o f marke t e f f i c i e n c y . 1 8 The a v a i l a b l e e m p i r i c a l e v i d e n c e on the s e m i - s t r o n g form of the e f f i c i e n t - m a r k e t h y p o t h e s i s i n c l u d e s the s t u d i e s by B e a v e r , 1 9 B a l 1 - B r o w n , 2 0 B a l l , 2 1 B e a v e r - D u k e s 2 2 and B a l l -W a t t s 2 3 on the p r i c e e f f e c t s o f annua l e a r n i n g s announcements , the s t u d i e s by B e n s t o n 2 1 * on the p r i c e e f f e c t s o f p u b l i s h e d c o r p o r a t e a c c o u n t i n g d a t a , the s t udy by F a m a - F i s h e r - J e n s e n -R o l l 2 5 on the p r i c e e f f e c t s o f s t o c k s p l i t s , the s t udy by S c h o l e s 2 6 on the p r i c e e f f e c t s o f the i n f o r m a t i o n a l c o n t e n t of l a r g e seconda ry o f f e r i n g s , the s tudy by W a u d 2 7 on the p r i c e e f f e c t s o f announcements o f d i s c o u n t r a t e c h a n g e s , the s t udy by L a r g a y - W e s t 2 8 on the p r i c e e f f e c t s o f announcements o f mar-g i n c h a n g e s , the s t u d i e s by A r c h i b a l d 2 9 and K a p l a n - R o l l 3 0 on the p r i c e e f f e c t s o f v a r i a t i o n s i n a c c o u n t i n g t e c h n i q u e s , the s tudy by Van H o m e 3 1 on the p r i c e e f f e c t s o f announcements to l i s t on the NYSE and AMEX, the S E C ' s I n s t i t u t i o n a l I n v e s t o r S t u d y 3 2 on the impac t o f i n s t i t u t i o n a l t r a d i n g , and the s tudy by M a n d e l k e r on the p r i c e e f f e c t s o f f i r m s m e r g i n g . 3 3 The a v a i l a b l e e m p i r i c a l e v i d e n c e on the s t r o n g form of the e f f i c i e n t - m a r k e t h y p o t h e s i s i d e n t i f i e s s e v e r a l groups of market p a r t i c i p a n t s who seem to en joy above ave rage t r a d i n g p r o f i t a b i l i t y . N e i d e r h o f f e r and Osborne have i n d i c a t e d t h a t s p e c i a l i s t s on the NYSE a p p a r e n t l y use t h e i r m o n o p o l i s t i c a c -c e s s to i n f o r m a t i o n c o n c e r n i n g u n f i l l e d o r d e r s to g e n e r a t e mo-nopo l y p r o f i t s . 3 t f S c h o l e s has i n d i c a t e d t h a t c o r p o r a t e o f f i -8 c e r s , d i r e c t o r s and p r i n c i p a l s h a r e h o l d e r s somet imes have mo-n o p o l i s t i c a c c e s s to i n s i d e r c o r p o r a t e i n f o r m a t i o n about t h e i r c o m p a n y . 3 5 O ther s t u d i e s by D r i s c o l l , 3 6 G l a s s , 3 7 L o r i e - N e i d -e r h o f f e r , 3 8 R o g o f f 3 9 and J a f f e 1 * 0 p r o v i d e e v i d e n c e t h a t s u g -ges t t h a t i n s i d e r s p o s s e s s and e x p l o i t monopoly i n f o r m a t i o n to g e n e r a t e " e x c e s s " r e t u r n s . APPROACHES TO SECURITY REGULATION As s t a t e d p r e v i o u s l y , the two b a s i c aims o f s e c u r i t y r e g u l a t i o n a re to improve the economic pe r fo rmance ( e f f i c i e n c y ) o f s e c u r i t y marke ts and to m a i n t a i n e q u i t a b l e ( f a i r ) t r e a t m e n t among a l l market p a r t i c i p a n t s . H i s t o r i c a l l y , r e g u l a t o r s have a t t emp ted to a c h i e v e t h e s e two b a s i c aims th rough two r e g u l a -t o r y a p p r o a c h e s : " c o n t r o l o f c o n d u c t " r e g u l a t i o n s and " d i s -c l o s u r e " r e q u i r e m e n t s . " C o n t r o l o f Conduc t " R e g u l a t i o n s These r e g u l a t i o n s dea l w i t h the type o f b e h a v i o u r wh ich i s c o n s i d e r e d to be a c c e p t a b l e f o r new and e x i s t i n g p a r -t i c i p a n t s i n the s e c u r i t i e s m a r k e t . The r e g u l a t i o n s i n c l u d e p r o v i s i o n s , amongst o t h e r s , d e a l i n g w i t h : (1) the s u i t a b i l i t y o f those w i s h i n g to e n t e r the s e c u r i t i e s i n d u s t r y , (2) the conduc t o f t hose a l r e a d y i n the s e c u r i t i e s i n d u s t r y , and (3) the p r o t e c t i o n o f market p a r t i c i p a n t s by e n s u r i n g the m a i n t e -nance o f a sound f i n a n c i a l p o s i t i o n by those p r o v i d i n g s e r v i c e s i n the s e c u r i t i e s i n d u s t r y . " D i s c l o s u r e " Requ i remen ts The c o r n e r s t o n e o f most s e c u r i t i e s a c t s i s the concep t 9 o f " d i s c l o s u r e " . In f a c t , the U n i t e d S t a t e s S e c u r i t i e s E x -change Ac t i s d e s c r i b e d i n i t s t i t l e and i s u s u a l l y r e f e r r e d to as a " d i s c l o s u r e s t a t u t e " . The Canad ian s i t u a t i o n i s ve ry s i m i l a r . For examp le , John K i m b e r , f o rmer P r e s i d e n t o f the To ron to S tock Exchange , s t a t e d i n 1967 t h a t : . . . Wi th the p a s s i n g o f the O n t a r i o S e c u r i t i e s A c t , 1966, and s i m i l a r a c t s i n o t h e r p r o v i n c e s , a new e ra began w i t h r e s p e c t to the p r o t e c t i o n o f the i n v e s t o r , p a r t i c u l a r l y i n the a rea o f c o r p o r a t e d i s c l o s u r e . 1 * 1 U n d e r l y i n g the d i s c l o s u r e r e q u i r e m e n t s o f most s e c u r i -t i e s a c t s i s the b e l i e f t h a t r e q u i r e d d i s c l o s u r e o f f i n a n c i a l da ta i s n e c e s s a r y f o r a f a i r and e f f i c i e n t l y o p e r a t i n g c a p i t a l ma rke t . For examp le , the S E C ' s 1969 Wheat Repor t v iewed d i s -c l o s u r e as n e c e s s a r y to (1) p r e v e n t f i n a n c i a l m a n i p u l a t i o n and (2) p r o v i d e i n v e s t o r s and s p e c u l a t o r s w i t h enough i n f o r m a t i o n to enab le them to a r r i v e a t t h e i r own r a t i o n a l d e c i s i o n s . 1 * 2 D i s c l o s u r e p r o v i s i o n s u t i l i z e d by r e g u l a t o r s i n c l u d e , f i r s t , g e n e r a l d i s c l o s u r e s t a t u t e s (such as the mandatory f i l -i ng o f annua l and q u a r t e r l y f i n a n c i a l s t a t e m e n t s ) wh ich a re d e s i g n e d to e l i c i t the r e g u l a r d i s c l o s u r e o f g e n e r a l i n f o r m a - ; . t i o n a n d , s e c o n d l y , t i m e l y d i s c l o s u r e p o l i c i e s wh ich are i n t e n d e d to e l i c i t the immedia te p u b l i c d i s c l o s u r e o f f i r m -s p e c i f i c i n f o r m a t i o n (such as a pend ing t a k e o v e r b i d ) . A c o r -p o r a t e v i o l a t i o n o f one or more o f t h e s e d i s c l o s u r e p r o v i s i o n s may r e s u l t i n a r e g u l a t o r y a c t i o n (such as a t r a d i n g s u s p e n s i o n ) a g a i n s t the f i r m . For e x a m p l e , i f a r e g u l a t o r s u s p e c t s t h a t n o n - p u b l i c f i r m - s p e c i f i c i n f o r m a t i o n i s be ing e x p l o i t e d to the m a t e r i a l advan tage o f one or more market p a r t i c i p a n t s , then the r e g u l a t o r may i s s u e a r e g u l a t o r y a c t i o n c o m p e l l i n g the immedia te d i s c l o s u r e o f t h a t i n f o r m a t i o n . 10 In terms o f the e f f i c i e n t - m a r k e t m o d e l , t hese r e g u l a -t o r y a c t i o n s a re i n t e n d e d to e l i m i n a t e monopoly e x p l o i t a t i o n o f i n f o r m a t i o n so t h a t the market w i l l not o n l y be e f f i c i e n t i n the s e m i s s t r o n g form but a l s o i n the s t r o n g f o r m . To be e f f e c t i v e , t h e r e f o r e , t hese r e g u l a t o r y a c t i o n s must be based on i n f o r m a t i o n t h a t i s not a l r e a d y " f u l l y r e f l e c t e d " i n c u r -r e n t s t o c k p r i c e s . OPPOSING VIEWPOINTS ON THE EFFICACY OF SECURITY REGULATION B e f o r e p r o c e e d i n g to a p r e s e n t a t i o n o f the a v a i l a b l e e m p i r i c a l e v i d e n c e on the e f f e c t i v e n e s s o f d i s c l o s u r e r e q u i r e -men ts , i t i s i m p o r t a n t to d i s c u s s the two compet ing v i e w p o i n t s on the e f f i c a c y o f s e c u r i t y r e g u l a t i o n . Na ive R e g u l a t o r H y p o t h e s i s At one e x t r e m e , a number o f b r o k e r s , i n v e s t o r s and e c o n o m i s t s 1 * 3 p ropose t h a t the r o l e o f s e c u r i t y r e g u l a t i o n s h o u l d be m i n i m i z e d . They b e l i e v e t h a t an u n r e g u l a t e d market i s a b l e to s a t i s f y the t h r e e c o n d i t i o n s n e c e s s a r y f o r market e f f i c i e n c y , so t h a t i n an u n r e g u l a t e d m a r k e t , a " s u f f i c i e n t " number o f s o p h i s t i c a t e d i n v e s t o r s would a c t on a l l a v a i l a b l e i n f o r m a t i o n and would have no i n c l i n a t i o n to c o n t i n u e h o l d i n g e x p e c t a t i o n s not f u l l y consonan t w i t h new i n f o r m a t i o n . T h e r e -f o r e , s e c u r i t y p r i c e s would f u l l y a d j u s t r a p i d l y as new i n f o r -mat ion became a v a i l a b l e and t h e r e would be no c o n s i s t e n t s u p e r i o r or i n f e r i o r pe r fo rmance by any s i g n i f i c a n t p a r t i c i p a n t i n the ma rke t . I f an u n r e g u l a t e d market meets the c r i t e r i a o f s t r o n g 11 form market e f f i c i e n c y , then s e c u r i t y r e g u l a t i o n i s u n n e c e s -s a r y and s e c u r i t y r e g u l a t o r s a re n a i v e i n b e l i e v i n g o t h e r w i s e . F u r t h e r m o r e , e x i s t i n g r e g u l a t i o n s may not j u s t be i n e f f e c t i v e but they may be d e t r i m e n t a l i n t h a t they may s low t r a d i n g r e -sponses to new i n f o r m a t i o n , they may a c t u a l l y i n c r e a s e s e c r e c y by l e n g t h e n i n g the t ime l a g between the p r o d u c t i o n of i n f o r -mat ion and i t s r e l e a s e to the m a r k e t , ^ and they may a c t u a l l y m i s a l l o c a t e r e s o u r c e s due to o p e r a t i o n a l i n e f f i c i e n c i e s i n e f -f e c t i v e l y p o l i c i n g a r e a s l i k e i n s i d e r t r a d i n g . 1 * 5 The f o r e -go ing a n a l y s i s does not imp l y t h a t e x i s t i n g r e g u l a t i o n s may not be n e c e s s a r y i n the s h o r t r u n . Such may be the case i f the market has d e v e l o p e d a dependence on e x i s t i n g r e g u l a t i o n s . P roponen ts o f the n a i v e r e g u l a t o r v i e w p o i n t c o u l d un -t i l r e c e n t l y p o i n t to the s u c c e s s o f the u n r e g u l a t e d London S tock Exchange i n s u p p o r t o f t h e i r p o s i t i o n . However , t h i s may not be the case i n the f u t u r e because the p r e s e n t Labour Government i n G r e a t B r i t a i n i s c o n s i d e r i n g r e s t r i c t i o n s on i n s i d e r t r a d i n g . In t h i s t h e s i s , t h i s v i e w p o i n t w i l l be r e f e r r e d to as the n a i v e r e g u l a t o r ( h e n c e f o r t h NR) h y p o t h e s i s . S o p h i s t i c a t e d R e g u l a t o r H y p o t h e s i s At the o t h e r e x t r e m e , the s e c u r i t y r e g u l a t o r s and a number o f b r o k e r s , i n v e s t o r s and e c o n o m i s t s ' * 6 p ropose t h a t the r o l e o f s e c u r i t y r e g u l a t i o n s h o u l d be m a i n t a i n e d or i n -c r e a s e d . They b e l i e v e t h a t an u n r e g u l a t e d market i s not a b l e to s a t i s f y the t h r e e c o n d i t i o n s n e c e s s a r y f o r market e f f i c i e n c y , so t h a t i n an u n r e g u l a t e d m a r k e t , an " i n s u f f i c i e n t " number o f " s o p h i s t i c a t e d " i n v e s t o r s would a c t on a l l a v a i l a b l e i n f o r m a -1 2 t i o n and would not have an i n c l i n a t i o n to c o n t i n u e h o l d i n g e x p e c t a t i o n s not f u l l y consonan t w i t h new i n f o r m a t i o n . I f such w a s . t h e c a s e , s e c u r i t y p r i c e s would not a lways f u l l y a d -j u s t as new i n f o r m a t i o n became a v a i l a b l e and t h e r e would be c o n s i s t e n t s u p e r i o r or i n f e r i o r pe r fo rmance by some s i g n i f i -can t market p a r t i c i p a n t s . I f an u n r e g u l a t e d s e c u r i t y market i s not e f f i c i e n t , then s e c u r i t y r e g u l a t i o n can be e f f e c t i v e i n making the mar-ket a " c l o s e r " a p p r o x i m a t i o n to an e f f i c i e n t or p e r f e c t mar-k e t . The e f f e c t on s e c u r i t y p r i c e s o f a m a r k e t . d o m i n a t e d by u n s o p h i s t i c a t e d i n v e s t o r s was f i r s t p roposed as e a r l y as 1841 i n C h a r l e s M a c k a y ' s E x t r a o r d i n a r y P o p u l a r D e l u s i o n s and  the Madness o f C r o w d s . 1 * 7 S i n c e t h a t p u b l i c a t i o n , the same v i e w p o i n t has been r e i t e r a t e d and e x h a u s t i v e l y s t u d i e d i n nu -merous books and i n hundreds o f a r t i c l e s . For e x a m p l e , Keynes 1 * b e l i e v e d t h a t the market p r i c i n g o f s e c u r i t i e s was dependent upon the mass p s y c h o l o g y o f a l a r g e number o f i g n o r a n t i n v e s -t o r s . F u r t h e r m o r e , Keynes b e l i e v e d t h a t most p r o f e s s i o n a l i n -v e s t o r s p a r t i c i p a t e d i n the market by a t t e m p t i n g to s e c o n d -guess when the mass o f u n s o p h i s t i c a t e d s h a r e h o l d e r s were go ing to buy or s e l l , so as to a c t b e f o r e the m a s s - p s y c h o l o g y e f f e c t o c c u r r e d . However , t h e r e i s no i n h e r e n t c o n t r a d i c t i o n between t h i s form o f i n v e s t o r b e h a v i o u r and the t h e s i s t h a t , i n the long r u n , s t o c k p r i c e s r e f l e c t economic v a l u e s . 1 * 9 The e f f e c t on s e c u r i t y p r i c e s o f d e l i b e r a t e l y pursued s t r a t e g i e s o f d i s s e m i n a t i n g (and e x p l o i t i n g ) m i s i n f o r m a t i o n 5 0 i s a n o t h e r reason f r e q u e n t l y advanced by p roponen ts o f s e c u r -1 3 i t y r e g u l a t i o n . The e f f e c t o f i n d i v i d u a l i n s t a n c e s o f man ipu -l a t i v e a c t i v i t y on s t o c k p r i c e s i s documented i n a r e c e n t s t u d y . 5 1 The l e g a l l i t e r a t u r e i s r e p l e t e w i t h case s t u d i e s t h a t have c o n c l u d e d t h a t market i m p e r f e c t i o n s can o n l y be removed by e x t e n s i v e r e m e d i a l a c t i o n by government and r e g u l a t o r y b o d i e s . For examp le , the New York S t a t e i n q u i r y i n t o the t r a d i n g o f s h a r e s o f L e v i t z F u r n i t u r e C o r p o r a t i o n c o n c l u d e d : The f i n d i n g s o f t h i s i n q u i r y demons t ra te the need f o r new f e d e r a l o r s t a t e r e g u l a t o r y , and p o s s i b l e s t a t -u t o r y c h a n g e s , i n a d d i t i o n to any en fo rcemen t p r o c e -dures wh ich may be d e t e r m i n e d to be n e c e s s a r y by a p p r o -p r i a t e a g e n c i e s . . . . I t i s hoped t h a t such a g e n c i e s w i l l t h o r o u g h l y r e v i e w the i n f o r m a t i o n o b t a i n e d d u r i n g t h i s i n q u i r y , and move s p e e d i l y to c o r r e c t a c t s and p r a c t i c e s too o f t e n f o l l o w e d i n the s e c u r i t i e s market p l a c e t h a t c o n -t i n u e to endanger d a i l y the i n v e s t i n g p u b l i c . 5 2 Ano the r r e c e n t example i s c o n t a i n e d i n an A u s t r a l i a n Senate S e l e c t C o m m i t t e e ' s r e p o r t on s e c u r i t y t r a d i n g and s t o c k e x -changes i n t h a t c o u n t r y . A c c o r d i n g to an accoun t of the r e -p o r t p r e s e n t e d i n the F i n a n c i a l P o s t : I t s e v e r e l y c r i t i c i z e d the a c t i v i t i e s o f s t o c k -b r o k e r s , company d i r e c t o r s , g e o l o g i s t s , i n v e s t m e n t a d v i s e r s , a c c o u n t a n t s and f i n a n c i a l j o u r n a l i s t s d u r -ing the m i n e r a l boom. Read ing l i k e one o f H a r o l d R o b b i n s ' more l u r i d n o v e l s , the r e p o r t r e v e a l e d d o u b l e - d e a l i n g , g r e e d , i ncompetence and n e g l e c t , and ex tended i n t o some o f the most r e s p e c t e d b r o k i n g houses i n the c o u n t r y . The c o m m i t t e e ' s i n e v i t a b l e c o n c l u s i o n was t h a t d i r e c t government c o n t r o l s h o u l d be imposed on the s e c u r i t i e s b u s i n e s s . 5 3 In t h i s t h e s i s , t h i s v i e w p o i n t w i l l be r e f e r r e d to as the s o p h i s t i c a t e d r e g u l a t o r ( h e n c e f o r t h SR) h y p o t h e s i s . 14 THE EMPIRICAL EVIDENCE ON THE EFFECTIVENESS OF DISCLOSURE REQUIREMENTS The o n l y e m p i r i c a l i n v e s t i g a t i o n s i n t o the e f f e c t i v e -ness o f the d i s c l o s u r e r e q u i r e m e n t s o f s e c u r i t i e s laws a re a number o f s t u d i e s on f i n a n c i a l d i s c l o s u r e s t a t u t e s . In h i s s t u d i e s , B e n s t o n 5 1 * has examined e m p i r i c a l l y the e f f e c t o f a c -c o u n t i n g d i s c l o s u r e r e q u i r e m e n t s i n the U . S . S e c u r i t i e s E x -change A c t o f 1934 on the p u b l i c a t i o n o f f r a u d u l e n t o r m i s - , l e a d i n g f i n a n c i a l s t a t e m e n t s , on i n v e s t o r s ' e x p e c t a t i o n s about f i r m s ' s h a r e s , on l o s s e s by s t o c k h o l d e r s , on i n v e s t o r s ' c o n -f i d e n c e and on the f a i r n e s s o f the m a r k e t . T h i s was accom-p l i s h e d by a s t a t i s t i c a l s tudy o f the r e l a t i o n s h i p between p u b l i s h e d a c c o u n t i n g s t a t e m e n t da ta and s t o c k p r i c e movements. Bens ton c o n c l u d e d t h a t the d i s c l o s u r e r e q u i r e m e n t s o f the A c t have no measu rab le p o s i t i v e e f f e c t on the s e c u r i t i e s t r a d e d on the NYSE. F u r t h e r m o r e , s i n c e he b e l i e v e s t h a t " . . . i n s o f a r as the S E C ' s d i s c l o s u r e r e g u l a t i o n s r e q u i r e the p u b l i c a t i o n •. o f u s e l e s s a n d u n t i m e l y da ta . . . " , 5 5 Bens ton c o n c l u d e d t h a t " t h e r e appears to have been l i t t l e b a s i s f o r the l e g i s l a t i o n and no e v i d e n c e t h a t i t was needed or d e s i r a b l e " . 5 6 T h e r e -f o r e , B e n s t o n ' s s t udy i s s u p p o r t i v e o f the NR h y p o t h e s i s . In r e b u t t a l to B e n s t o n ' s c o n c l u s i o n s , A . A . Sommer, J r . , a SEC C o m m i s s i o n e r , a rgues t h a t : A major weakness i n P r o f e s s o r B e n t o n ' s app roach i s t h a t he a p p l i e s ve ry nar row f i n d i n g s to the e n t i r e d i s c l o s u r e sys tem . . . . H i s f i n d i n g s r e l a t e o n l y to s e c u r i t i e s l i s t e d on the New York S tock Exchange ; to a o n e - y e a r p e r i o d ; and to i n f o r m a t i o n i n o n l y one o f the many r e q u i r e d r e p o r t s , the annual r e p o r t on Form 1 0 - K . He d i s r e g a r d s , among o t h e r t h i n g s , the o t h e r e x c h a n g e s , the o v e r - t h e - c o u n t e r m a r k e t s , i n t e r i m f i -n a n c i a l r e p o r t s and r e p o r t s of m a t e r i a l e v e n t s . 5 7 1 5 In a l a t e r s t u d y , C o l l i n s 5 8 t e s t e d the e f f i c i e n c y o f the s e c u r i t i e s market w i t h r e s p e c t to n o n - p u b l i c segment e a r n -i ngs da ta f o r 1967-1969 wh ich was f i r s t made p u b l i c by many f i r m s i n 1970 SEC 10-K r e p o r t s . U s i n g the market model to e l i m i n a t e market r e l a t e d movements i n s e c u r i t y p r i c e s , C o l l i n s c a l c u l a t e d ave rage month ly abnormal r e t u r n s f o r ' n o n - d i s c l o -s u r e ' and ' p a r t i a l d i s c l o s u r e ' f i r m s . H i s r e s u l t s f o r 1 968-1969 sugges t t h a t the market was not e f f i c i e n t w i t h r e s p e c t to the n o n - p u b l i c segment revenue and p r o f i t da ta o f n o n - d i s -c l o s u r e f i r m s . However , s i n c e t h i s f i n d i n g c o u l d not be r e p l i c a t e d f o r 1970 , C o l l i n s ' s tudy i s o n l y weak ly s u p p o r t i v e o f the SR h y p o t h e s i s . To d a t e , the e f f e c t i v e n e s s o f s p e c i f i c r e g u l a t o r y a c -t i o n s has not been examined . T h i s t h e s i s examines the e f f e c -t i v e n e s s o f one type o f s p e c i f i c r e g u l a t o r y a c t i o n , namely the i n t e r r u p t i o n o f r e g u l a r f l o o r t r a d i n g f o r a p e r i o d of t ime i n o r d e r to " b e t t e r " d i s s e m i n a t e f i r m - s p e c i f i c c o r p o r a t e i n -f o r m a t i o n . A c c o r d i n g to the s t r o n g form of the e f f i c i e n t market h y p o t h e s i s and i t s l o g i c a l c o n s e q u e n c e , the NR h y p o t h e s i s , the e f f e c t o f such r e g u l a t o r y a c t i o n s would be z e r o , s i n c e any i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s would not be a v a i l a b l e to the r e g u l a t o r s . S i n c e so many i n -v e s t o r s a re compet ing f o r i n f o r m a t i o n , i t i s u n l i k e l y t h a t r e g u l a t o r s would have i n f o r m a t i o n o f s u f f i c i e n t v a l u e to cause a l a r g e r i s e o r f a l l i n the market p r i c e o f the s h a r e s they r e g u l a t e . On the o t h e r hand , the s o p h i s t i c a t e d r e g u l a t o r hy-p o t h e s i s would p r e d i c t t h a t i n f o r m a t i o n not " f u l l y r e f l e c t e d " 1 6 i n c u r r e n t s t o c k p r i c e s may be known to r e g u l a t o r s and may, when made p u b l i c , be o f s u f f i c i e n t v a l u e to cause a l a r g e r i s e or f a l l i n the market p r i c e o f the s h a r e s r e g u l a t e d . An em-p i r i c a l i n v e s t i g a t i o n o f the e f f e c t i v e n e s s o f t r a d i n g s u s p e n -s i o n s (and a l s o a d i r e c t t e s t o f the compet ing h y p o t h e s e s ) w i l l be unde r t aken i n Chap te r 3. ORGANIZATION OF THE REMAINDER OF THE THESIS In the nex t c h a p t e r , Canad ian r e g u l a t o r y l a w , a g e n c i e s and en fo rcemen t p r o c e d u r e s f o r l i s t e d s e c u r i t i e s i n the a rea of c o r p o r a t e d i s c l o s u r e a re p r e s e n t e d . The c h a p t e r i s d e s c r i p -t i v e in n a t u r e and b e g i n s w i t h a h i s t o r y o f Canad ian s e c u r i t y r e g u l a t i o n . F o l l o w i n g t h i s , the e x i s t i n g r e g u l a t o r y s t a t u t e s , a g e n c i e s and en fo rcemen t p r o c e d u r e s f o r l i s t e d s e c u r i t i e s a re d e s c r i b e d . In the t h i r d c h a p t e r , the e f f e c t i v e n e s s . o f one type of s p e c i f i c r e g u l a t o r y a c t i o n , namely the i n t e r r u p t i o n o f r e g -u l a r f l o o r t r a d i n g f o r a p e r i o d o f t ime i n o r d e r to " b e t t e r " d i s s e m i n a t e f i r m - s p e c i f i c " n o n - p u b l i c " c o r p o r a t e i n f o r m a t i o n , i s exam ined . T h i s i s a l s o a d i r e c t e m p i r i c a l t e s t o f the SR and NR h y p o t h e s e s . The t h i r d c h a p t e r i s o r g a n i z e d as f o l l o w s . F i r s t , the p o s s i b l e e f f e c t s o f t r a d i n g s u s p e n s i o n s on market e f f i -c i e n c y and the b e h a v i o u r o f s t o c k p r i c e s i s d e p i c t e d i n f o u r s c e n a r i o s . F o l l o w i n g t h i s , a sample o f 120 suspended s t o c k s i s examined to de te rm ine the ave rage e f f e c t o f new ( p r e v i o u s l y , " p r i v a t e " ) i n f o r m a t i o n s u p p o s e d l y made p u b l i c d u r i n g t r a d i n g s u s p e n s i o n s on p o s t - s u s p e n s i o n p e r i o d p r i c e b e h a v i o u r (as r e -1 7 f l e e t e d i n the e r r o r terms a f t e r a b s t r a c t i n g f rom the m a r k e t ) . And f i n a l l y , e m p i r i c a l t e s t s o f the p r e d i c t i o n s o f the NR and SR hypo theses a re p r e s e n t e d . On ly suspended s t o c k s were s t u d i e d because da ta f o r the o t h e r t ypes o f t r a d i n g i n t e r r u p t i o n s was found to be ve ry i n c o m p l e t e . F u r t h e r m o r e , each suspended s t o c k (120 i n t o t a l ) s e l e c t e d f o r s tudy s a t i s f i e d the f o l l o w i n g c r i t e r i a : (1) i t was suspended because o f a f a i l u r e to d i s s e m i n a t e r e q u e s t e d i n f o r m a t i o n and not because o f a f a i l u r e to meet l i s t i n g ( t e c h -n i c a l ) r e q u i r e m e n t s ; (2) a t t ime o f s u s p e n s i o n , i t was l i s t e d on the Canad ian S tock Exchange ( C S E ) , M o n t r e a l S tock Exchange (MSE) , To ron to S tock Exchange (TSE) a n d / o r Vancouver S tock E x -change ( V S E ) ; (3) i t was suspended d u r i n g the p e r i o d o f J a n u -ary 1, 1967 to December 3 1 , 1973 , i n c l u s i v e ; and (4) i t was l a t e r r e i n s t a t e d f o r t r a d i n g . In the f o u r t h c h a p t e r , the r e s u l t s o f t h i s s tudy a re a s s e s s e d . T h i s assessmen t may l e a d to p r o p o s a l s f o r a change i n l e g i s l a t i o n a n d / o r r e g u l a t o r y mechanisms (o r no change a t a l l ) i n o r d e r to promote improved e f f i c i e n c y a n d / o r i n v e s t o r e q u i t y i n the Canad ian c a p i t a l m a r k e t s . F o l l o w i n g t h i s , the i m p l i c a t i o n s o f the r e s u l t s o f t h i s s tudy f o r f u r t h e r r e s e a r c h a re d i s c u s s e d . 18 FOOTNOTES G e o r g e J . S t i g l e r , " P u b l i c R e g u l a t i o n o f the S e -c u r i t i e s M a r k e t s , " J o u r n a l o f B u s i n e s s , V o l . 37 ( A p r i l , 1 9 6 4 ) , p. 120. 2 I r w i n F r i e n d , "The SEC and the Economic Pe r fo rmance o f S e c u r i t i e s M a r k e t s , " i n Henry G. Manne (e d 1 ) , Economi c P o l i cy  and the R e g u l a t i o n o f C o r p o r a t e S e c u r i t i e s ( W a s h i n g t o n , D . C : Amer ican I n s t i t u t e f o r P u b l i c P o l i c y R e s e a r c h , 1 9 6 9 ) , p. 186. 3 I r w i n F r i e n d , p. 186. "•The r o l e p l a y e d by the U n i t e d S t a t e s S e c u r i t i e s and Exchange Commiss ion (SEC) i n i m p r o v i n g the economic pe r fo rmance o f Amer i can s e c u r i t y marke ts f o r both new and o u t s t a n d i n g e q u i t y i s s u e s i s the s u b j e c t o f the f o l l o w i n g s t u d i e s : George J . S t i g -l e r , pp. 1 1 7 - 4 2 ; I r w i n F r i e n d and Edward S . Herman, pp . 3 8 2 - 4 0 5 ; I rw in F r i e n d and Edward S . Herman, " P r o f e s s o r S t i g l e r on S e c u r i -t i e s R e g u l a t i o n : A F u r t h e r Comment," J o u r n a l o f B u s i n e s s ( J a n -u a r y , 1 9 6 5 ) , pp. 1 0 6 - 1 0 ; S i d n e y Robb ins and W a l t e r Werner , " P r o f e s s o r S t i g l e r R e v i s i t e d , " J o u r n a l o f B u s i n e s s ( O c t o b e r , 1 9 6 4 ) , pp . 4 0 6 - 1 3 ; and I r w i n F r i e n d , "The Economic Impact o f S e c u r i t i e s R e g u l a t i o n , " C o n f e r e n c e o f S e c u r i t i e s R e g u l a t i o n , (Commerce C l e a r i n g Housed 1 9 6 5 ) . 5 F o r e x a m p l e , see George B e n s t o n , " R e q u i r e d D i s c l o s u r e and the S tock M a r k e t : An E v a l u a t i o n o f the S e c u r i t i e s Exchange Ac t o f 1 9 3 4 , " The Amer i can Economic Review ( M a r c h , 1 9 7 3 ) , p. 132. 6 S e e Hs iu -Kwang Wu, " C o r p o r a t e I n s i d e r T r a d i n g P r o f i t -a b i l i t y , and S tock P r i c e Movement" ( P h . D . D i s s e r t a t i o n , U n i -v e r s i t y o f P e n n s y l v a n i a , 1 9 6 3 ) ; "An Economis t Looks a t S e c t i o n 16 o f the S e c u r i t i e s Exchange Ac t o f 1 9 3 4 , " Co lumb ia Law R e v i e w , 68 ( F e b r u a r y , 1 9 6 8 ) , pp . 2 6 0 - 6 9 ; Henry G. Manne, I n s i d e r T r a d i n g  and the S tock Marke t (New Y o r k , 1 9 6 6 ) ; and J e f f r e y F. J a f f e , "The e f f e c t o f r e g u l a t i o n changes on i n s i d e r t r a d i n g , " The B e l l  J o u r n a l o f Economics and Management S c i e n c e , V o l . 5 , No. 1 ( S p r i n g , 1 9 7 4 ) , pp . 9 3 - 1 2 1 . 7 D a v i d C. Shaw, "The A l l o c a t i o n E f f i c i e n c y o f C a n a d a ' s Marke t f o r New E q u i t y I s s u e s , " Canad ian J o u r n a l o f E c o n o m i c s , (November, 1 9 6 9 ) , pp. 5 4 6 - 6 6 ; and "The Pe r fo rmance o f P r i m a r y S tock O f f e r i n g s : A Canad ian C o m p a r i s o n , " T h e / J o u r n a l o f F i n a n c e , XXVI (December , 1 9 7 1 ) , pp. 1 1 0 1 - 1 1 1 3 . 8 I r w i n F r i e n d , "Me thodo logy A d d r e s s , Amer i can F i n a n c e A s s o c i a t i o n Canada , December 28 , 1972. i n F i n a n c e , " P r e s i d e n t i a l Annual M e e t i n g s , T o r o n t o , 19 9 W i t h r e g a r d to the a l l o c a t i o n o f r i s k , Arrow s t a t e s t h a t the c a p i t a l market s h o u l d s e r v e as an i n s u r a n c e / r e - i n -su rance market i n wh ich b u s i n e s s and f i n a n c i a l r i s k a re p a r -c e l e d out and t r a d e d among marke t p a r t i c i p a n t s . See K . J . A r r o w , "The Ro le o f S e c u r i t i e s i n the Opt ima l A l l o c a t i o n o f R i s k - B e a r i n g , " Review of Economic S t u d i e s , V o l . 31 (1963 / 1964) , pp. 9 1 - 9 6 ; and " I n s u r a n c e , R i s k and Resource A l l o c a -t i o n , " L e c t u r e 3 i n A s p e c t s o f the Theory o f R i s k - B e a r i n g ( H e l s i n k i : Y r j o J a h n s s o n i n s a a t o , 1 9 6 3 ) . 1 0 R . G o l d s m i t h , The Flow of C a p i t a l Funds i n the P o s t -war Economy (New Y o r k : N a t i o n a l Bureau o f Economic R e s e a r c h , 1965) , p. 28 . l x H a i m Levy and M a r s h a l l S a r n a t , Inves tment and P o r t -f o l i o A n a l y s i s ( T o r o n t o : John W i l e y and S o n s , I n c . , 1 9 7 2 ) , pp . 9 - 1 0 . 1 2 A second b a s i c approach f o r a p p r a i s i n g market e f f i -c i e n c y i s o p e r a t i o n a l e f f i c i e n c y , wh ich measures the r e l a t i v e c o s t o f p r o v i d i n g i n t e r m e d i a t i o n s e r v i c e s . The two measures a r e , o f c o u r s e , i n t e r r e l a t e d . 1 3 S e e W i l l i a m J . Baumo l , The S tock Marke t and Economic  E f f i c i e n c y (New Y o r k : Fordham U n i v e r s i t y P r e s s , 1 965) . 1 4 F o r an e x c e l l e n t e x p o s i t i o n on e f f i c i e n t c a p i t a l marke ts see Eugene F. Fama, " E f f i c i e n t C a p i t a l M a r k e t s : A Re-v iew of Theory and E m p i r i c a l Work , " The J o u r n a l o f F i n a n c e , XXV (May, 1 9 7 0 ) , pp. 3 8 3 - 4 1 7 . See a l s o O l d r i c h A . V a s i c e k and John A . McQuown, "The E f f i c i e n t Ma rke t s M o d e l , " F i n a n c i a l  A n a l y s t s J o u r n a l , ( S e p t e m b e r / O c t o b e r , 1 9 7 2 ) , pp . 7 1 - 8 4 . 1 5 T h e d i s t i n c t i o n between weak and s t r o n g forms o f e f f i c i e n c y was f i r s t s u g g e s t e d by Ha r r y V. R o b e r t s , " S t o c k Marke t ' P a t t e r n s ' and F i n a n c i a l A n a l y s i s : M e t h o d o l o g i c a l Sug -g e s t i o n s , " J o u r n a l o f F i n a n c e , 14 ( M a r c h , 1 9 5 9 ) , pp . 1 -10 . 1 6 F o r e x a m p l e , see B e n o i t B. M a n d e l b r o t , "When Can P r i c e be A r b i t r a g e d E f f i c i e n t l y ? A L i m i t to the V a l i d i t y o f the Random Walk and M a r t i n g a l e M o d e l s , " Review of Economics  and S t a t i s t i c s , ( A u g u s t , 1 9 7 1 ) , pp. 2 2 5 - 3 6 . 1 7 S e e Paul H. Coo tne r ( e d . ) , The Random C h a r a c t e r o f  S tock Marke t P r i c e s ( C a m b r i d g e , Mass . ~. M. I . T. P r e s s , 1 9 6 4 ) ; Eugene Fama, "The B e h a v i o r o f S tock Marke t P r i c e s , " ; and Eugene Fama and M a r s h a l l B lume, " F i l t e r Ru les and S tock Marke t T r a d -i n g , " J o u r n a l o f B u s i n e s s , 39 ( J a n u a r y , 1 9 6 6 ) , pp . 2 2 6 - 4 1 . 1 8 E m p i r i c a l s t u d i e s s u p p o r t the n o t i o n t h a t s t o c k p r i c e s a lways " f u l l y r e f l e c t " a l l p u b l i c marke t i n f o r m a t i o n . ( S e e , f o r exa m p l e , Eugene F. Fama, " E f f i c i e n t C a p i t a l M a r k e t s : A Review of Theory and E m p i r i c a l Work , " J o u r n a l o f F i n a n c e , XXV (May, 1 9 7 0 ) , pp. 3 8 3 - 4 1 7 . ) They do n o t , however , s u p p o r t 20 the n o t i o n t h a t the s t o c k market p o s s e s s e s a h igh degree o f a l l o c a t i o n a l o r o p e r a t i o n a l e f f i c i e n c y . ( S e e , f o r e x a m p l e , I r w i n F r i e n d , "The Economic Consequences o f the S tock M a r k e t , " Work ing Paper No. 5 - 7 1 , Rodney L. Whi te C e n t e r f o r F i n a n c i a l R e s e a r c h , U n i v e r s i t y o f P e n n s y l v a n i a ; and "The Economic Con -sequences o f the S tock M a r k e t , " The Amer i can Economic R e v i e w , , (May, 1 9 7 2 ) , pp. 2 1 2 - 1 9 . ) F u r t h e r m o r e , the e m p i r i c a l e v i d e n c e i m p l i e s t h a t the l o w e s t l e v e l o f e f f i c i e n c y o c c u r s w i t h the s e c u r i t i e s o f s m a l l c o m p a n i e s . ( S e e , f o r examp le , Hans R. S t b l l and J . C u r l e y , " S m a l l B u s i n e s s and the New I s s u e s Mar -ke t f o r E q u i t i e s , " J o u r n a l o f F i n a n c i a l and Q u a n t i t a t i v e  A n a l y s i s , V o l . 8 (Sep tember , 1 9 7 0 ) , pp. 3 0 9 - 2 2 . ) 1 9 W i l l i a m B e a v e r , "The I n f o r m a t i o n Con ten t o f E a r n -i ngs Announcemen ts , " E m p i r i c a l Resea rch i n A c c o u n t i n g : S e l e c t -ed S t u d i e s , 1968, Supp lement to Volume 7 o f the J o u r n a l o f  A c c o u n t i n g R e s e a r c h , pp. 6 7 - 9 2 . 2 0 R a y B a l l and P h i l i p Brown, "An E m p i r i c a l E v a l u a t i o n of A c c o u n t i n g Income Numbers , " J o u r n a l o f A c c o u n t i n g R e s e a r c h , 6 (Autumn, 1 9 6 8 ) , pp. 1 5 9 - 7 8 . 2 1 R a y B a l l , " R i s k , Re tu rn and D i s e q u i l i b r i u m : An Ap-p l i c a t i o n to Changes i n A c c o u n t i n g T e c h n i q u e s , " J o u r n a l o f F i -nance , V o l . 27 , No. 2 (May, 1 9 7 2 ) , pp. 3 4 3 - 5 4 . 2 2 W . H . Beaver and R. Dukes , " I n t e r p e r i o d tax a l l o c a -t i o n and the b e h a v i o r o f s e c u r i t y p r i c e s , " A c c o u n t i n g R e v i e w , X L V I I , No. 2 ( 1 9 7 2 ) , pp . 3 2 0 - 3 2 . 2 3 R a y B a l l and R. W a t t s , "Some Time S e r i e s P r o p e r t i e s o f A c c o u n t i n g Income, " J o u r n a l o f F i n a n c e , X X V I I , No. 3 ( 1 9 7 2 ) , pp. 6 6 3 - 8 1 . 2 l * G e o r g e J . B e n s t o n , " P u b l i s h e d C o r p o r a t e A c c o u n t i n g Data and S tock P r i c e s , " E m p i r i c a l Resea rch i n A c c o u n t i n g : S e -l e c t e d S t u d i e s , 1967 , Supp lement to V o l . 5 , J o u r n a l o f A c c o u n t -i ng R e s e a r c h , pp. 1 -54 ; "The E f f e c t i v e n e s s and E f f e c t s o f the S E C ' s A c c o u n t i n g D i s c l o s u r e R e q u i r e m e n t , " i n H .G. Manne ( e d . ) , Economic P o l i c y and the R e g u l a t i o n o f C o r p o r a t e S e c u r i t i e s (Washi n g t o n , 1 9 6 9 ) ; "The V a l u e o f the SEC s A c c o u n t i n g D i s c i o -su re R e q u i r e m e n t , " A c c o u n t i n g R e v i e w , 44 ( J u l y , 1 9 6 9 ) , pp . 515-32 ; and " R e q u i r e d D i s c l o s u r e and the S tock M a r k e t " . 2 5 E u g e n e Fama, Lawrence F i s h e r , M i c h a e l Jensen and R i c h a r d R o l l , "The Ad jus tmen t of S tock P r i c e s to New I n f o r m a -t i on 1 . ' . 2 6 M y r o n S . S c h o l e s , "A T e s t o f the C o m p e t i t i v e Hypo th -e s i s : The Marke t f o r New I s s u e s and Secondary O f f e r i n g s " ( U n p u b l i s h e d P h . D . D i s s e r t a t i o n , Gradua te Schoo l o f B u s i n e s s , U n i v e r s i t y o f C h i c a g o , 1 9 6 9 ) ; and "The Marke t f o r S e c u r i t i e s " . 21 2 7 R o g e r N. Waud, " P u b l i c I n t e r p r e t a t i o n o f F e d e r a l Re-s e r v e D i s c o u n t Rate Changes : E v i d e n c e on the 1 A n n o u n c e m e o t l E f -f e e t ' , " E c o n o m e t r i c a , 38 ( M a r c h , 1 9 7 0 ) , p p . 2 3 1 - 5 0 . 2 8 J a m e s A. La rgay and R i c h a r d R. West , " M a r g i n Changes and S tock P r i c e B e h a v i o r , " J o u r n a l o f P o l i t i c a l Economy, V o l . 8 ( M a r c h / A p r i l , 1 9 7 3 ) , pp . 3 2 8 - 3 9 . 2 9 T . Ross A r c h i b a l d , " S t o c k Marke t R e a c t i o n to the D e p r e c i a t i o n S w i t c h - B a c k , " The A c c o u n t i n g R e v i e w , V o l . X L V I I , No. 1 ( J a n u a r y , 1 9 7 2 ) , pp. 2 2 - 3 0 . 3 0 R o b e r t Kap lan and R i c h a r d R o l l , " I n v e s t o r E v a l u a -t i o n o f A c c o u n t i n g I n f o r m a t i o n : Some E m p i r i c a l E v i d e n c e , " J o u r n a l o f B u s i n e s s , 45 ( A p r i l , 1 9 7 2 ) , pp. 2 2 5 - 5 7 . 3 1 J a m e s C. Van H o m e , "New L i s t i n g s and T h e i r P r i c e B e h a v i o r , " J o u r n a l o f F i n a n c e , 25 (Sep tember , 1 9 7 0 ) , pp . 783-94. See a l s o Robe r t W. F u r s t , "Does L i s t i n g on the B i g Board R e a l l y I n c r e a s e Marke t P r i c e , " F i n a n c i a l E x e c u t i v e , 37 ( A p r i l , 1 9 6 9 ) , pp . 12-16 and 24 ; and "Does L i s t i n g I n c r e a s e the Marke t P r i c e o f Common S h a r e s ? , " J o u r n a l o f B u s i n e s s , 43 ( A p r i l , 1 9 7 0 ) , pp. 1 7 4 - 8 0 . 3 2 S e e I n s t i t u t i o n a l I n v e s t o r S tudy Repor t o f the S e -c u r i t i e s and Exchange C o m m i s s i o n , Volume 4 ( W a s h i n g t o n , D .C . : U . S . Government P r i n t i n g O f f i c e , 1 9 7 1 ) . 3 3 G e r s h o n M a n d e l k e r , " R i s k and R e t u r n : The Case o f Merg ing F i r m s , " J o u r n a l o f F i n a n c i a l E c o n o m i c s , 1 ( 1 9 7 4 ) , pp. 3 0 3 - 3 5 . 3 1 * V i c t o r N e i d e r h o f f e r and M . F . M . O s b o r n e , " M a r k e t Mak ing and R e v e r s a l on the S tock E x c h a n g e , " J o u r n a l o f the  Amer i can S t a t i s t i c a l A s s o c i a t i o n , 61 (December , 1 9 6 6 ) , pp . 8 9 7 - 9 1 6 . 3 5 M y r o n S c h o l e s , "The Marke t f o r S e c u r i t i e s " . 3 6 T . E . D r i s c o l l , "Some A s p e c t s of C o r p o r a t e I n s i d e r S tock H o l d i n g s and T r a d i n g under S e c t i o n 16b o f S e c u r i t i e s and Exchange A c t o f 1934" ( U n p u b l i s h e d MBA T h e s i s , U n i v e r s i t y o f P e n n s y l v a n i a , P h i l a d e l p h i a , P e n n s y l v a n i a , 1 9 6 3 ) . 3 7 G . A . G l a s s , " E x t e n s i v e I n s i d e r A c c u m u l a t i o n as an i n d i c a t o r o f Near Term S tock P r i c e P e r f o r m a n c e " ( U n p u b l i s h e d P h . D . D i s s e r t a t i o n , Ohio S t a t e - U h i v e r s i t y , 1 9 6 6 ) . 3 8 J . H . L o r i e and V. N e i d e r h o f f e r , " P r e d i c t i v e and S t a t i s t i c a l P r o p e r t i e s o f I n s i d e r T r a d i n g , " J o u r n a l o f Law  and E c o n o m i c s , V o l . 1 1 , No. 1 ( A p r i l , 1 9 6 8 ) , pp . 3 5 - 5 1 . 3 9 D . L . R o g o f f , "The F o r e c a s t i n g P r o p e r t i e s o f I n s i d e r T r a n s a c t i o n s " ( U n p u b l i s h e d DBA T h e s i s , M i c h i g a n S t a t e U n i v e r -s i t y , 1964 ) . 22 l t 0 J . F . J a f f e , " S p e c i a l I n f o r m a t i o n , S e c u r i t y R e g u l a -t i o n and I n s i d e r T r a d i n g " ( U n p u b l i s h e d P h . D . D i s s e r t a t i o n , U n i v e r s i t y o f C h i c a g o , 1 9 7 2 ) ; "The e f f e c t o f r e g u l a t i o n changes on i n s i d e r t r a d i n g , " The B e l l J o u r n a l o f Economics and  Management S c i e n c e , V o l . 5 , No. 1 ("Spring ' 7 4 ) , pp . 9 3 - 1 2 1 ; and " S p e c i a l i n f o r m a t i o n and i n s i d e r t r a d i n g , " T h e . J o u r n a l  o f B u s i n e s s , 47 ( 1 9 7 4 ) , pp. 4 1 0 - 2 8 . " J o h n R. K i m b e r , "New S tock Marke t M a t u r i t y i n C a n a -d a , " F i n a n c i a l A n a l y s t s J o u r n a l , ( M a r c h / A p r i l , 1 9 6 8 ) , p. 173 . l * 2 F . M . Wheat R e p o r t , D i s c l o s u r e to I n v e s t o r s , A Reap-p r a i s a l o f A d m i n i s t r a t i v e P o l i c i e s Under the ' 33 and '34 S e -c u r i t i e s A c t s , Repor t and Recommendat ions to the S e c u r i t i e s and Exchange Commiss ion f rom the D i s c l o s u r e P o l i c y Commi t tee , ( M a r c h , 1 9 6 9 ) , p. 10 . "* 3 George J . S t i g l e r , " P u b l i c R e g u l a t i o n o f the S e c u r i -t i e s M a r k e t s " . ' ' "See H. Demse tz , " P e r f e c t C o m p e t i t i o n , R e g u l a t i o n and the S tock M a r k e t , " i n Henry A . Manne ( e d . ) , Economic P o l i c y  and the R e g u l a t i o n o f C o r p o r a t e S e c u r i t i e s ( W a s h i n g t o n , D . C : Amer ican E n t e r p r i s e I n s t i t u t e , 1 969) , pp"! 1 - 2 3 . k 5 H . Manne, I n s i d e r T r a d i n g and the S tock Marke t (New Y o r k : F ree P r e s s , 1 966) , p . 88 . " * 6 I rw in F r i e n d and Edward S . Herman, "The SEC Through a G l a s s D a r k l y , " J o u r n a l o f B u s i n e s s , ( O c t o b e r , 1 9 6 4 ) , pp . 382-405 . l f 7 C h a r l e s Mackay , E x t r a o r d i n a r y P o p u l a r D e l u s i o n s and  the Madness o f C rowds , 1841 . 1 , 8 J o h n Maynard K e y n e s , The Genera l Theory o f Employ-ment , I n t e r e s t and Money (New Y o r k : H a r c o u r t , B race and C o . , 1 9 3 6 ) , pp . 1 5 0 - 5 8 . t * 9 Haim Levy and M a r s h a l l S a r n a t , p. 1 1 . 5 0 I n t h i s t h e s i s , m i s i n f o r m a t i o n i s d e f i n e d to be any i n f o r m a t i o n t h a t i s u n t r u e , f a l s e , m i s l e a d i n g , d e c e i t f u l or f r a u d u l e n t . 5 1 S e e Lawrence K r y z a n o w s k i , " M i s i n f o r m a t i o n , S e c u r i t y Marke ts and the Canad ian C r i m i n a l C o d e , " D i s c u s s i o n P a p e r , Con-c o r d i a U n i v e r s i t y , M o n t r e a l , R e v i s e d O c t o b e r , 1975. 5 2 D a v i d C l u r m a n , "The L e v i t z R e p o r t , " F i n a n c i a l A n a l y s t s  J o u r n a l , ( M a r c h / A p r i l , 1 9 7 4 ) , p. 28 . 5 3 P e t e r B a r r e t t , "The day they took the l i d o f f s e c u r i t y t r a d e s Down U n d e r , " The F i n a n c i a l P o s t , Oc tobe r 12 , 1974, p. C - 8 . 23 5 1 *George B e n s t o n , " R e q u i r e d D i s c l o s u r e and the S tock M a r k e t , " pp . 1 3 2 - 5 5 ; and "The E f f e c t i v e n e s s o f the S E C ' s A c -c o u n t i n g D i s c l o s u r e R e q u i r e m e n t s , " i n Henry G. Manne ( e d . ) , pp. 2 3 - 7 9 . 5 5 G e o r g e J . B e n s t o n , "An E v a l u a t i o n o f the S e c u r i t i e s Exchange A c t o f 1 9 3 4 , " F i n a n c i a l E x e c u t i v e , (May, 1 9 7 4 ) , p. 8 . 5 6 G e o r g e B e n s t o n , "The E f f e c t i v e n e s s o f the S E C ' s A c -c o u n t i n g D i s c l o s u r e R e q u i r e m e n t s , " p. 153 . 5 7 A . A . Sommer, J r . , "The Other S i d e , " F i n a n c i a l E x e c -u t i v e , (May, 1 9 7 4 ) , p. 1. 5 8 D a n i e l W. C o l l i n s , "SEC P r o d u c t - L i n e R e p o r t i n g and Marke t E f f i c i e n c y , " J o u r n a l o f F i n a n c i a l E c o n o m i c s , 2 ( 1 9 7 5 ) , pp. 1 2 5 - 6 4 . C h a p t e r 2 CANADIAN REGULATION OF TRADING IN OUTSTANDING LISTED SHARES The f i r s t e x t e n s i v e s t udy o f s e c u r i t i e s r e g u l a t i o n i n Canada was J . P e t e r W i l l i a m s o n ' s S e c u r i t i e s R e g u l a t i o n i n . C a n a d a 1 wh ich was p u b l i s h e d i n 1 960. T h i s was f o l l o w e d by h i s Supplement to S e c u r i t i e s R e g u l a t i o n i n C a n a d a 2 wh ich was pub-l i s h e d i n 1966. Other r e c e n t , but l e s s c o m p r e h e n s i v e , Cana-d i a n s t u d i e s i n c l u d e two a r t i c l e s by B a i l l i e 3 i n 1965 on the p r o t e c t i o n o f the i n v e s t o r i n O n t a r i o , the 1965 Repo r t o f the  A t t o r n e y G e n e r a l ' s Commit tee on S e c u r i t i e s L e g i s l a t i o n i n On-t a r i o , ** the Repo r t of the Commit tee o f the O n t a r i o S e c u r i t i e s  Commiss ion on the Prob lems o f D i s c l o s u r e R a i s e d f o r I n v e s t o r s  by B u s i n e s s C o m b i n a t i o n s and P r i v a t e P l a c e m e n t s 5 (commonly r e -f e r r e d to as the Bray R e p o r t ) and the 1972 Repo r t o f the Study  Commit tee on the S e c u r i t i e s I n d u s t r y i n Quebec 6 (commonly r e -f e r r e d to as the Bouchard R e p o r t ) . In t h i s c h a p t e r , we s h a l l , f i r s t , p r e s e n t an updated r e v i e w of the h i s t o r i c a l deve lopment of the Canad ian r e g u l a -t i o n o f t r a d i n g i n o u t s t a n d i n g s h a r e s ; s e c o n d l y , d e s c r i b e the Canad ian f e d e r a l and p r o v i n c i a l s t a t u t e s enac ted to ensu re c o r p o r a t e d i s c l o s u r e f o r o u t s t a n d i n g l i s t e d s h a r e s ; and f f i -n a l l y , p r o v i d e a comprehens i ve d i s c u s s i o n o f the s t r u c t u r e o f the r e g u l a t o r y a g e n c i e s and the r o l e p l a y e d by t h e s e a g e n c i e s i n p r e v e n t i n g , d e t e c t i n g a n d , when n e c e s s a r y , p u n i s h i n g v i o l a -t i o n s o f the s e c u r i t y laws f o r o u t s t a n d i n g l i s t e d s h a r e s . 24 25 REVIEW OF THE HISTORICAL DEVELOPMENT OF CANADIAN REGULATION OF TRADING IN SECONDARY MARKETS 7 H i s t o r i c a l l y , Canad ian s e c u r i t y r e g u l a t o r s have e s s e n -t i a l l y become more i n v o l v e d i n the o p e r a t i o n s o f Canad ian s e c -ondary marke ts th rough the u t i l i z a t i o n o f " c o n t r o l o f c o n d u c t " r e g u l a t i o n s and " d i s c l o s u r e " r e q u i r e m e n t s . T h i s e v o l u t i o n a r y movement towards the SR v i e w p o i n t on the e f f i c a c y o f s e c u r i t y r e g u l a t i o n w i l l be examined n e x t . H i s t o r i c a l Development o f " C o n t r o l o f Conduc t " R e g u l a t i o n s P r i o r to 1912 , Canad ian r e g u l a t i o n s d e a l i n g w i t h the c o n t r o l o f conduc t o f companies were e s s e n t i a l 1 y based on a 1855 B r i t i s h s t a t u t e wh ich empowered the B r i t i s h government to i n -s p e c t a company 1 s a f f a i r s on the a p p l i c a t i o n o f o n e - f i f t h o f i t s s h a r e h o l d e r s . Canad ian a d o p t i o n o f a s i m i l a r i n s p e c t i o n p r o -v i s i o n o c c u r r e d i n the f o l l o w i n g s e q u e n c e : B r i t i s h Co lumb ia and O n t a r i o i n 1897, Nova S c o t i a i n 1900, the Nor thwes t T e r r i -t o r i e s i n 1 9 0 1 , the F e d e r a l government i n 1902 , Man i t oba i n 1905 and Quebec i n 1907. In 1912 , Man i t oba broadened the i n -s p e c t i o n p r o v i s i o n s to i n c l u d e a u t h o r i z a t i o n f o r i n s p e c t i o n s when n e c e s s a r y " i n the i n t e r e s t s o f j u s t i c e " . 8 P r i o r to 1912 , o n l y a c t i v i t i e s of i n d u s t r y p e r s o n n e l who were members o f a s t o c k exchange were r e g u l a t e d . There e x i s t e d no bond or b r o k e r - d e a l e r a s s o c i a t i o n s to r e g u l a t e the a c t i v i t i e s o f non-members. The r e g u l a t i o n o f members was e s -s e n t i a l l y unde r t aken by the s e l f - g o v e r n i n g s t o c k e x c h a n g e s . An i n d i c a t i o n o f the r u d i m e n t a r y n a t u r e o f t h i s r e g u l a t o r y e f -f o r t i s g i v e n i n the f o l l o w i n g q u o t e : 26 The a p p l i c a t i o n o f Mr ; .Ames was f u r t h e r c o n s i d e r e d when i n c o n s t r u c t i o n o f the Ru le p l a c e d upon i t by the C h a i r m a n , i t was d e c i d e d t h a t Mr . Ames was not y e t e l i -g i b l e to become a C a n d i d a t e , not hav ing been i n b u s i -ness as a B r o k e r t h r e e months p r i o r to h i s a p p l i c a t i o n . 9 W h i l e , i n g e n e r a l , p r o g r e s s had been made i n the r e g -u l a t i o n o f t r a d i n g i n new i s s u e s by the end o f the 1 9 3 0 1 s , 1 0 l i t t l e , i f a n y , f u r t h e r p r o g r e s s had been made i n the r e g u l a -t i o n o f t r a d i n g i n o u t s t a n d i n g s h a r e s . A n o t e a b l e e x c e p t i o n was the 1935 Domin ion A c t wh ich (1) p r o v i d e d f o r d i s c l o s u r e o f d i r e c t o r s ' t r a n s a c t i o n s i n a company 's s e c u r i t i e s when r e -ques ted by a s h a r e h o l d e r and (2) p r o h i b i t e d s p e c u l a t i o n i n such s e c u r i t i e s by d i r e c t o r s . Deve lopments i n the p o s t - S e c o n d Wor ld War p e r i o d be -gan w i t h the i m p o r t a n t O n t a r i o S e c u r i t i e s A c t o f 1945 , wh ich has been c a l l e d C a n a d a ' s f i r s t modern s e c u r i t i e s a c t . 1 1 I t came i n the wake o f c o n c e r n by the O n t a r i o Roya l Commiss ion on M i n i n g w i t h f r a u d u l e n t a c t i v i t y i n the s a l e o f new s p e c u -l a t i v e i s s u e s . Wh i le the a c t b a s i c a l l y d e a l t w i t h g r e a t e r d i s c l o s u r e f o r new i s s u e s , i t a l s o gave the O n t a r i o S e c u r i t i e s Commiss ion (OSC) the power to r e g u l a t e t r a d i n g o f l i s t e d o u t -s t a n d i n g s h a r e s by g i v i n g the OSC the power to c l o s e the To-r o n t o S tock E x c h a n g e . 1 2 In 1947 the O n t a r i o B r o k e r - D e a l e r s Ac t l e g a l l y r e c o g -n i z e d the B r o k e r - ^ D e a l e r s ' A s s o c i a t i o n i n an a t tempt to impose an e t h i c a l s t a n d a r d on the s t o c k b u s i n e s s . By i n v o k i n g a meas-ure o f s e l f - g o v e r n m e n t and i n t e r n a l r e g u l a t i o n i t was though t t h a t many abuses not s t r i c t l y i n c o n t r a v e n t i o n o f the S e c u r i -t i e s A c t c o u l d be removed. In e a r l y 1957, the o t h e r Canad ian exchanges w i thd rew 27 t h e i r r e c o g n i t i o n o f the Edmonton S tock Exchange . The reasons g i v e n were t h a t the Edmonton Exchange (1) f a i l e d to a c t i n the p u b l i c i n t e r e s t and (2) d i d not have p r o p e r exchange f a c i l -i t i e s . 1 3 A p p a r e n t l y , o r d e r s were e x e c u t e d th rough a s e c r e -t a r y - m a n a g e r because the exchange had no f l o o r o p e r a t i o n s and no d a i l y s h e e t s were i s s u e d to i n f o r m the p u b l i c about t r a n s -a c t i o n s or b i d / a s k q u o t a t i o n s . The Roya l Commiss ion on Bank ing and F i n a n c e i n 1964 d i s c u s s e d a number o f p rob lems i n v o l v e d i n c o n t r o l l i n g c o n d u c t . These i n c l u d e d the abuses i n v o l v e d i n a l l o w i n g p r i m a r y d i s t r i -b u t i o n th rough the f a c i l i t i e s o f the T S E , 1 1 * the i n a d e q u a t e s t a f f i n g o f r e g u l a t o r y b o d i e s , the i n e f f i c i e n c y o f hav ing ten s e c u r i t i e s a c t s i n C a n a d a , the u n d e s i r a b l e a s p e c t s o f t a k e o v e r b i d s , the f a i l u r e to r e g u l a t e c l o s e l y the a c t i v i t i e s o f s e c u r i -t i e s sa lesmen as d i s t i n c t f rom r e g i s t e r i n g them, the need f o r s t r i c t e r l i s t i n g and d e l i s t i n g r u l e s o f the s t o c k exchanges and the i n a d e q u a t e p o l i c i n g o f m a n i p u l a t i v e a c t i v i t y . The c o l l a p s e o f A t l a n t i c A c c e p t a n c e C o r p o r a t i o n L i m -i t e d (and i t s a f f i l i a t e s ) d u r i n g the summer o f 1965 , the f i -n a n c i a l d i f f i c u l t i e s o f the B r i t i s h Mor tgage and T r u s t Company, and the a c t i o n s o f the o f f i c e r s o f W i n d f a l l O i l s and Mines L i m -i t e d d u r i n g 1964 i n c r e a s e d the u rgency f o r a q u i c k r e v i e w o f s e c u r i t i e s r e g u l a t i o n i n O n t a r i o . The P r o v i n c e o f O n t a r i o examined s e c u r i t i e s l e g i s l a t i o n i n d e t a i l t h rough a commi t tee t h a t was headed by Mr . J . R . K im-b e r . 1 5 The r e s u l t i n g r e p o r t , r e f e r r e d to as the Kimber r e p o r t , c o v e r e d , among o t h e r t h i n g s , i n s i d e r t r a d i n g , t a k e o v e r b i d s , p r o x i e s and p roxy s o l i c i t a t i o n , p r i m a r y d i s t r i b u t i o n th rough 28 the To ron to S tock Exchange , the O n t a r i o S e c u r i t i e s C o m m i s s i o n , and c o n s t i t u t i o n a l p rob lems i n s e c u r i t i e s r e g u l a t i o n . On the need to d i s c o n t i n u e the p r a c t i c e of a l l o w i n g p r i m a r y d i s t r i b u -t i o n on the e x c h a n g e , the A t t o r n e y G e n e r a l ' s Commit tee i n some of i t s s t r o n g e s t l anguage s t a t e d : I n h e r e n t i n the e x i s t i n g sys tem a re the d a n g e r s , among o t h e r s , o f market m a n i p u l a t i o n , f a l s e rumours , a r t i f i c i a l e x c i t e m e n t and i n s i d e advan tages by p r o -m o t e r s , b r o k e r s and f l o o r t r a d e r s . Coup led w i t h t h i s i s a v i r t u a l l y comp le te l a c k o f knowledge by the pub-l i c o f the f a c t t h a t p r i m a r y d i s t r i b u t i o n i s t a k i n g p l a c e . . . . 1 6 The consequence o f t h i s i n t e n s i v e i n v e s t i g a t i o n was the O n t a r i o S e c u r i t i e s A c t of 1966. The i n t r o d u c t i o n o f the Ac t was an a t t emp t to l e g i s l a t e an " e t h i c " . 1 7 The a c t i s s t i l l g e n e r a l l y c o n s i d e r e d to be the most f a r r e a c h i n g and s t r i n g e n t p i e c e o f s e c u r i t i e s law eve r e n a c t e d i n Canada . The p o r t i o n s o f the A c t d e a l i n g w i t h the o r g a n i z a t i o n and a d m i n i s t r a t i o n o f the O n t a r i o S e c u r i t i e s Commiss ion became e f f e c t i v e on J a n u a r y 3 1 , 1967 , and the rema inde r o f the Ac t became e f f e c t i v e on May 1, 1967. The Ac t g e n e r a l l y s a t i s f i e d the recommendat ions o f Mr . J u s t i c e A r t h u r K e l l y ' s Roya l C o m m i s s i o n , wh ich i n v e s t i -ga ted the W i n d f a l l s c a n d a l , and those o f Mr . John K i m b e r , who headed the A t t o r n e y G e n e r a l ' s Commit tee on S e c u r i t i e s L e g i s l a -t i o n i n O n t a r i o . The major e x c e p t i o n was the n o n - i m p l e m e n t a -t i o n o f a recommendat ion made by both the K e l l y and Kimber r e -p o r t s to d i s c o n t i n u e the p r a c t i c e o f a l l o w i n g p r i m a r y d i s t r i -b u t i o n by m i n i n g companies th rough the f a c i l i t i e s o f the TSE. The c o n t r o l o f conduc t p r o v i s i o n s embodied i n the Ac t i n c l u d e d r r u l . e s f o r t a k e - o v e r b i d s , " f a i r e r " p roxy p r o c e d u r e s 29 and e x t e n s i v e p r o v i s i o n s g o v e r n i n g i n s i d e r t r a d i n g . 1 8 The A c t ' s e x t e n s i v e p r o v i s i o n s g o v e r n i n g i n s i d e r t r a d i n g were un ique f o r B r i t i s h Commonwealth j u r i s d i c t i o n s . B e f o r e the passage o f the A c t , i n s i d e r t r a d i n g was not an o f f e n s e i n C a n -ada and i n s i d e r s were not even r e q u i r e d to r e p o r t t h e i r t r a n s a c t i o n s i n t h e i r own company 's s t o c k . One o f the c o n c u r r e n t e f f e c t s o f the A c t was a number of r e fo rms by the TSE. These i n c l u d e d new r u l e s g o v e r n i n g f l o o r t r a d i n g , r e s t r i c t i o n s on n o n - r e g i s t e r e d f l o o r t r a d e r s , tougher l i s t i n g r e q u i r e m e n t s f o r m i n i n g . a n d o i l companies and an improved s u s p e n s i o n / d e l i s t i n g p o l i c y . O r , i n the words o f James B a i l ! i e: . . . the c o n t r o l s a p p l i e d under the TSE r u l e s to a c t i v i t i e s o f l i s t e d companies and to p r o f e s s i o n a l t r a d i n g a re f a r more r i g o r o u s than the e q u i v a l e n t c o n t r o l s o f the SEC and o f the s t o c k exchanges i n the U n i t e d S t a t e s . 1 9 Ano the r c o n c u r r e n t e f f e c t was t h a t the A c t became a model f o r subsequen t s e c u r i t i e s l e g i s l a t i o n unde r t aken by the o t h e r P r o v i n c i a l governments and O t t a w a . In 1967, A l b e r t a , B r i t i s h Co lumb ia and Saska tchewan i n t r o d u c e d new S e c u r i t i e s A c t s wh ich were p a t t e r n e d on the O n t a r i o A c t . Man i toba f o l -lowed w i t h a new A c t i n 1968. The Yukon and Nor thwes t T e r r i -t o r i e s i n t r o d u c e d t h e i r S e c u r i t y O r d i n a n c e s i n 1970 and 1 9 7 1 , r e s p e c t i v e l y . The f e d e r a l gove rnmen t , t h rough B i l l C - 4 , amended the Canada C o r p o r a t i o n s A c t i n an e f f o r t to b r i n g f e d e r a l s e c u r i -t i e s law up to O n t a r i o ' s l e v e l . B i l l C-4 r e c e i v e d Roya l A s s e n t on Oc tobe r 7 , 1970 , and a l l i t s p r o v i s i o n s ( e x c e p t s e c t i o n 120A wh ich r e l a t e s to f i n a n c i a l s t a t e m e n t s o f o t h e r b u s i n e s s ) 30 was p r o c l a i m e d e f f e c t i v e March 3 1 , 1971. In g e n e r a l , i t s c o n -t r o l o f conduc t amendments t i g h t e n e d the law w i t h r e s p e c t to i n s i d e r t r a d i n g , p roxy s o l i c i t a t i o n s and t a k e o v e r b i d s . A l t h o u g h Canada has never had a N a t i o n a l S e c u r i t i e s A c t , Henry L a n g f o r d , fo rmer Cha i rman o f the O n t a r i o S e c u r i t i e s C o m m i s s i o n , p r e p a r e d a t e n t a t i v e p l a n known as "CANSEC" i n 1968. The p l a n i n v o l v e d a c o - o p e r a t i v e P r o v i n c i a l / F e d e r a l scheme i n o r d e r to ensu re u n i f o r m s e c u r i t i e s l e g i s l a t i o n and a d m i n i s t r a t i o n . 2 0 Wh i l e the Government o f O n t a r i o approved the p l a n i n p r i n c i p l e , t h e r e was not unanimous p r o v i n c i a l sup -p o r t f o r the p l a n . R e c e n t l y , O n t a r i o i n t r o d u c e d B i l l 75 : The S e c u r i t i e s A c t , 1974. The c o n t r o l o f conduc t p r o v i s i o n s embodied i n B i l l 75 a re d e s i g n e d to s t r e n g t h e n f r a u d p r e v e n t i o n p r o v i s i o n s d e a l -i ng w i t h s e c u r i t i e s t r a d i n g i n the a rea o f t a k e o v e r b i d s and i n s i d e r t r a d i n g . B i l l 75 has been e x t e n s i v e l y d i s c u s s e d w i t h r e p r e s e n t a t i v e s o f the o t h e r p r o v i n c e s i n an e f f o r t to o b t a i n a c c e p t a n c e o f the new a c t as a u n i f o r m p r o v i n c i a l s e c u r i t i e s a c t . H i s t o r i c a l Development o f " D i s c l o s u r e " Requ i remen ts In the p r e - s e c o n d Wor ld War p e r i o d , l i t t l e p r o g r e s s was made i n the deve lopment o f e i t h e r g e n e r a l or s p e c i f i c d i s -c l o s u r e r e q u i r e m e n t s f o r o u t s t a n d i n g s h a r e s . A n o t e a b l e ex -c e p t i o n was the 1935 Domin ion A c t wh ich d i d improve the annua l r e p o r t d i s c l o s u r e r e q u i r e m e n t s f o r f e d e r a l l y i n c o r p o r a t e d com-p a n i e s . On the o t h e r hand , i n the p o s t - s e c o n d Wor ld War p e r i o d , a g r e a t dea l o f p r o g r e s s has been made i n the deve lopment o f d i s c l o s u r e r e q u i r e m e n t s f o r o u t s t a n d i n g s h a r e s . 31 G e n e r a l d i s c l o s u r e r e q u i r e m e n t s . The 1964 Roya l Com-m i s s i o n on Bank ing and F i n a n c e e x t e n s i v e l y d i s c u s s e d the i n -adequa te n a t u r e of Canad ian d i s c l o s u r e r e q u i r e m e n t s . S u b s e -quent e v e n t s , such as the 1965 c o l l a p s e o f A t l a n t i c A c c e p t a n c e and the f i n a n c i a l d i f f i c u l t i e s o f B r i t i s h Mor tgage and T r u s t , h i g h l i g h t e d t hese d i s c l o s u r e i n a d e q u a c i e s and l e a d to a de -t a i l e d e x a m i n a t i o n o f O n t a r i o s e c u r i t i e s l e g i s l a t i o n by the Kimber c o m m i t t e e . The recommendat ions o f the Kimber commi t tee d e a l i n g w i t h g e n e r a l d i s c l o s u r e were embodied i n the O n t a r i o S e c u r i t i e s A c t o f 1966. The r e g u l a t i o n s embodied i n the Ac t r e s u l t e d i n more comprehens i ve f i n a n c i a l d i s c l o s u r e s t a n d a r d s (such as o b l i g a t o r y h a l f - y e a r s t a t e m e n t s , s a l e s f i g u r e s and d i r e c t o r s ' f e e s ) and d e t a i l e d p u b l i c a t i o n o f i n s i d e r t r a d i n g . In 1970, the f e d e r a l gove rnmen t , t h rough B i l l C - 4 , t i g h t e n e d the law w i t h r e s p e c t to d i s c l o s u r e p r o v i s i o n s i n an e f f o r t to b r i n g f e d e r a l s e c u r i t i e s law up to O n t a r i o ' s l e v e l . In 1971 , the O n t a r i o S e c u r i t i e s Ac t was amended to adopt s e v e r a l o f the recommendat ions o f the s p e c i a l "Merge r S tudy " wh ich was u n d e r t a k e n f o r the O n t a r i o S e c u r i t i e s Commis-s i o n . The major amendments were to p r o v i d e f o r a more comp le te d i s c l o s u r e i n t a k e - o v e r b i d s and d i r e c t o r ' s c i r c u l a r s . S p e c i f i c d i s c l o s u r e r e q u i r e m e n t s . In 1956 , the To ron to S tock Exchange suspended the s h a r e s o f two l i s t e d i n d u s t r i a l s because i n s u f f i c i e n t i n f o r m a t i o n was d i s s e m i n a t e d i n c o n n e c -t i o n w i t h u n d e r w r i t i n g s . In each i n s t a n c e , the s h a r e s ' market p r i c e had r i s e n and f a l l e n s h a r p l y as the r e s u l t o f heavy p r o -mot ion by U n i t e d S t a t e s b roke rage f i r m s . As a r e s u l t , the TSE r e v i s e d i t s u n d e r w r i t i n g r e g u l a t i o n s to dea l w i t h the manner 32 i n wh ich new i s s u e s o f l i s t e d companies were marke ted th rough the f a c i l i t i e s o f the e x c h a n g e . 2 1 In J a n u a r y , 1958, the TSE i n t r o d u c e d a " f i l i n g s t a t e -men t " . L i s t e d f i r m s were r e q u i r e d to f i l e a s t a temen t and ob -t a i n the a p p r o v a l o f the e x c h a n g e ' s f i l i n g commi t tee b e f o r e any " m a t e r i a l change i n a company 's a f f a i r s " c o u l d take p l a c e . 2 2 One r e s u l t o f t h i s r e q u i r e m e n t was an u n p o p u l a r s u s p e n s i o n o f 14 l i s t e d s t o c k s i n 1958. B i l l 7 5 , wh ich was i n t r o d u c e d i n O n t a r i o d u r i n g 1975 , c o n t a i n s a number o f p r o v i s i o n s d e s i g n e d to e l i c i t adequa te and t i m e l y d i s c l o s u r e f o r the m a r k e t . 2 3 In p a r t i c u l a r , t hese p r o v i s i o n s a re d e s i g n e d : to e s t a b l i s h a more c o h e r e n t c o n t i n u o u s d i s c l o s u r e sys tem f o r the purpose o f , ( i ) p r o v i d i n g equa l a c c e s s to m a t e r i a l i n f o r m a t i o n o f the a f f a i r s of an i s s u e r , a n d , c o n s e q u e n t l y , ( i i ) p e r m i t t i n g a more e x h a u s t i v e d e f i n i t i o n o f the c i r c u m s t a n c e s i n wh ich s e c u r i t i e s may be t r a d e d w i t h -out r e s t r i c t i o n , i n a c c o r d a n c e w i t h the p r i n c i p l e s u n d e r l y i n g the recom-menda t ions o f The Repo r t o f the Commit tee o f the O n t a r i o S e c u r i t i e s Commiss ion on the Prob lems o f D i s c l o s u r e R a i s e d f o r I n v e s t o r s by B u s i n e s s C o m b i n a t i o n s and P r i -va te P l a c e m e n t s ; and to expand the i n s i d e r t r a d i n g l i a b i l i t y p r o v i s i o n to , i n c l u d e t r a d i n g o f s e c u r i t i e s o f an i s s u e r w i t h know-l edge o f a m a t e r i a l f a c t o f change i n r e s p e c t o f the i s -sue r t h a t has not been g e n e r a l l y d i s c l o s e d , to make the i n f o r m i n g o f a n o t h e r pe rson or company o f t h a t m a t e r i a l f a c t o r change an o f f e n c e and to implement the recommen-d a t i o n o f Chap te r 22 o f The Repor t on M e r g e r s , A m a l g a -ma t i ons and C e r t a i n R e l a t e d M a t t e r s by the S e l e c t Com-m i t t e e on Company L a w . 2 1 * From the above m a t e r i a l , i t i s e v i d e n t t h a t ove r the y e a r s Canad ian s e c u r i t i e s r e g u l a t i o n has e s s e n t i a l l y r e l i e d upon " d i s c l o s u r e " and " c o n t r o l o f c o n d u c t " p r o v i s i o n s to r e g -33 u l a t e t r a d i n g i n o u t s t a n d i n g s h a r e s . These p r o v i s i o n s have been a p p l i e d by (1) the ten p r o v i n c e s and the f e d e r a l g o v e r n -ment th rough l e g i s l a t i o n , (2) the s e c u r i t i e s i n d u s t r y i t s e l f t h rough the b y - l a w s o f the s t o c k exchanges and the Inves tmen t D e a l e r ' s A s s o c i a t i o n o f C a n a d a , (3) the p r o v i n c i a l s e c u r i t i e s commiss ions th rough r e g u l a t o r y a c t i o n s and (4) the R . C . M . P . a n d / o r the m u n i c i p a l f r a u d squads th rough l e g a l a c t i o n s . Each of t hese w i l l be d i s c u s s e d be low . PROVINCIAL SECURITIES LEGISLATION IN CANADA In g e n e r a l most o f the s e c u r i t i e s l e g i s l a t i o n i n C a n - , ada i s i n c o r p o r a t e d i n the S e c u r i t i e s and Companies Ac ts o f each p r o v i n c e . T h i s r e s u l t s f rom the f a c t t h a t , under the BNA A c t , s e c u r i t i e s r e g u l a t i o n f a l l s under p r o v i n c i a l j u r i s -d i c t i o n . The two e x c e p t i o n s a re (1) the s e c t i o n s i n the F e d -e r a l C r i m i n a l Code wh ich dea l w i t h s e c u r i t i e s i n the a r e a s o f f r a u d and f r a u d u l e n t d i s c l o s u r e and (2) the Domin ion Companies Ac t wh ich r e g u l a t e s F e d e r a l l y i n c o r p o r a t e d c o m p a n i e s . The A c t s o f B r i t i s h C o l u m b i a , A l b e r t a , S a s k a t c h e w a n , Man i t oba and O n t a r i o have p a r a l l e l p r o v i s i o n s . The A c t s of the M a r i t i m e p r o v i n c e s a re s i m i l a r w h i l e the Quebec Ac t a c h i e v e s i d e n t i c a l o b j e c t i v e s by u t i l i z i n g d i f f e r e n t l a n -guage. The d i s c l o s u r e r e q u i r e m e n t s f o r o u t s t a n d i n g s h a r e s i n -c o r p o r a t e d i n t o the s e c u r i t i e s and companies a c t s of the p r o v -i n c e s oif; O n t a r i o , Quebec and B r i t i s h Co lumb ia a re b r i e f l y d i s c u s s e d be low. 34 The O n t a r i o S e c u r i t i e s A c t , 1966 and Companies A c t : D i s c l o -su re Requ i remen ts f o r 'Ou ts tand ing ' Shares Wh i l e P a r t XI I o f the S e c u r i t i e s Ac t d e a l s w i t h the fo rma t f o r r e g u l a r f i n a n c i a l d i s c l o s u r e , t h e r e i s l i t t l e i n e i t h e r Ac t on the t i m e l y d i s c l o s u r e o f m a t e r i a l i n f o r m a t i o n . Both A c t s dea l w i t h the l i a b i l i t y o f i n s i d e r s . Due to the s i m i l a r i t y o f the p r o v i s i o n s ( S e c t i o n 77 of the C o r p o r a t i o n s Ac t and S e c t i o n 113 o f the S e c u r i t i e s A c t ) , o n l y the l a t t e r p r o v i s i o n i s p r e s e n t e d n e x t : S e c . 113 . L i a b i l i t y o f I n s i d e r s . - (1) Every i n -s i d e r o f a c o r p o r a t i o n o r a s s o c i a t e o r a f f i l i a t e o f such i n s i d e r , who, i n c o n n e c t i o n w i t h a t r a n s a c t i o n r e l a t i n g to the c a p i t a l s e c u r i t i e s o f the c o r p o r a t i o n , makes use o f any s p e c i f i c c o n f i d e n t i a l i n f o r m a t i o n f o r h i s own b e n e f i t o r advan tage t h a t , i f g e n e r a l l y known, m igh t r e a s o n a b l y be e x p e c t e d to a f f e c t m a t e r i a l l y the v a l u e o f such s e c u r i t i e s , i s l i a b l e to compensate any pe rson or company f o r any d i r e c t l o s s s u f f e r e d by such pe rson or company as a r e s u l t o f such t r a n s a c t i o n , s u n -l e s s such i n f o r m a t i o n was known or ought r e a s o n a b l y to have been known to such pe rson or company a t the t ime o f such t r a n s a c t i o n , and i s a l s o a c c o u n t a b l e to the c o r p o r a t i o n f o r any d i r e c t b e n e f i t o r advan tage ren c e i v e d o r r e c e i v a b l e by such i n s i d e r , a s s o c i a t e or a f -f i l i a t e , as the case may be , as a r e s u l t o f such t r a n s -a c t i o n . The Quebec S e c u r i t i e s A c t and Companies A c t : D i s c l o s u r e Re-q u i r e m e n t s f o r O u t s t a n d i n g Shares The Quebec A c t s , l i k e t hose i n O n t a r i o , (1) dea l w i t h the fo rma t f o r (and c o n t e n t s o f ) g e n e r a l f i n a n c i a l d i s c l o s u r e (see S e c t i o n s 96 to 112 o f the S e c u r i t i e s A c t and D i v i s i o n IV of the R e g u l a t i o n s ) ; (2) do not dea l w i t h the t i m e l y d i s c l o -su re of m a t e r i a l i n f o r m a t i o n ; and (3) do dea l w i t h the l i a b i l -i t y o f i n s i d e r s . Due to the s i m i l a r i t y o f the i n s i d e r p r o -v i s i o n s ( S e c t i o n 151 o f the S e c u r i t i e s A c t ) to t hose i n O n t a r i o , they a re not p r e s e n t e d h e r e . 35 The B . C . S e c u r i t i e s A c t and Companies A c t : D i s c l o s u r e R e q u i r e -ments f o r O u t s t a n d i n g Sha res The B . C . A c t s , l i k e those i n O n t a r i o and Quebec, (1) dea l w i t h the f o rma t (and c o n t e n t s o f ) g e n e r a l f i n a n c i a l d i s -c l o s u r e (see P a r t XI I o f the S e c u r i t i e s A c t ) ; (2) do not dea l w i t h the t i m e l y d i s c l o s u r e o f m a t e r i a l i n f o r m a t i o n ; and (3) do dea l w i t h the l i a b i l i t y o f i n s i d e r s . Due to the s i m i l a r i t y o f the i n s i d e r p r o v i s i o n s ( S e c t i o n s 152 o f the Companies A c t and S e c t i o n 111 o f the S e c u r i t i e s A c t ) amongst t h e m s e l v e s and to the O n t a r i o and Quebec p r o v i s i o n s , they a re not p r e s e n t e d h e r e . O f f e n c e s and P e n a l t i e s O f f e n c e s under the S e c u r i t i e s a n d / o r Companies A c t s a re g e n e r a l l y c a t e g o r i z e d as f r a u d u l e n t a c t s and o f f e n c e s a g a i n s t the A c t ( s ) . In p a r t i c u l a r , any pe rson or company who know ing l y makes a f a l s e or m i s l e a d i n g s t a t e m e n t i n any a p p l i c a t i o n , r e -p o r t or o t h e r document t h a t i s r e q u i r e d under an A c t (o r r e g u -l a t i o n ) i s g u i l t y o f an o f f e n c e . F u r t h e r m o r e , any pe rson or company who c o n t r a v e n e s an A c t o r f a i l s to o b s e r v e or comply w i t h a d i r e c t i v e i s s u e d under an Ac t i s g u i l t y o f an o f f e n c e . In g e n e r a l , a l l the S e c u r i t i e s A c t s p r e s c r i b e p a r t i c -u l a r p u n i t i v e measures (o r a c t i o n s ) f o r a summary c o n v i c t i o n of an o f f e n c e d e a l i n g w i t h t a k e - o v e r b i d s , p r o x i e s and p roxy s o l i c i t a t i o n , i n s i d e r t r a d i n g and f i n a n c i a l d i s c l o s u r e r e q u i r e -ments . At p r e s e n t , i n B . C . , the o n l y p o s s i b l e p u n i t i v e a c -t i o n a g a i n s t i n s i d e r s who i m p r o p e r l y e x p l o i t c o n f i d e n t i a l i n -f o r m a t i o n f o r f i n a n c i a l g a i n i s a s u i t f o r damages i n a c i v i l 36 a c t i o n . A r e c e n t l y i n t r o d u c e d amendment to the B . C . S e c u r i -t i e s A c t , however , p roposes p e n a l t i e s f o r such i n s i d e r t r a d -ing of up to one y e a r i n p r i s o n or a f i n e of up to $ 2 , 0 0 0 , o r b o t h . 2 5 The form of the p u n i t i v e measures employed f o r such o f f e n c e s makes the " o f f e n c e s " ve ry s i m i l a r to c r i m i n a l o f -fences . T h e r e f o r e , i f the p r o v i n c i a l p r o v i s i o n s were t e s t e d i n the c o u r t s , they would p r o b a b l y be d e c l a r e d i n v a l i d because they e n c r o a c h on a f i e l d o f f e d e r a l j u r i s d i c t i o n . FEDERAL SECURITIES LEGISLATION IN CANADA The Canad ian C r i m i n a l Code: D i s c l o s u r e P r o v i s i o n s 2 6 The f o u r s e c t i o n s o f the C r i m i n a l Code d e a l i n g w i t h s e c u r i t i e s i n the a r e a s o f f r a u d and f r a u d u l e n t d i s c l o s u r e a re p r e s e n t e d be low. Fraud - a f f e c t i n g p u b l i c m a r k e t . S e c t i o n 338(2) o f the C r i m i n a l Code i s as f o l l o w s : 338. (2) Every one who, by d e c e i t , f a l s e h o o d or o t h e r f r a u d u l e n t means, whether or not i t i s a f a l s e p r e t e n c e w i t h i n the meaning o f t h i s A c t , w i t h i n t e n t to d e f r a u d , a f f e c t s the p u b l i c market p r i c e o f s t o c k s , s h a r e s , me rchand i se or a n y t h i n g t h a t i s o f f e r e d f o r s a l e to the p u b l i c , i s g u i l t y o f an i n d i c t a b l e o f f e n c e and i s l i a b l e to imp r i sonmen t f o r ten y e a r s . 1 9 5 3 - 5 4 , c . 5 1 , s . 3 2 3 . F r a u d u l e n t m a n i p u l a t i o n o f s t o c k exchange t r a n s a c t i o n s . S e c t i o n 340 o f the C r i m i n a l Code i s as f o l l o w s : 340. Eve ry one who, t h rough the f a c i l i t y o f a s t o c k e x c h a n g e , cu rb market or o t h e r m a r k e t , w i t h i n -t e n t to c r e a t e a f a l s e or m i s l e a d i n g appearance o f -a c t i v e p u b l i c t r a d i n g i n a s e c u r i t y or w i t h i n t e n t to c r e a t e a f a l s e or m i s l e a d i n g appearance w i t h r e -s p e c t to the market p r i c e o f a s e c u r i t y , 37 (a) e f f e c t s a t r a n s a c t i o n i n the s e c u r i t y t h a t i n v o l v e s no change i n the b e n e f i c i a l ownersh ip t h e r e o f , (b) e n t e r s an o r d e r f o r the pu rchase o f a s e c u r -i t y , knowing t h a t an o r d e r o f s u b s t a n t i a l l y the same s i z e a t s u b s t a n t i a l l y the same t ime and a t s u b s t a n t i a l l y the same p r i c e f o r the s a l e o f the s e c u r i t y has been or w i l l be e n t e r e d by or f o r the same or d i f f e r e n t p e r s o n s , or (c ) e n t e r s an o r d e r f o r the s a l e o f the s e c u r i t y , knowing t h a t an o r d e r of s u b s t a n t i a l l y the same s i z e a t s u b s t a n t i a l l y the same t ime and a t s u b -s t a n t i a l l y the same p r i c e f o r the pu rchase o f the s e c u r i t y has been or w i l l be e n t e r e d by or f o r the same or d i f f e r e n t p e r s o n s , i s g u i l t y o f an i n d i c t a b l e o f f e n c e and i s l i a b l e to imp r i sonmen t f o r f i v e y e a r s . 1 9 5 3 - 5 4 , c . 5 1 , s . 3 2 5 . The meaning o f the w o r d , " s e c u r i t y " , ' w a s d i s c u s s e d i n Re J . H . ( 1 9 1 2 ) 2 7 on p. 135 as f o l l o w s : But w h i l e ' s e c u r i t i e s ' does ••not, s t r i c t l y s p e a k -i n g , c o v e r s h a r e s i n j o i n t s t o c k companies (BANK OF COMMERCE v . HART ( 1 8 9 3 ) , 20 L . R . A . 780) i t does i n i t s b r o a d e s t sense (THAYER v . WATHEM ( 1 8 9 7 ) , 44 S.W. R e p r . 906 , 9 0 9 ) . From the r e f e r e n c e to the s t o c k e x c h a n g e , i t i s appa ren t t h a t the w o r d , " s e c u r i t y " , i s i n t e n d e d to i n c l u d e s h a r e s . Two cases d e c i d e d w i t h o u t r e f e r e n c e to the C r i m i n a l Code a re R. v . D A L L E Y , 2 8 a p r o s e c u t i o n under the O n t a r i o S e -c u r i t i e s A c t , and R. v . PEIPGRASS ( 1 9 5 9 ) , 2 9 a p r o s e c u t i o n un -der the A l b e r t a S e c u r i t i e s A c t . In R. v . L A M P A R D , 3 0 a c q u i t t a l s by the t r i a l j udge were se t a s i d e and g u i l t y v e r d i c t s were imposed on 29 c o u n t s . The Cou r t h e l d t h a t the e v i d e n c e on each count s h o u l d be c o n s i d -e red s e p a r a t e l y to de te rm ine whether t h e r e was an i n t e n t to c r e a t e a f a l s e or m i s l e a d i n g appearance o f a c t i v e p u b l i c t r a d -ing and t h a t i t was i n c o r r e c t to c o n s i d e r a l l 29 t r a d e s as one c h a r g e . The Cou r t a l s o h e l d t h a t the absence o f p r o o f o f a 38 mo t i ve i s not the same as p r o o f o f the absence o f any m o t i v e . F u r t h e r m o r e , the Cou r t h e l d t h a t i n the absence o f e v i d e n c e of any o t h e r i n t e n t , the accused must be taken to have not o n l y ferreseen but i n t e n d e d t h a t each t r a d i n g t r a n s a c t i o n would c r e a t e a f a l s e and m i s l e a d i n g appearance o f a c t i v e p u b l i c t r a d i n g . The d e c i s i o n was l a t e r r e v e r s e d on the ground t h a t the Crown appea l had not been on a ground o f law a l o n e . 3 1 The s e c t i o n r e q u i r e s an " i n t e n t to c r e a t e a f a l s e o r m i s l e a d i n g appearance o f a c t i v e p u b l i c i n t e r e s t " , and i f the purpose i s me re l y to s t a b i l i z e the market p r i c e i n the a c c u s e d ' s own i n t e r e s t , an o f f e n c e has not been c o m m i t t e d . 3 2 To e s t a b l i s h an o f f e n c e under p a r a , (b) o f t h i s s e c -t i o n i t i s not n e c e s s a r y t h a t the Crown prove t h a t the c r o s s -t r a d e i n v o l v e d e i t h e r f i c t i t i o u s pe rsons or pe rsons i n v o l v e d w i t h the accused i n a f r a u d u l e n t c o n s p i r a c y , s i n c e the p u r -pose o f the s e c t i o n i s to p r e v e n t f r a u d u l e n t m isuse o f the f a -c i l i t i e s o f the s t o c k market f o r p r o f i t . 3 3 O f f e n c e s i n r e l a t i o n to mines - p r e s u m p t i o n . S e c t i o n 354 o f the C r i m i n a l Code i s as f o l l o w s : 354. (1) Eve ry one who (a) adds a n y t h i n g or removes a n y t h i n g f rom an e x i s t i n g m i n e , m i n i n g c l a i m or o i l w e l l w i t h a f r a u d u l e n t i n t e n t to a f f e c t the r e s u l t o f an a s s a y , t e s t o r v a l u a t i o n t h a t has been made or i s to be made w i t h r e s p e c t to the m i n e , m in i ng c l a i m or o i l w e l 1 , o r (b) adds a n y t h i n g t o , removes a n y t h i n g f rom or tampers w i t h a sample or m a t e r i a l t h a t has been taken or i s be ing or i s about to be t a k e n f rom an e x i s t i n g or p r o s p e c t i v e m i n e , m i n i n g c l a i m or o i l w e l l f o r the purpose o f be ing a s s a y e d , t e s t e d or o t h e r w i s e v a l u e d , w i t h a f r a u d u l e n t i n t e n t to a f f e c t the r e s u l t o f the a s s a y , t e s t o r v a l u a t i o n , 39 i s g u i l t y o f an i n d i c t a b l e o f f e n c e and i s l i a b l e to imp r i sonmen t f o r ten y e a r s . (2) For the pu rposes o f p r o c e e d i n g s under s u b s e c t i o n ( 1 ) , e v i d e n c e t h a t (a) someth ing has been added to or removed f rom a n y t h i n g to wh ich s u b s e c t i o n (1) a p p l i e s , or (b) a n y t h i n g to wh ich s u b s e c t i o n (1) a p p l i e s has been tampered w i t h , i s , i n the absence o f any e v i d e n c e to the c o n t r a r y , p r o o f o f a f r a u d u l e n t i n t e n t to a f f e c t the r e s u l t o f an a s s a y , t e s t or v a l u a t i o n . 1 9 5 3 - 5 4 , c . 5 1 , s . 3 3 9 ; 1 9 6 8 - 6 9 , c . 3 8 , s . 9 2 . F a l s e p r o s p e c t u s , e t c . - " company" . S e c t i o n 358 of the C r i m i n a l Code i s as f o l l o w s : 358. (1) Eve ry one who makes, c i r c u l a t e s or p u b l i s h e s a p r o s p e c t u s , s t a t e m e n t o r a c c o u n t , whether w r i t t e n or o r a l , t h a t he knows i s f a l s e i n a m a t e r i a l p a r -t i c u l a r , w i t h i n t e n t (a) to i nduce p e r s o n s , whether a s c e r t a i n e d or n o t , to become s h a r e h o l d e r s or p a r t n e r s i n a com-pany , (b) to d e c e i v e or d e f r a u d the members, s h a r e -h o l d e r s or c r e d i t o r s , whether a s c e r t a i n e d or n o t , o f a company, (c ) to i nduce any pe rson to e n t r u s t o r advance a n y t h i n g to a company, o r (d) to e n t e r i n t o any s e c u r i t y f o r the b e n e f i t o f a company, i s g u i l t y o f an i n d i c t a b l e o f f e n c e and i s l i a b l e to imp r i sonmen t f o r ten y e a r s . (2) In t h i s s e c t i o n , "company" means a s y n d i -c a t e , body c o r p o r a t e or company, whether e x i s t i n g or p roposed to be c r e a t e d . 1 9 5 3 - 5 4 , c . 5 1 , s . 3 4 3 . Where the de fence i s t h a t the " f a l s e m a t e r i a l p a r t i c -u l a r was a m i s t a k e n b e l i e f as to the c o r r e c t n e s s o f t h a t p a r t i c u l a r " the j u r y must de te rm ine whether t h i s b e l i e f was an hones t one . 3 ** 40 The Supreme Cou r t o f Canada i n COX and PATON v THE Q U E E N 3 5 h e l d t h a t s . 3 5 8 ( l ) ( c ) c r e a t e s o n l y one o f f e n c e and t h a t m a k i n g , c i r c u l a t i n g or p u b l i s h i n g a f a l s e p r o s p e c t u s a re not s e p a r a t e o f f e n c e s and a re not v o i d f o r d u p l i c i t y . The C o u r t a l s o h e l d t h a t the s e c t i o n does not r e q u i r e a " f a l s e p r e t e n c e " but me re l y some f a l s e m a t e r i a l p a r t i c u l a r such as s t a temen t o f pu rposes wh ich the accused had no i n t e n t i o n of eve r c a r r y i n g o u t . In R. v . C O L U C C I 3 6 i t was h e l d t h a t a m a t e r i a l o m i s -s i o n may r e n d e r a s t a t e m e n t f r a u d u l e n t . O f f e n c e s and p e n a l t i e s . A v i o l a t i o n o f the above p r o -v i s i o n s r e s u l t s i n c r i m i n a l l i a b i l i t y f o r the o f f e n d e r . T h i s c r i m i n a l l i a b i l i t y i s more s e r i o u s than the l i a b i l i t y t h a t r e -s u l t s f rom e i t h e r (1) a v i o l a t i o n o f one or more o f the s t a t " u to ry , f o r m a l i t i e s t h a t a re c o n t a i n e d i n a s e c u r i t y a c t or r e g -u l a t i o n or (2) m i s r e p r e s e n t a t i o n or s t a t u t o r y f r a u d (commi t -ment o f one or more a c t s wh ich a S e c u r i t y Ac t d e c l a r e s or deems to be f r a u d u l e n t ) . The Canada C o r p o r a t i o n s A c t : D i s c l o s u r e Requ i remen ts f o r Out -s t a n d i n g Shares The p r e s e n t Canad ian C o r p o r a t i o n s A c t , e x c e p t f o r s e c -t i o n 120A, became e f f e c t i v e on J u l y 3 1 , 1971 . The A c t ' s d i s -c l o s u r e p r o v i s i o n s d e a l i n g w i t h p r o x i e s and p roxy s o l i c i t a -t i o n , i n s i d e r t r a d i n g and t a k e - o v e r b i d s a re ve ry s i m i l a r to those i n the amended O n t a r i o S e c u r i t i e s A c t , 1966. Wi th r e g a r d to i n s i d e r s ( d i r e c t o r s and o f f i c e r s ) , a l l s h a r e h o l d e r s must be i n f o rmed on a l l the d e t a i l s c o n c e r n i n g (1) a l l i n s i d e r s t o c k o p t i o n s g r a n t e d or e x e r c i s e d d u r i n g the 41 p r e v i o u s y e a r and (2) a l l i n s i d e r b o r r o w i n g s f rom the company d u r i n g the p r e v i o u s y e a r . I n s i d e r s a re a l s o r e q u i r e d to s u b -m i t an i n i t i a l r e p o r t on t h e i r sha re i n t e r e s t i n a company and subsequen t r e p o r t s on any subsequen t t r a n s a c t i o n s i n such s h a r e s to the F e d e r a l Depar tment o f Consumer and C o r p o r a t e A f f a i r s . Wi th r e g a r d to s h a r e h o l d e r a p p r o v a l o f c o r p o r a t e a c t s ( f o r e x a m p l e , mergers and a l t e r a t i o n o f sha re c a p i t a l ) , manage-ment must d e s c r i b e the p roposed a c t i o n i n s u f f i c i e n t d e t a i l to e n a b l e s h a r e h o l d e r s to a r r i v e a t a reasoned judgement on the p roposed c o r p o r a t e a c t . (The fo rma t and n a t u r e o f a l l such i n f o r m a t i o n c i r c u l a r s i s p r o v i d e d i n the A c t . ) REGULATORY AGENCIES: STRUCTURE, PROCEDURES AND ACTIONS The r e g u l a t o r y a g e n c i e s f o r a p p l y i n g and e n f o r c i n g the p r o v i s i o n s o f Canad ian s e c u r i t i e s l e g i s l a t i o n w i l l be d i s c u s s e d n e x t . THE PROVINCIAL SECURITIES COMMISSIONS AND/OR REGULATORY BODIES In Canada , each p r o v i n c e ' s S e c u r i t i e s Ac t i s a d m i n i s -t e r e d by a body d e s i g n a t e d i n the A c t . The d e s i g n a t e d body i s a l s o cha rged w i t h the r e s p o n s i b i l i t y o f the g e n e r a l s u p e r -v i s i o n o f any Exchange (s ) t h a t a re d o m i c i l e d w i t h i n the p r o v -i n c e . . In f i v e p r o v i n c e s ( A l b e r t a , S a s k a t c h e w a n , M a n i t o b a , O n t a r i o and Q u e b e c ) , the S e c u r i t i e s A c t i s a d m i n i s t e r e d by a 42 S e c u r i t i e s Commiss i on . In B r i t i s h C o l u m b i a , the S e c u r i t i e s A c t i s a d m i n i s t e r e d by the O f f i c e o f the S u p e r i n t e n d e n t o f B r o k e r s . Commiss ion members a re a p p o i n t e d by the L i e u t e n a n t -Gove rno r i n C o u n c i l who d e s i g n a t e s a Chai rman and V i c e - C h a i r -man ( the l a t t e r appo in tmen t does not a p p l y to Q u e b e c ) . The number o f members on the d e s i g n a t e d body i s not more than 3' in -Quebec- ; . '4r , in A l b e r t a , B r i t i s h Co lumb ia and S a s k a t c h e w a n , 5 i n M a n i t o b a and 7 i n O n t a r i o . Wh i l e the d e s i g n a t e d r e g u l a t o r y b o d i e s o f a l l p r o v -i n c e s c o n t i n u e to i s s u e t h e i r own p o l i c y s t a t e m e n t s , some p r o -g r e s s has been made i n a t t a i n i n g u n i f o r m l e g i s l a t i o n and a d -m i n i s t r a t i o n . For ex am p l e , the d e s i g n a t e d b o d i e s of the f o u r wes te rn p r o v i n c e s and O n t a r i o have i s s u e d (and a re i s s u i n g ) a s e r i e s o f Un i f o rm A c t P o l i c i e s wh ich have r e s u l t e d i n s i m i l a r s e c u r i t i e s l e g i s l a t i o n . F u r t h e r m o r e , the o f f i c i a l r e g u l a t o r y b o d i e s o f a l l p r o v i n c e s , e x c e p t Newfound land and Nova S c o t i a , a re i s s u i n g a s e r i e s o f N a t i o n a l P o l i c y S ta temen ts wh ich govern s e c u r i t i e s a d m i n i s t r a t i o n i n a l l p a r t i c i p a t i n g p r o v i n c e s . O n t a r i o S e c u r i t i e s Commiss ion The O n t a r i o S e c u r i t i e s Commiss ion (OSC) c o n s i s t s o f a f u l l t ime Chai rman and V i c e - C h a i r m a n and not more than s i x p a r t t ime c o m m i s s i o n e r s . The Commiss ion i s d i r e c t l y respond s i b l e f o r P o l i c y S t a t e m e n t s , i n v e s t i g a t i o n s c a r r i e d out under the A c t and a p p e a l s . The D i r e c t o r o f the C o m m i s s i o n , as the c h i e f a d m i n i s -t r a t i v e o f f i c e r , c a r r i e s out the p r o v i s i o n s o f the S e c u r i t i e s A c t e x c e p t f o r i n v e s t i g a t i o n s or a p p e a l s . The D i r e c t o r i s a s -s i s t e d i n h i s a d m i n i s t r a t i v e d u t i e s by a Deputy D i r e c t o r of 43 R e g i s t r a t i o n . The OSC r e q u i r e s r e p o r t i n g f i r m s to comply w i t h i t s t i m e l y d i s c l o s u r e p o l i c y (see E x h i b i t s 1* and 2 ) . U n i f o r m P o l i c i e s 2-12 and 3-23 s e t ou t the m a t e r i a l changes or p r o -posed changes wh ich must be d i s c l o s e d and d i s c u s s e d w i t h the C h a i r m a n , V i c e - C h a i r m a n or D i r e c t o r o f the OSC on a c o n f i d e n -t i a l b a s i s p r i o r to d i s c l o s u r e to the i n v e s t i n g p u b l i c . The OSC b e l i e v e s t h a t such i n f o r m a t i o n w i l l e n a b l e the OSC to " b e t t e r " m o n i t o r the p u b l i c market f o r unusua l a c t i v i t y wh ich might i n d i c a t e t h a t i n s i d e r s o r t i p p e e s a r e t r a d i n g on the b a -s i s o f " n o n - p u b l i c " m a t e r i a l i n f o r m a t i o n . 3 7 Quebec S e c u r i t i e s Commiss ion (Commiss ion des V a l e u r s M o b i l i e r e s  du Quebec) The Quebec S e c u r i t i e s Commiss ion (QSC) i s s i t u a t e d i n M o n t r e a l . I t a l s o m a i n t a i n s an o f f i c e i n Quebec C i t y f o r the s e r v i c i n g and p r o c e s s i n g o f documents . The Commiss ion c o n s i s t s o f a f u l l t ime Chai rman and two o t h e r f u l l t ime c o m m i s s i o n e r s . These members a re a p p o i n t e d f o r a f i x e d term of ten y e a r s or l e s s by the L i e u t e n a n t - G o v e r n o r i n C o u n c i l " . The Commiss ione rs are d i r e c t l y r e s p o n s i b l e f o r P o l i c y S t a t e m e n t s , i n v e s t i g a t i o n s c a r r i e d out under the A c t and a p p e a l s . The D i r e c t o r o f the C o m m i s s i o n , as the c h i e f a d m i n i s -t r a t i v e o f f i c e r , i s r e s p o n s i b l e f o r the g r a n t i n g , s u s p e n s i o n or c a n c e l l a t i o n o f r e g i s t r a t i o n s and the s u p e r v i s i o n o f the a c t i v i t i e s o f b r o k e r s , i n v e s t m e n t counse l and s e c u r i t i e s s a l e s -men . The Commiss ion f o l l o w s a h i e r a r c h i a l appea l p r o c e d u r e . *A11 e x h i b i t s f o r t h i s c h a p t e r a re p r e s e n t e d a t the end of the c h a p t e r . 44 F i r s t , a d e c i s i o n o f the d i r e c t o r can be a p p e a l e d to the Com-m i s s i o n w i t h i n t h i r t y days f rom the da te o f the d e c i s i o n . Sec-ond a d e c i s i o n o f the Commiss ion can be a p p e a l e d to the P r o -v i n c i a l C o u r t i f the Commiss ion was n o t i f i e d by r e g i s t e r e d " . l e t t e r w i t h i n t h i r t y days o f i t s d e c i s i o n . The d e c i s i o n o f the P r o v i n c i a l C o u r t i s f i n a l and canno t be a p p e a l e d . The QSC r e q u i r e s r e p o r t i n g f i r m s to comply w i t h i t s t i m e l y d i s c l o s u r e p o l i c y (see E x h i b i t 3),. The p o l i c y i s s i m -i l a r to the u n i f o r m p o l i c y t h a t was p r e s e n t e d f o r O n t a r i o . B . C . R e g u l a t o r y B o d i e s The B . C . S e c u r i t i e s Commiss ion was r e c e n t l y (Oc tobe r 1, 1974) r e o r g a n i z e d i n t o two s e p a r a t e b o d i e s : a S u p e r i n t e n -dent o f B r o k e r s (SB) w i t h reduced powers and the new C o r p o r a t e and F i n a n c i a l S e r v i c e s C o m m i s s i o n . The S u p e r i n t e n d e n t o f B r o k e r ' s O f f i c e i s composed o f a C h a i r m a n , a V i c e - C h a i r m a n and not more than t h r e e o t h e r mem-b e r s . The members a re d i r e c t l y r e s p o n s i b l e f o r P o l i c y S t a t e -ments and i n v e s t i g a t i o n s c a r r i e d out under the A c t . The S u p e r -i n t e n d e n t o f B r o k e r s , as the c h i e f a d m i n i s t r a t i v e o f f i c e r , i s r e s p o n s i b l e f o r the p r o c e s s i n g o f r e g i s t r a t i o n s and the s u p e r -v i s i o n o f the a c t i v i t i e s o f b r o k e r s , i n v e s t m e n t c o u n s e l and s e c u r i t i e s s a l e s m e n . The C o r p o r a t e and F i n a n c i a l S e r v i c e s Commiss ion i s composed o f a C h a i r m a n , V i c e - C h a i r m a n and not more than 5 o t h e r members. The Commiss ion was o r g a n i z e d to f u n c t i o n as an i ndependen t a p p e l l a t e body f o r a l l a d m i n i s t r a t i v e d e c i s i o n s i n the e n t i r e c o r p o r a t e and f i n a n c i a l a r e a . The SB r e q u i r e s r e p o r t i n g f i r m s to comply w i t h the 1 45 u n i f o r m t i m e l y d i s c l o s u r e p o l i c y p r e s e n t e d e a r l i e r . R e g u l a t o r y A c t i o n s The A c t s o f a l l the p r o v i n c e s , e x c e p t S a s k a t c h e w a n , Quebec , New B runsw ick and P r i n c e Edward I s l a n d , c o n t a i n a p r o v i s i o n g i v i n g the d e s i g n a t e d r e g u l a t o r y body the a u t h o r i t y to i s s u e a cease and d e s i s t o r d e r to h a l t t r a d i n g i n a p a r t i c -u l a r s e c u r i t y when i t i s i n the p u b l i c i n t e r e s t to do s o . (These r e g u l a t o r y a c t i o n s a re commonly r e f e r r e d to as CTO 1 s or c e a s e ' t r a d i n g o r d e r s . ) Such o r d e r s a r e , however , used i n the p r o v i n c e s o f Saska tchewan and Quebec. In g e n e r a l , a permanent CTO canno t be i s s u e d w i t h o u t a h e a r i n g u n l e s s the r e g u l a t o r y body c o n s i d e r s the l e n g t h o f t ime r e q u i r e d f o r such a h e a r i n g to be p r e j u d i c i a l to the pub-l i c i n t e r e s t . In such c i r c u m s t a n c e s , a tempora ry o r d e r , wh ich e x p i r e s i n f i f t e e n d a y s , can be i s s u e d . I f s a t i s f a c t o r y e v i -dence i s not p r o v i d e d to the Commiss ion w i t h i n the f i f t e e n day p e r i o d , the temporary o r d e r can be ex tended f o r a f u r t h e r .•' p e r i o d o f t ime or made permanent . R e l a t i o n s h i p o f the P r o v i n c i a l R e g u l a t o r y B o d i e s to the S tock  Exchanges A s t o c k exchange canno t o p e r a t e i n the p r o v i n c e s o f B r i t i s h C o l u m b i a , A l b e r t a , S a s k a t c h e w a n , M a n i t o b a , O n t a r i o or Quebec, u n l e s s i t has been r e c o g n i z e d i n w r i t i n g by the d e s i g -na ted p r o v i n c i a l r e g u l a t o r y body. For example, the O S Q i s s u e d a p o l i c y s t a t e m e n t on A p r i l 5 , 1971 , wh ich r e c o g n i z e d the TSE. When n e c e s s a r y f o r the p r o t e c t i o n o f the p u b l i c , the d e s i g n a t e d p r o v i n c i a l body can i s s u e any d i r e c t i v e , o r d e r , d e t e r m i n a t i o n or r u l i n g : (1) on the manner i n wh ich a s t o c k exchange i n the prov4 46 i n c e c a r r i e s on b u s i n e s s , (2) on any b y - l a w , r u l i n g , i n s t r u c t i o n , r e g u l a t i o n or p r o -cedu re o f the s t o c k e x c h a n g e s , and (3) on any s e c u r i t y l i s t e d a n d / o r pos ted f o r t r a d i n g on the e x c h a n g e . 3 8 F u r t h e r m o r e , the QSC has the a u t h o r i t y to i s s u e any d i r e c t i v e or r u l i n g on the n a t u r e o f any " r e p o r t s and i n f o r m a t i o n f rom any s t o c k exchange , - . i t s members or the f i r m s or companies r e p -r e s e n t e d a t such e x c h a n g e " . Any pe rson or company can appea l any d i r e c t i v e , o r d e r or d e c i s i o n made under a b y - l a w , r u l e o r r e g u l a t i o n o f the TSE (MSE o r VSE) o r any undue d e l a y i n making such a d i r e c - " \ t i v e , r u l e o r d e c i s i o n to the OSC (QSC or S B ) . The r e s u l t s o f such an appea l a re b i n d i n g on the exchange . More r e c e n t l y , the d e s i g n a t e d r e g u l a t o r y b o d i e s and the s t o c k exchanges have c o - o r d i n a t e d t h e i r r e g u l a t o r y a c t i o n s . For examp le , the i s s u a n c e o f a CTO by the OSC a g a i n s t Sa r imco Mines L t d . was f o l l o w e d by a subsequen t t r a d i n g s u s p e n s i o n by the T S E . The OSC c o n t e n t i o n t h a t the unusua l t r a d i n g a c t i v i t y o f the company 's d i r e c t o r s was d e s i g n e d to s t i m u l a t e s t o c k market a c t i v i t y was a c c e p t e d by the T S E . 3 9 THE CANADIAN STOCK EXCHANGES'* 0 Canad ian s t o c k exchanges a re e s s e n t i a l l y p r i v a t e i n ? s t i t u t i o n s . T e c h n i c a l l y , they c o u l d gove rn t h e i r a f f a i r s , ~. a c c o r d i n g to the p r o v i s i o n s o f t h e i r c h a r t e r s , b y - l a w s and r u l e s , f o r t h e i r own b e n e f i t . P r a c t i c a l l y , however , f a c t o r s such as the impo r tance o f the s e c u r i t y i n d u s t r y w i t h i n the 47 economy and p u b l i c conce rn ove r the na tu re o f p r i m a r y d i s t r i -b u t i o n , i n f o r m a t i o n d i s c l o s u r e and i n s i d e r t r a d i n g , have f o r c e d the exchanges to a c c e p t v a r i o u s r e g u l a t o r y p r o v i s i o n s d e s i g n e d to p r o t e c t the i n v e s t i n g p u b l i c . In some cases , t hese p r o v i s i o n s have been imposed on the exchanges by the l e g i s l a -t i v e b o d i e s o f the p r o v i n c e s i n wh ich the exchanges a re l o c a t e d and by such i n s t i t u t i o n s as the Inves tmen t D e a l e r s ' A s s o c i a t i o n o f Canada and the B r o k e r - D e a l e r ' s A s s o c i a t i o n o f O n t a r i o . C h a r a c t e r i s t i c F e a t u r e s There a re a t l e a s t f o u r c h a r a c t e r i s t i c f e a t u r e s o f Canad ian s t o c k e x c h a n g e s . The f i r s t f e a t u r e i s t h a t Canad ian s t o c k exchanges a re f a r l e s s e x t e r n a l l y c o n t r o l l e d than a re the Amer i can e x c h a n g e s . The second f e a t u r e i s t h a t t r a d i n g on the exchanges i s c o n f i n e d to e q u i t y s e c u r i t i e s , such a s , common and p r e f e r r e d s h a r e s , r i g h t s , w a r r a n t s and r e c e n t l y , o p t i o n s . Debt s e c u r i t i e s , wh ich a re t r a d e d on some of the European and Nor th Amer i can e x c h a n g e s , a re t r a d e d o v e r - t h e -c o u n t e r . The t h i r d f e a t u r e i s the p r o v i s i o n wh ich a l l o w s l i s t e d s p e c u l a t i v e n a t u r a l r e s o u r c e companies to conduc t p r i -mary d i s t r i b u t i o n th rough the f a c i l i t i e s o f the exchange . The f o u r t h f e a t u r e i s the e x t e n s i v e degree o f s t o c k i n t e r l i s t i n g s . T h i s tends to reduce the l i q u i d i t y o f each Canad ian m a r k e t . R e l a t i v e S i z e P r i o r to the 1 9 0 0 ' s , the MSE w a s . c l e a r l y the dominate Canad ian s t o c k exchange . S i n c e t h a t t i m e , the TSE has g r a d u -a l l y become the l a r g e s t , b r o a d e s t and deepes t market i n Canada . In f a c t , by 1948, even the TSE volume of t r a d i n g i n i n d u s t r i a l s t o c k s had exceeded t h a t on the MSE. The MSE, a p a r t f rom a 48 temporary r e s u r g e n c e o f p o s i t i o n i n the l a t e 1 9 5 0 ' s , has c o n -t i n u e d to d e c l i n e i n terms o f the r e l a t i v e s i z e o f i t s t r a d i n g a c t i v i t y . The V S E , f rom 1955 u n t i l r e c e n t l y , has i n c r e a s e d s u b s t a n t i a l l y i n r e l a t i v e s i z e . The To ron to S tock Exchange The To ron to S tock Exchange was formed as a p a r t n e r s h i p i n 1852 by a group o f To ron to bus inessmen f o r the purpose o f e s t a b l i s h i n g a Canad ian market i n i n d u s t r i a l s e c u r i t i e s . At f i r s t , most o f the s e c u r i t i e s t r a d e d were t hose o f the c h a r -t e r e d banks and t r a d i n g c o m p a n i e s . In 1878, an a c t o f the P r o v i n c e of O n t a r i o i n c o r p o r a t e d the T S E . In 1896 and 1897 , r e s p e c t i v e l y , the To ron to M i n i n g and I n d u s t r i a l and the S t a n d a r d S tock and M i n i n g Exchanges were f o rmed . In 1899 , t h e s e two exchanges merged under the name of the S t a n d a r d S tock and M i n i n g Exchange . In 1908, the S t a n d -a r d S tock and M i n i n g Exchange o b t a i n e d L e t t e r s P a t e n t i n On-t a r i o . In 1934, the S t a n d a r d S tock and M i n i n g Exchange merged w i t h the T S E . S i n c e 1967 the TSE has been under the g e n e r a l s u p e r v i s i o n o f the OSC. The To ron to S tock Exchange i s governed by a Board o f G o v e r n o r s . T h i s Board c o n s i s t s o f the TSE P r e s i d e n t , two pub-l i c and 10 member g o v e r n o r s . A p u b l i c g o v e r n o r , a t the t ime of h i s n o m i n a t i o n and d u r i n g h i s term o f o f f i c e , canno t be a member (o r s h a r e h o l d e r , p a r t n e r , d i r e c t o r o r o f f i c e r ) o f a mem-ber nor can he be engaged i n the s e c u r i t i e s b u s i n e s s . S t r u c t u r a l o r g a n i z a t i o n . The TSE ' . i s e s s e n t i a l l y made-up o f the f o l l o w i n g d e p a r t m e n t s : Computer Systems and P l a n -n i ng Depa r tmen t , E x a m i n e r ' s Depa r tmen t , Resea rch and Marke t 49 Development Depa r tmen t , S tock L i s t Depa r tmen t , Marke t O p e r a -t i o n s Depar tment and I n t e l l i g e n c e Depar tmen t . On ly the l a t -t e r t h r e e depar tmen ts dea l w i t h d i s c l o s u r e and a re t h e r e f o r e r e l e v a n t to t h i s s t u d y . 1. S tock L i s t Depar tment .** 1 The S tock L i s t Depar tment has t h r e e main f u n c t i o n s : the l i s t i n g o f s h a r e s on the Exhange ; the a d m i n i s t r a t i o n o f the E x c h a n g e ' s f i l i n g r e q u i r e m e n t s ; and the a d m i n i s t r a t i o n o f the E x c h a n g e ' s l i s t i n g - m a i n t e n a n c e p o l -i c y . The f i r s t major f u n c t i o n o f the Depar tment i s to han -d l e company a p p l i c a t i o n s f o r l i s t i n g . S i n c e a s u b s t a n t i a l amount o f i n f o r m a t i o n i s r e q u i r e d o f p r o s p e c t i v e l i s t e d com-p a n i e s , the E x c h a n g e ' s S tock L i s t s t a f f o v e r s e e s the p r e p a r a -t i o n o f the r e q u i r e d i n f o r m a t i o n . When the p r o s p e c t i v e l i s t e d company has s a t i s f i e d the i n f o r m a t i o n r e q u i r e m e n t , the D e p a r t -ment submi t s the documen ta t i on to the S tock L i s t Commit tee f o r the f i n a l d e c i s i o n . ( T h i s commi t tee i s composed o f m i n i n g e n -g i n e e r s , a c c o u n t a n t s and a n a l y s t s who a re s e l e c t e d f rom the p e r s o n n e l o f Exchange member H o u s e s . ) I f the company meets the l i s t i n g r e q u i r e m e n t s , i s o t h e r w i s e a c c e p t a b l e f o r l i s t i n g , and ag rees to meet the E x c h a n g e ' s d i s c l o s u r e r e q u i r e m e n t s and s h a r e h o l d e r p r o t e c t i v e p r o v i s i o n s , the S tock L i s t Commit tee may recommend to the Board o f Gove rno rs o f the Exchange t h a t the s h a r e s of the company be pos ted f o r t r a d i n g . The Depar tment a l s o d e a l s w i t h the l i s t i n g o f a d d i -t i o n a l s h a r e s o f l i s t e d companies and s u b s t i t u t i o n a l l i s t i n g s t h a t r e l a t e to s t o c k s p l i t s , mergers and name c h a n g e s . The second major f u n c t i o n o f the Depar tment i s to a d -50 m i n i s t e r the E x c h a n g e ' s B y - l a w s c o n c e r n i n g " s t a t e m e n t s o f Ma-t e r i a l F a c t s " and " F i l i n g S t a t e m e n t s " . S ta temen ts o f M a t e r i a l F a c t s are r e q u i r e d by The S e c u r i t i e s A c t and are f i l e d both w i t h the Exchange and the OSC.when n a t u r a l r e s o u r c e s f i r m de -s i r e to u n d e r t a k e a p r i m a r y d i s t r i b u t i o n th rough the f a c i l i ^ t i e s of the E x c h a n g e . " 2 The t h i r d major f u n c t i o n o f the Depar tment i s to a d -m i n i s t e r the E x c h a n g e ' s l i s t i n g - m a i n t e n a n c e p o l i c i e s . To f a -c i l i t a t e such a d m i n i s t r a t i o n , the Depar tment m a i n t a i n s i n f o r -mat ion f i l e s on each company. A l l l i s t e d companies a re r e -q u i r e d to r e p o r t to the Exchange i n f o r m a t i o n c o n c e r n i n g c o r -p o r a t e deve lopments such as new sha re i s s u e s , management Changes and s t o c k o p t i o n s . S i n c e 1965 , the Depar tment has suspended m i n i n g and o i l companies f rom the T r a d i n g L i s t f o r a f a i l u r e to (1) m a i n -t a i n the n e c e s s a r y f i n a n c i a l r e q u i r e m e n t s or (2) u n d e r t a k e any s i g n i f i c a n t e x p l o r a t o r y or deve lopment a c t i v i t y d u r i n g the p r i o r y e a r . I f the Exchange has not been s a t i s f i e d w i t h i n a y e a r a f t e r s u s p e n s i o n as to the f i n a n c i a l c o n d i t i o n and p r o -gramme o f work o f the company c o n c e r n e d , the s h a r e s a re d e l i s t -e d . S i n c e A p r i l o f 1 9 7 1 , the Depar tment has f o l l o w e d a s i m -i l a r l i s t i n g - m a i n t e n a n c e p o l i c y f o r i n d u s t r i a l l i s t i n g s . 2 . Marke t O p e r a t i o n s Depar tmen t . A l t h o u g h the r e g u l a t i o n o f i n s i d e r t r a d i n g i s not w i t h i n the E x c h a n g e ' s manda te , the TSE c o n s i d e r s t h a t i t has a r e s p o n s i b i l i t y to ensu re t h a t i n f o r m a -t i o n r e g a r d i n g a l i s t e d company i s not w i t h h e l d f rom the pub-l i c a t the same t ime t h a t pe rsons p r i v y to such i n f o r m a t i o n are p r o f i t e e r i n g by buy ing f rom or s e l l i n g to an unknowing pub-51 l i e . For t h i s r e a s o n , the TSE m a i n t a i n s a s t r i c t " T i m e l y D i s -c l o s u r e P o l i c y " ( d i s c u s s e d i n the nex t s e c t i o n ) f o r i t s l i s t e d compan ies . The market s u r v e i l l a n c e s e c t i o n o f the depar tment was formed i n 1965. I t a t t emp ts to ensu re t h a t f u l l and t i m e l y d i s c l o s u r e of market i n f o r m a t i o n i s made by c o n t i n u a l l y m o n i -t o r i n g marke t a c t i v i t y f o r any unusua l p r i c e movement wh ich c o u l d i n d i c a t e t h a t some pe rson or pe rsons a re t r a d i n g on the b a s i s o f " n o n - p u b l i c " i n f o r m a t i o n . k 3 T h i s . " s t o c k - w a t c h " f u n c -t i o n i s a i d e d by the E x c h a n g e ' s compu te r . The computer i s c a -p a b l e o f q u i c k l y r e c o n s t r u c t i n g the comp le te and a c c u r a t e t r a d -ing r e c o r d f o r any l i s t e d s e c u r i t y . The computer a l s o p roduces d a i l y , week l y and month ly runs o f t r a d i n g i n f o r m a t i o n on a l l l i s t e d s t o c k s , wh ich a re examined and i n t e r p r e t e d by the S u r -v e i l l a n c e p e r s o n n e l . A d d i t i o n a l s o u r c e s o f i n f o r m a t i o n used by the " s t o c k - w a t c h e r s " a re the Dow Jones n e w s s e r v i c e , ' v a r i o u s newspapers and f i n a n c i a l j o u r n a l s , r e s e a r c h r e p o r t s p u b l i s h e d by member f i r m s and " i n f o r m e r s " . ' * ' * I f unusua l a c t i v i t y i s s u s p e c t e d , the company conce rned w i l l be c o n t a c t e d to e n q u i r e whether the company i s aware o f any c o r p o r a t e deve lopment wh ich would e x p l a i n the sudden or i n o r d i n a t e change i n the p r i c e o f i t s : s e c u r i t i e s . A t r a d i n g a n a l y s i s may a l s o be i n i t i a t e d to p i n p o i n t p o s s i b l e causes o f the market p a t t e r n o f the s t o c k i n q u e s t i o n . I f n e c e s s a r y , the Exchange w i l l i s s u e a r e g u l a t o r y a c t i o n to ensu re prompt and f u l l d i s c l o s u r e . ( R e g u l a t o r y a c t i o n s w i l l be d i s c u s s e d be 1ow. ) 3 . I n t e l l i g e n c e Depar tmen t . T h i s depar tment a s s i s t s the E x -52 change and the i n d u s t r y i n p r e v e n t i n g c r i m i n a l e lements f rom e n t e r i n g or u s i n g the i n v e s t m e n t i n d u s t r y . In p a r t i c u l a r , the Depar tment i n f o r m s the i n d u s t r y when i t knows (o r s u s -p e c t s ) t h a t e i t h e r s t o l e n or c o u n t e r f e i t s e c u r i t i e s a re i n c i r c u l a t i o n or a f r a u d u l e n t scheme i s be ing p e r p e t u a t e d i n or th rough the f a c i l i t i e s o f the T S E . The depar tment i s a s s i s t e d i n t h i s e f f o r t by i t s c o n -t a c t s . These i n c l u d e the S e c u r i t i e s V a l i d a t i o n System i n New Y o r k , the R . C . M . P . , the F B I , and members o f the I n t e r n a t i o n a l F e d e r a t i o n o f S tock E x c h a n g e s . D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y  s t a t e m e n t s . The o n l y TSE b y - l a w d e a l i n g w i t h d i s c l o s u r e i s the f o l l o w i n g : S e c . 1 1 . 2 6 . M a n i p u l a t i v e or D e c e p t i v e Method o f T r a d i n g . - ( 1 ) No member or approved pe rson s h a l l \ : u s e or know ing l y p a r t i c i p a t e i n the use o f any m a n i p u l a t i v e or d e c e p t i v e method o f t r a d i n g i n c o n n e c t i o n w i t h the p u r -chase or s a l e o f any s e c u r i t y wh ich c r e a t e s or may c r e a t e a f a l s e or m i s l e a d i n g appearance o f t r a d i n g a c t i v i t y or an a r t i f i c i a l p r i c e f o r the s a i d s e c u r i t y . (2) W i thou t i n any way l i m i t i n g the g e n e r a l i t y o f the f o r e g o i n g the f o l l o w i n g s h a l l be deemed m a n i p u l a t i v e or d e c e p t i v e methods o f t r a d i n g : (a) making a f i c t i t i o u s t r a d e or g i v i n g or a c c e p t i n g an o r d e r w h i c h ' i n v o l v e s no change i n the b e n e f i c i a l owne rsh ip of such a s e c u r i t y ; (b) e n t e r i n g an o r d e r or o r d e r s f o r the pu r chase o f such a s e c u r i t y w i t h the knowledge t h a t an o r d e r o f s u b s t a n t i a l l y the same s i z e , a t s u b s t a n t i a l l y the same t ime and a t s u b s t a n t i a l l y the same p r i c e f o r the s a l e o f any such s e c u r i t y , has been or w i l l be e n t e r e d by or f o r the same or d i f f e r e n t pe rsons and w i t h the i n t e n t i o n o f c r e a t i n g a f a l s e or m i s -l e a d i n g appearance o f a c t i v e p u b l i c t r a d i n g i n a : s e c u r i t y o r w i t h r e s p e c t to the market p r i c e o f a s e c u r i t y ; (c ) e n t e r i n g an o r d e r o r o r d e r s f o r the s a l e o f such a s e c u r i t y w i t h the knowledge t h a t an o r d e r or o r -ders o f s u b s t a n t i a l l y the same s i z e , a t s u b s t a n t i a l l y 53 the same t ime and a t s u b s t a n t i a l l y the same p r i c e f o r the pu rchase of such s e c u r i t y , has been or w i l l be e n t e r e d by or f o r the same or d i f f e r e n t pe rsons and w i t h the i n t e n t i o n o f c r e a t i n g a f a l s e o r m i s -l e a d i n g appearance o f a c t i v e p u b l i c t r a d i n g i n a s e c u r i t y o r w i t h r e s p e c t to the market p r i c e of a s e c u r i t y ; (d) m a k i n g , p u r c h a s e s o f o r o r d e r s to pu rchase any s e c u r i t y a t s u c c e s s i v e l y h i g h e r p r i c e s , or s a l e s o f o r o f f e r s to s e l l any s e c u r i t y a t s u c c e s s i v e l y l ower p r i c e s f o r the purpose o f c r e a t i n g or i n d u c -i ng a f a l s e or m i s l e a d i n g appearance o f t r a d i n g i n such s e c u r i t y o r f o r the purpose o f undu ly o r im -p r o p e r l y i n f l u e n c i n g the market p r i c e o f such s e -c u r i t y ; (e) e f f e c t i n g , a l o n e o r w i t h one or more p e r s o n s , a s e r i e s o f t r a d e s i n any s e c u r i t y , f o r the pu rposes o f i n d u c i n g the pu rchase or s a l e o f such s e c u r i t y , wh ich c r e a t e s a c t u a l o r appa ren t t r a d i n g i n such s e c u r i t y or r a i s e s or d e p r e s s e s the p r i c e o f such s e c u r i t y . (3) N o t w i t h s t a n d i n g s u b s e c t i o n 1 and 2 o f t h i s s e c -t i o n , a member may pu rchase or o f f e r to pu rchase a s e c u r e i t y f o r h i m s e l f o r f o r a cus tomer f o r the purpose o f s t a -b i l i z i n g the market i n such a s e c u r i t y i n a c c o r d a n c e w i t h s e c t i o n 1 1 . 1 1 . The TSE has i s s u e d two p o l i c y s t a t e m e n t s wh ich dea l w i t h c o r p o r a t e d i s c l o s u r e . Both o f t hese a re p r e s e n t e d be low : S e c . 1 . 0 1 . T i m e l y D i s c l o s u r e . - A company l i s t e d on the Exchange and the management o f such company must d i s -c l o s e p r o m p t l y a change i n the a f f a i r s o f the company wh ich might r e a s o n a b l y be e x p e c t e d to a f f e c t m a t e r i a l l y the v a l -ue o f the l i s t e d s e c u r i t i e s . The Exchange a p p r e c i a t e s t h a t a p p l i c a t i o n o f t h i s p o l -i c y poses p r a c t i c a l q u e s t i o n s f o r management and t h a t i n some c i r c u m s t a n c e s e x c e p t i o n s to the g e n e r a l r u l e a re r e -q u i r e d . G e n e r a l l y , i n d e c i d i n g whether the change i s l i k e l y to m a t e r i a l l y a f f e c t the v a l u e o f the s e c u r i t i e s , the e f -f e c t o f the change on the market p r i c e o f the s e c u r i t i e s i s the bes t t e s t . I f i t can be r e a s o n a b l y e x p e c t e d t h a t the announcement o f the change would r e s u l t i n a sudden change i n the p r i c e o f the s e c u r i t y , management s h o u l d c o n c l u d e t h a t the change i s one t h a t m a t e r i a l l y a f f e c t s the v a l u e o f the s e c u r i t y and an announcement s h o u l d be made. 54 The announcement s h o u l d be made i n a manner wh ich p r o -v i d e s f o r w ide d i s s e m i n a t i o n o f the news. The recommended p r o c e d u r e : i s t h a t the announcement be made to those s e r v -i c e s wh ich d i s s e m i n a t e f i n a n c i a l news ove r a broad a r e a and i n the main p o p u l a t i o n c e n t r e s . The Exchange s h o u l d be a d v i s e d o f the announcement and s u p p l i e d w i t h a copy f o r t h w i t h upon i t s r e l e a s e . R e l e a s e s when made s h o u l d be f a c t u a l and b a l a n c e d , n e i t h e r o v e r - e m p h a s i z i n g f a v o u r a b l e news nor under -empha-s i z i n g u n f a v o u r a b l e news. I t i s a p p r e c i a t e d t h a t r e l e a s e s under t h i s p o l i c y may not be a b l e to c o n t a i n a l l the d e -t a i l t h a t would be i n c l u d e d i n a p r o s p e c t u s or s i m i l a r document . R e l e a s e s s h o u l d however c o n t a i n s u f f i c i e n t de -t a i l to i n d i c a t e the n a t u r e o f the change and to e n a b l e i n v e s t o r s to f o r m u l a t e i n v e s t m e n t d e c i s i o n s . The company s h o u l d be p r e p a r e d to s u p p l y f u r t h e r i n f o r m a t i o n when the o c c a s i o n c a l l s f o r i t . P r o p e r t i m i n g i s i m p o r t a n t . The p o l i c y r e q u i r e s t h a t news i s to be i s s u e d as p r o m p t l y as p o s s i b l e a f t e r an im-p o r t a n t c o r p o r a t e deve lopmen t . Unusual t r a d i n g p r i o r to an announcement o f i m p o r t a n t c o r p o r a t e i n f o r m a t i o n i s em-b a r r a s s i n g to management and damaging to the r e p u t a t i o n o f the s e c u r i t i e s market s i n c e the p u b l i c may assume t h a t someone had a c c e s s to and a c t e d upon " i n s i d e " i n f o r m a t i o n . Prompt and r a p i d r e l e a s e o f i n f o r m a t i o n i s a l l i m p o r t a n t . There a re o c c a s i o n a l s i t u a t i o n s where management has c o n f l i c t i n g d u t i e s to r e s o l v e ; such a s , the du ty to keep i t s s h a r e h o l d e r s i n f o rmed and i t s du ty to the company to keep i n f o r m a t i o n c o n f i d e n t i a l . When i t i s e s s e n t i a l f o r the w e l f a r e o f the company not to make d i s c l o s u r e then i t f o l l o w s the i n f o r m a t i o n s h o u l d be kept c o n f i d e n t i a l by t hose pe rsons who f o r c o r p o r a t e r easons a r e r e q u i r e d to know the i n f o r m a t i o n . A l l companies s h o u l d have a f i r m r u l e p r o h i b i t i n g those who have c o n f i d e n t i a l i n f o r m a t i o n f rom t r a d i n g pend ing f u l l d i s c l o s u r e to the p u b l i c . When t h e r e i s a s i t u a t i o n where i n f o r m a t i o n i s r e -q u i r e d to be kept c o n f i d e n t i a l f o r c o r p o r a t e r e a s o n s man-agement s h o u l d watch c l o s e l y the market a c t i v i t y i n i t s s e c u r i t i e s . Unusual market a c t i v i t y i n terms o f p r i c e or volume i s the b e s t i n d i c a t i o n o f whether c o n f i d e n t i a l -i t y has not been m a i n t a i n e d . I f such a c t i v i t y o c c u r s , the Exchange r e q u i r e s t h a t an announcement be made c l a r i f y i n g the s i t u a t i o n . The o b l i g a t i o n to make t i m e l y d i s c l o s u r e i s t h a t o f the company, however the Exchange o f f e r s the e x p e r i e n c e o f i t s e x e c u t i v e s t a f f to a i d management i n r e s o l v i n g d i f -f i c u l t q u e s t i o n s . I t i s hoped t h a t l i s t e d companies w i l l a n t i c i p a t e the p o s s i b i l i t y o f unusua l market a c t i v i t y and w i l l a l e r t the E x c h a n g e ' s Depar tment o f Marke t S u r v e i l l a n c e o f a pend ing c o r p o r a t e deve lopmen t . 55 In a d d i t i o n to be ing a v a i l a b l e to a s s i s t management, the Depar tment m a i n t a i n s a s t o c k w a t c h i n g program and e n -q u i r e s i n t o unusua l market a c t i v i t i e s i n the s e c u r i t i e s o f l i s t e d compan ies . The Depar tment i n p e r f o r m i n g t h i s f u n c t i o n w i l l c o n t a c t management to a s c e r t a i n i f t h e r e i s s i g n i f i c a n t i n f o r m a t i o n wh ich has not been r e l e a s e d to the p u b l i c . I f a s i g n i f i c a n t change has taken p l a c e and has not been d i s c l o s e d , the company w i l l be r e q u e s t e d to make a s t a temen t f o r t h w i t h . On some o c c a s i o n s unusua l market a c t i v i t y i s caused by the e x i s t e n c e o f rumours . Wh i l e i t i s i m p r a c t i c a l to e x p e c t management to be aware o f , and comment o n , a l l r u -mours , a c l a r i f y i n g s t a temen t i s e x p e c t e d when the market a c t i v i t y i n d i c a t e s t r a d i n g i s be ing i n f l u e n c e d by rumour . The most e f f e c t i v e manner o f r e c t i f y i n g a s i t u a t i o n c r e a t e d by rumour i s a prompt c l a r i f i c a t i o n or d e n i a l by a c o r p o r -a te r e l e a s e . The Exchange may h a l t o r suspend t r a d i n g i n the s h a r e s o f a company. T r a d i n g i s h a l t e d pend ing the making o f a c o r p o r a t e announcement and to a l l o w f o r the d i s s e m i n a t i o n o f t h a t announcement . Du r i ng t h i s p e r i o d when t r a d i n g i s h a l t e d on the Exchange no Member may e x e c u t e an o r d e r i n the o v e r - t h e - c o u n t e r m a r k e t . T r a d i n g i s suspended when a company e i t h e r w i l l not or cannot make a c l a r i f y i n g s t a t e -ment and the market a c t i v i t y d i s c l o s e s t h a t i m p o r t a n t news i s a v a i l a b l e to some t r a d e r s but not to the p u b l i c a t l a r g e A h a l t or s u s p e n s i o n o f t r a d i n g s h o u l d not be assumed to be a c r i t i c i s m of management. In some i n s t a n c e s companies have r e q u e s t e d t h i s a c t i o n when they a re unab le to make f u l l d i s c l o s u r e and unusua l t r a d i n g i s t a k i n g p l a c e . The g u i d i n g p r i n c i p l e i n the T i m e l y D i s c l o s u r e o f the Exchange i s the b e l i e f t h a t the p u b l i c s h o u l d have the op-p o r t u n i t y to base t h e i r i n v e s t m e n t d e c i s i o n s to buy or " s e l l l i s t e d s h a r e s on the b e s t i n f o r m a t i o n a v a i l a b l e . Whether members o f the pub! i c dec i de to buy o r s e l l w i l l be a m a t t e r f o r t h e i r own j udgemen t , hut i f the p r i n c i p l e s h e r e i n a re o b s e r v e d , a t l e a s t they w i l l be i n a p o s i t i o n to make a reasoned d e c i s i o n . T h i s . g u i d e s h o u l d be read i n c o n j u n c t i o n w i t h the S ta temen t o f the O n t a r i o S e c u r i t i e s Commiss ion on the p o l -i c y o f T i m e l y D i s c l o s u r e . Oc tobe r 4 , 1968. S e c . 1 .02 . Q u a r t e r l y F i n a n c i a l S t a t e m e n t s . - A l l com-p a n i e s p r e s e n t l y or s u b s e q u e n t l y l i s t e d on the Exchange t h a t a r e not s u b j e c t to E 1 9 - 0 9 , must p u b l i s h q u a r t e r l y s t a t e m e n t s , u n l e s s exempted as h e r e i n a f t e r p r o v i d e d . (A company t h a t i s s u b j e c t to E 19-09 must g i v e n o t i c e to the Exchange o f each p roposed m a t e r i a l change i n the b u s i -ness or a f f a i r s o f the company.) 56 The q u a r t e r l y s t a temen t w i l l i n c l u d e a s t a t e m e n t o f s a l e s o r g r o s s o p e r a t i n g r e v e n u e , e x t r a o r d i n a r y i tems o f income o r e x p e n s e , net p r o f i t or l o s s . The s ta temen t w i l l a l s o show l i k e i n f o r m a t i o n f o r the comparab le p e r i o d i n the p r e v i o u s y e a r . Q u a r t e r l y s t a t e m e n t s may: (1) cove r each q u a r t e r i n d i v i d u a l l y ; o r (2) cove r c u m u l a t i v e l y , the e l a p s e d q u a r t e r s o f the c u r r e n t f i s c a l y e a r , t h a t i s , the s t a t e m e n t f o r the f i r s t q u a r t e r c o v e r i n g t h r e e .months , and t h a t f o r the second q u a r t e r c o v e r i n g s i x mon ths , and t h a t f o r the t h i r d q u a r t e r c o v e r i n g n i ne months ; o r (3) c o v e r the l a t e s t twe l ve -mon th p e r i o d w i t h the p u r -pose o f dampening s e a s o n a l d i s t o r t i o n s t h a t can a p -pear i n t h r e e - m o n t h s t a t e m e n t s . No s t a t e m e n t i s r e q u i r e d i n r e s p e c t o f the f o u r t h q u a r -t e r , as t h a t p e r i o d i s c o v e r e d by the annua l f i n a n c i a l s t a t e m e n t s . Annual s t a t e m e n t s under Exchange r e q u i r e m e n t s must be i s s u e d 15 days p r i o r to the annua l mee t ing and a n -nual mee t i ngs must be h e l d w i t h i n s i x months o f the end o f the f i s c a l y e a r o f the company. N o n e t h e l e s s , i t i s r e -commended t h a t where p o s s i b l e , a p r e l i m i n a r y r e p o r t on the r e s u l t s of the f u l l y e a r be r e l e a s e d i n advance o f the a n -nual r e p o r t , as i s a l r e a d y done by some c o m p a n i e s . Such a p r a c t i c e i s p a r t i c u l a r l y d e s i r a b l e where i t appears t h a t the annua l r e p o r t w i l l be r e l e a s e d a t about the same t ime t h a t the f i r s t q u a r t e r r e s u l t s f o r the nex t f i s c a l y e a r a re r e l e a s e d . C o r p o r a t e f i n a n c i a l s t a t e m e n t s r e l e a s e d f o r the s i x -month p e r i o d as r e q u i r e d by the O n t a r i o S e c u r i t e s A c t , 1966, S e c t i o n 129 , w i l l be s a t i s f a c t o r y c o m p l i a n c e w i t h the E x c h a n g e ' s q u a r t e r l y r e p o r t i n g r e q u i r e m e n t i n r e s p e c t to the second q u a r t e r o f each l i s t e d company. The r e p o r t i n g p r a c t i c e s f o l l o w e d by l i s t e d companies i n making q u a r t e r l y s t a t e m e n t s must be c o n s i s t e n t . When-eve r changes i n p r o c e d u r e s a re made, t hese s h o u l d be no ted i n the s t a t e m e n t w i t h c l a r i f i c a t i o n as to what e f f e c t , i f a n y , t h i s has had upon net e a r n i n g s . A u d i t e d f i n a n c i a l s t a t e m e n t s w i l l not be n e c e s s a r y ; n o r , w i l l a company be r e q u i r e d to c i r c u l a t e i t s f i n a n c i a l s t a t e m e n t to a l l i t s s h a r e h o l d e r s a l t h o u g h t h i s p r a c t i c e i s d e s i r a b l e . D e l i v e r y o f the q u a r t e r l y s t a t e m e n t to the Exchange and to the p r e s s w i l l be r e g a r d e d by the Exchange as adequate d i s t r i b u t i o n . G e n e r a l l y , the Exchange s h o u l d be p r o v i d e d t h r e e c o p i e s o f each s t a t e m e n t . Each q u a r t e r l y s t a t e m e n t must be i s s u e d w i t h i n 60 days 57 o f the p e r i o d to wh ich i t a p p l i e s . Exempt ions to the above r e q u i r e m e n t s f o r the r e p o r t -i ng o f q u a r t e r l y s t a t e m e n t s may be g r a n t e d i n c a s e s where the Exchange i s c o n v i n c e d t h a t t h e r e a re c o n d i t i o n s p e c u l -i a r to the t ype o f company i t s e l f , wh ich would make q u a r -t e r l y s t a t e m e n t s i m p r a c t i c a b l e or m i s l e a d i n g . Companies w i s h i n g to be exempted s h o u l d a p p l y f o r an exempt ion i n w r i t i n g s e t t i n g f o r t h the r e a s o n s . In de te rm ing whether q u a r t e r l y s t a t e m e n t s would be i m p r a c t i c a b l e o r m i s l e a d i n g the Exchange w i l l t a k e i n t o a c c o u n t whether the company has r e c e i v e d an exempt ion f rom s e m i - a n n u a l r e p o r t i n g under the S e c u r i t i e s A c t ( O n t a r i o ) ; whether the main c o m p e t i t o r s o f the a p p l i c a n t do or do not make s i m i l a r d i s c l o s u r e ; whether the r e l e v a n t i n f o r m a t i o n i s a l r e a d y a v a i l a b l e to the p u b l i c i n some o t h e r manner ; whether t h e r e a re a c c o u n t i n g p rob lems i n p a r t i c u l a r i n d u s -t r i e s making q u a r t e r l y r e p o r t s d i f f i c u l t to p repa re or o t h e r s i m i l a r s i t u a t i o n s . In a case where the Exchange i s c o n v i n c e d t h a t q u a r -t e r l y f i n a n c i a l s t a t e m e n t s a re i m p r a c t i c a b l e or m i s l e a d -i n g , the Exchange i n g r a n t i n g an exempt ion may r e q u i r e the agreement o f the company t o : (1) p u b l i s h q u a r t e r l y a p a r t o f the r e q u i r e d f i n a n c i a l d a t a ; o r p u b l i s h the da ta i n a d i f f e r e n t f o r m ; o r adopt a p a r t i c u l a r c y c l e o f r e p o r t i n g ; o r (2) i n t r o d u c e a q u a r t e r l y r e p o r t i n g p r a c t i c e w i t h i n a s t i p u l a t e d p e r i o d o f t i m e ; o r (3) p u b l i s h i n t e r i m s t a t e m e n t s r e p o r t i n g c e r t a i n o p e r -a t i n g s t a t i s t i c s wh ich w i l l s e r v e to i n d i c a t e the t r e n d o f the company 's b u s i n e s s . December 9 , 1968. The above TSE (and a l s o the OSC) t i m e l y d i s c l o s u r e p o l -i c y c o n t a i n s a r e l e a s e mechanism by wh ich companies wh ich e x -p e r i e n c e a m a t e r i a l change or even t a re e n a b l e d to w i t h h o l d p u b l i c d i s c l o s u r e f o r a p e r i o d i f they de te rm ine t h a t d i s c l o -su re a t t h a t t ime would be i n j u r i o u s to the company. However , the p o l i c y then s t a t e s t h a t i f s t o c k movements s u g g e s t i n s i d e r s a re t r a d i n g or the news has l e a k e d , then immedia te d i s c l o s u r e i s r e q u i r e d . I t c o n t e m p l a t e s t h a t i n s i d e r s w i l l r e f r a i n f rom t r a d i n g d u r i n g the p e r i o d t h a t m a t e r i a l i n f o r m a t i o n i s w i t h -58 h e l d from the m a r k e t . " 5  D e t e c t i o n Mechanisms A number o f d e t e c t i o n mechanisms are a v a i l a b l e to and a re used by the TSE (and a l l o t h e r Canad ian e x c h a n g e s ) . These i n c l u d e (1) s u r v e i l l a n c e ove r the a c t i v i t i e s o f f i r m s i n the b roke rage i n d u s t r y by the use o f s t r i n g e n t r e p o r t i n g p r o c e -d u r e s , d i r e c t s u p e r v i s i o n o f house a c c o u n t s and f i r m a c c o u n t -a b i l i t y f o r the a c t i o n s o f both t h e i r members and c l i e n t s ; and (2) s u r v e i l l a n c e o f the market b e h a v i o u r o f s e c u r i t i e s by the use o f i n f o r m e r s and s i m p l e m e c h a n i c a l me thods , r e f e r r e d to as " s t o c k - w a t c h " p r o g r a m s , to f l a g s i t u a t i o n s t h a t r e q u i r e more i n t e n s i v e i n v e s t i g a t i o n and p o s s i b l e p u n i t i v e a c t i o n . The t remendous number o f market p a r t i c i p a n t s and i n d i -v i d u a l t r a n s a c t i o n s makes the d e t e c t i o n o f the e x p l o i t a t i o n o f " n o n - p u b l i c " i n f o r m a t i o n (o r m i s i n f o r m a t i o n ) an e x t r e m e l y d i f -f i c u l t t a s k . The r e g u l a t o r y t a s k i s f u r t h e r c o m p l i c a t e d be-1 cause the market e f f e c t s o f the e x p l o i t a t i o n o f " n o n - p u b l i c " i n f o r m a t i o n may be camou f laged by the market e f f e c t s o f o t h e r l e g a l market a c t i v i t i e s . Two o f t hese l e g a l market a c t i v i t i e s a re (1) t r a n s a c t i o n s consummated mere l y to s t a b i l i z e the mar-ket p r i c e o f s h a r e s ( f o r ex am p le , d u r i n g a sha re d i s t r i b u t i o n ) ; and (2) t r a n s a c t i o n s consummated i n o r d e r to p r o v i d e l i q u i d i t y f o r a s e c u r i t y by "mak ing the m a r k e t " 1 * 6 or " r u n n i n g the b o x " . " 7  R e g u l a t o r y A c t i o n s The p r i m a r y r e g u l a t o r y a c t i o n s used by the o f f i c i a l s o f the TSE (and a l s o o f the MSE and VSE) a re mora l s u a s i o n , d i s c r i m i n a t e (o r s e l e c t i v e ) i n t e r r u p t i o n o f the r e g u l a r t r a d i n g p r i v i l e g e s o f d e s i g n a t e d i n d i v i d u a l s or b r o k e r a g e f i r m s , i n -59 d i s c r i m i n a t e (o r g e n e r a l ) i n t e r r u p t i o n s of a l l r e g u l a r f l o o r t r a d i n g and f i n e s l e v i e d a g a i n s t i n d i v i d u a l s or b r o k e r a g e h o u s e s . The a u t h o r i t y to i n t e r r u p t t r a d i n g i s d e r i v e d f rom S e c t i o n 10 .03 o f the TSE b y - l a w s wh ich reads as f o l l o w s : S e c . 1 0 . 0 3 . I n t e r r u p t i n g T r a d i n g . - Any two of the Chai rman and the V i c e - C h a i r m a n o f the F l o o r P r o c e d u r e Commit tee and a F l o o r O f f i c i a l , a c t i n g t o g e t h e r o r any one o f them a c t i n g w i t h any o t h e r two F l o o r Gove rno rs s h a l l have a u t h o r i t y to i n t e r r u p t or h a l t t r a d i n g on the F l o o r i n any s e c u r i t y a t any t ime and f o r any p e r i o d i n o r d e r to a s s i s t i n r e - e s t a b l i s h i n g o r d e r l y t r a d i n g . S e c t i o n 10 .03 g i v e s the o f f i c i a l s o f the exchange c o n s i d e r a b l e p u n i t i v e power , s i n c e the a f f e c t e d p a r t y (o r company) e n j o y s no r i g h t to a p p e a l . For e x a m p l e , S e c t i o n 10 .05 on " D e c i s i o n s and a p p e a l s " , s t a t e s t h a t : . . . Any d e c i s i o n made by the F l o o r P r o c e d u r e Commit-t e e , e x c e p t d e c i s i o n s r e g a r d i n g o r d e r l y t r a d i n g , i n t e r -r u p t i o n s to t r a d i n g , d e l a y e d open ings o f t r a d i n g , i n v e s -t i g a t i o n s and r e g u l a t i o n , may be a p p e a l e d to the Board . . . That the d i s c r i m i n a t e i n t e r r u p t i o n o f the r e g u l a r ", f l o o r t r a d i n g p r i v i 1 e g e of a b r o k e r can be h i g h l y e f f e c t i v e i n d e f l a t i n g a l l e g e d m a n i p u l a t i o n i s p o r t r a y e d v i v i d l y i n the f o l 1 owi ng q u o t e : 8 A s t r a S e c u r i t i e s C o r p . L t d . had i t s b r o k e r - d e a l e r r e g -i s t r a t i o n suspended l a s t M o n d a y . . . . When the p r o f e s s i o n a l b i d beh ind such s t o c k s as K a l l i o I ron M i n e s , F l i n t Rock M i n e s , Nor th Rock Mines and Bo rde r Chemica l s u d d e n l y d i s -appeared German s h a r e h o l d e r s l e a r n e d . . . how l i t t l e p u b l i c s u p p o r t t h e r e was beh ind these c o m p a n i e s . . . . The s t o c k ( K a l l i o ) c l o s e d l a s t F r i d a y a t $2 .05 b i d and $2 .15 a s k e d . On Monday t h e r e was no b i d (and none o f f e r e d f o r s a l e ) and i t has been t h a t way most o f t h i s w e e k . . . F l i n t R o c k . . . c l o s e d F r i d a y a t $1 .10 to $1 .15 and on Monday i t was quoted a t no b i d . . . . Y e s t e r d a y , i t was s e l l i n g a t 30 c e n t s . Nor th Rock was s e l l i n g a t $1 .15 l a s t F r i d a y and on Monday f e l l to 90 c e n t s on a volume o f 5 ,000 s h a r e s . . . by Thursday i t was a t 65 c e n t s . I n d i s c r i m i n a t e i n t e r r u p t i o n s o f r e g u l a r f l o o r t r a d i n g 60 a re " f u r t h e r c l a s s i f i e d as d e l a y e d o p e n i n g s , t r a d i n g d e l a y s , t r a d i n g h a l t s , s u s p e n s i o n s and d e l i s t i n g s . The p r e s e n t p o l i c y r e g a r d i n g i n d i s c r i m i n a t e i n t e r r u p t i o n s o f r e g u l a r f l o o r t r a d -i n g f o r TSE (and a l s o i t appears f o r the MSE and VSE) i s based on a TSE p o l i c y s t a t e m e n t wh ich was i s s u e d on November 8 , 1967 An e x c e r p t f rom t h a t p o l i c y s t a temen t i s p r e s e n t e d i n E x h i b i t 4 . The M o n t r e a l S tock Exchange The f i r s t o r g a n i z e d t r a d i n g o f s h a r e s i n Canada o c -c u r r e d i n M o n t r e a l i n 1832. A p p r o x i m a t e l y ten y e a r s l a t e r , the Board o f S tock and Produce was f o rmed . In 1863 t h i s board became the Board o f S tock B r o k e r s w i t h t h e i r own r u l e s r e g u l a t i n g membersh ip , commiss ions and l i s t i n g f e e s . In 1874, the M o n t r e a l S tock Exchange was g r a n t e d a p r o v i n c i a l c h a r t e r and thus became the f i r s t p u b l i c l y i n c o r p o r a t e d s t o c k exchange i n Canada . The M o n t r e a l Curb Marke t was formed i n 1926 to accom-modate t r a d i ng o f s e c u r i t i e s wh ich were not l i s t e d on the MSE. In 1953 , the M o n t r e a l Curb Marke t was i n c o r p o r a t e d as the C a -nad ian S t o c k Exchange . S i n c e 1953 , ' . t he MSE has sha red i t s f a -c i l i t i e s w i t h the CSE. In p a r t i c u l a r , w h i l e the two exchanges have sha red the same management and b u i l d i n g , they have had a s e p a r a t e t r a d i n g f l o o r and r e g u l a t i o n s . In J a n u a r y o f 1974, the CSE and MSE o f f i c i a l l y merged w i t h the MSE b e i n g the s u r -v i v i n g e n t i t y . The M o n t r e a l S tock Exchange i s governed by a G o v e r n i n g Commi t tee . T h i s commi t tee c o n s i s t s o f a P r e s i d e n t , t h r e e pub-l i c g o v e r n o r s and e l e v e n member g o v e r n o r s . 61 D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y  s t a t e m e n t s . The r u l e s o f the MSE c o n t a i n a number o f s e c t i o n s d e a l i n g w i t h d i s c l o s u r e . S e c t i o n 6180 d e a l s w i t h m a n i p u l a t i v e or d e c e p t i v e t r a d i n g methods - - see E x h i b i t 5. S e c t i o n s 9451 to 9456 dea l w i t h t i m e l y d i s c l o s u r e - - see E x h i b i t 6 . D e t e c t i o n mechan isms. The MSE (and CSE) d i d not c r e -ate a s u r v e i 1 1 a n c e depar tment (o r unde r t ake any m e a n i n g f u l p r i c e / v o l u m e marke t s u r v e i l l a n c e ) u n t i l the l a t t e r p a r t o f September o f 1973. The a u t h o r i t y f o r such a c t i v i t y i s d e -r i v e d f rom Ru le 9457 wh ich reads as f o l l o w s : 9457 S u r v e i l l a n c e P r o c e d u r e s . - The o b l i g a t i o n to make t i m e l y d i s c l o s u r e i s t h a t o f the company, however the Exchange o f f e r s the e x p e r i e n c e of i t s e x e c u t i v e s t a f f to a i d management i n r e s o l v i n g d i f f i c u l t q u e s t i o n s . I t i s hoped t h a t l i s t e d companies w i l l a n t i c i p a t e the p o s s i -b i l i t y o f unusua l market a c t i v i t y and w i l l a l e r t the E x -c h a n g e ' s Depar tment o f Marke t S u r v e i l l a n c e of a pend ing c o r p o r a t e deve lopmen t . In a d d i t i o n to be ing a v a i l a b l e to a s s i s t management, the Depar tment m a i n t a i n s a s t o c k w a t c h i n g program and e n -q u i r e s i n t o unusua l market a c t i v i t i e s i n the s e c u r i t i e s o f l i s t e d compan ies . The Depar tment i n p e r f o r m i n g t h i s f u n c t i o n w i l l c o n t a c t management to a s c e r t a i n i f t h e r e i s s i g n i f i c a n t i n f o r m a t i o n wh ich has not been r e l e a s e d to the p u b l i c . I f a s i g n i f i c a n t change has taken p l a c e and has not been d i s c l o s e d , the company w i l l be r e q u e s t e d to make a s t a t e m e n t f o r t h w i t h and t r a d i n g i n the s h a r e s of the company may be h a l t e d . R e g u l a t o r y a c t i o n s . In g e n e r a l , the MSE uses the same t ypes o f r e g u l a t o r y a c t i o n s as the TSE (see the e a r l i e r d i s c u s -s i o n ) . The a u t h o r i t y to i n t e r r u p t t r a d i n g i s d e r i v e d f rom S e c t i o n s 6055 and 9458 o f the MSE r u l e s II and IV , r e s p e c t ' -t i v e l y , wh ich read as f o l l o w s : Ru le 6055 O r d e r l y T r a d i n g . - The F l o o r Commit tee s h a l l have a u t h o r i t y to make such d e c i s i o n s as may be r e q u i r e d a t any t ime to a s s i s t i n the o r d e r l y open ing o f t r a d i n g i n any s t o c k and to i n t e r r u p t t r a d i n g i n any s t o c k a t any : t ime i n o r d e r to a s s i s t i n r e - e s t a b l i s h i n g o r d e r l y t r a d -i n g . 62 Ru le 9458 H a l t e d and Suspended T r a d i n g . - The E x -changes may h a l t or suspend t r a d i n g i n the s h a r e s o f a company. T r a d i n g i s ha 1 t e d . p e n d i n g the making o f a c o r -p o r a t e announcement and to a l l o w f o r the d i s s e m i n a t i o n o f t h a t announcement . D u r i n g t h i s p e r i o d when t r a d i n g i s h a l t e d on the Exchange no member may e x e c u t e an o r d e r i n the o v e r - t h e - c o u n t e r m a r k e t . T r a d i n g i s suspended when a company e i t h e r w i l l not or canno t make a c l a r i f y -ing s t a t e m e n t and the market a c t i v i t y d i s c l o s e s t h a t im -p o r t a n t news i s a v a i l a b l e to some t r a d e r s but not to the p u b l i c a t l a r g e . A h a l t o r s u s p e n s i o n o f t r a d i n g s h o u l d not be assumed to be a c r i t i c i s m of management. In some i n s t a n c e s companies have r e q u e s t e d t h i s a c t i o n when they a re unab le to make f u l l d i s c l o s u r e and unusua l t r a d i n g i s t a k i n g p l a c e . The g u i d i n g p r i n c i p l e i n the T i m e l y D i s c l o s u r e P o l i c y o f the Exchanges i s the b e l i e f t h a t the p u b l i c s h o u l d have the o p p o r t u n i t y to base t h e i r i n v e s t m e n t d e c i s i o n s to buy or s e l l l i s t e d s h a r e s on the bes t i n f o r m a t i o n -a v a i l a b l e . Whether members o f the p u b l i c d e c i d e to buy or s e l l w i l l be a m a t t e r f o r t h e i r own j udgemen t , but i f the p r i n c i p l e s h e r e i n a re o b s e r v e d , a t l e a s t they w i l l be i n a p o s i t i o n to make a reasoned d e c i s i o n . The Exchanges a p p r e c i a t e t h a t a p p l i c a t i o n o f t h i s p o l -i c y poses p r a c t i c a l q u e s t i o n s f o r management and t h a t i n some c i r c u m s t a n c e s e x c e p t i o n s to the g e n e r a l r u l e a re r e -q u i r e d . In such cases the m a t t e r s h o u l d be d i s c u s s e d w i t h the E x c h a n g e s ' Depar tment o f Marke t S u r v e i l l a n c e . The p r e s e n t p o l i c y r e g a r d i n g i n d i s c r i m i n a t e i n t e r r u p -t i o n s o f r e g u l a r f l o o r t r a d i n g f o r the MSE i s c o n t a i n e d i n s e c t i o n s 6406 - 6409 o f Ru le II - - see E x h i b i t 7 . I t i s i d e n -t i c a l to the TSE p o l i c y s t a t e m e n t o f November 8 , 1967. The Vancouver S tock Exchange The Vancouver S t o c k Exchange was formed by the V a n -couver S tock Exchange A c t o f 1907. For most o f i t s h i s t o r y , the VSE has been e s s e n t i a l l y a r e g i o n a l s t o c k exchange d e a l -i ng i n s p e c u l a t i v e n a t u r a l r e s o u r c e ! i s s u e s . P r e s e n t l y , the VSE i s governed by a commi t tee composed o f r e p r e s e n t a t i v e s o f a l l member b roke rage f i r m s . D i s c l o s u r e p r o v i s i o n s : r e l e v a n t b y - l a w s and p o l i c y . s t a t e m e n t s . The r u l e s of the VSE c o n t a i n t h r e e s e c t i o n s , 63 3 8 5 . 1 , 385 .2 and 3 8 5 . 3 , wh ich dea l w i t h d i s c l o s u r e - - see E x h i b i t 8. D e t e c t i o n mechan isms. The VSE d i d not c r e a t e a s u r -v e i l l a n c e depar tmen t ( o r u n d e r t a k e any m e a n i n g f u l p r i c e / v o l -ume market s u r v e i l l a n c e ) u n t i l J a n u a r y o f 1973. The p r o c e -dures p r e s e n t l y b e i n g used are s i m i l a r to t h o s e used by the TSE and the MSE. R e g u l a t o r y a c t i o n s . In g e n e r a l , the VSE uses the same t ypes of r e g u l a t o r y a c t i o n s as the TSE ( s e e . t h e e a r l i e r d i s -c u s s i o n ) . The a u t h o r i t y to i n t e r r u p t (o r r e i n s t a t e ) t r a d i n g i s d e r i v e d f rom S e c t i o n s 6 2 5 , 626 and 635 o f the VSE r u l e s wh ich read as f o l l o w s : Ru le 625 . ( S u s p e n s i o n o f t r a d i n g ) . - At any t ime and w i t h o u t n o t i c e the Board may suspend t r a d i n g i n a l i s t e d s e c u r i t y and the Board s h a l l not be r e q u i r e d to say on what ground or f o r what r e a s o n they s u s p e n d e d . Ru le 626 . ( T e r m i n a t i o n o f s u s p e n s i o n ) . - The Board may l i f t the s u s p e n s i o n on such terms ( i f any) as the Board may p r e s c r i b e . Ru le 635 . ( D e l i s t i n g o f s e c u r i t i e s ) . - At any t ime and w i t h o u t n o t i c e the Board may d e l i s t a l i s t e d s e c u r i t y and the Board s h a l l not be r e q u i r e d to say on what ground or f o r what r e a s o n they d e l i s t e d . The p r e s e n t p o l i c y r e g a r d i n g i n d i s c r i m i n a t e i n t e r r u p -t i o n s o f r e g u l a r f l o o r t r a d i n g f o r the VSE was i s s u e d on J a n u -ary 2 8 , 1974. A copy o f t h a t p o l i c y i s p r e s e n t e d i n E x h i b i t 9 . THE R . C . M . P . AND THE MUNICIPAL FRAUD SQUADS In Canada , the i n v e s t i g a t i o n o f v i o l a t i o n s o f the c r i m -i n a l code are unde r t aken by the commerc ia l c r ime s e c t i o n o f the R . C . M . P . a n d / o r the f r a u d squads o f the m u n i c i p a l p o l i c e . G e n e r a l l y , s i n c e s e c u r i t y r e g u l a t i o n i s under p r o v i n c i a l j u r i s -64 d i c t i o n , such an i n v e s t i g a t i o n i s i n i t i a t e d by a p r o v i n c i a l a t t o r n e y - g e n e r a l . T h i s does n o t , however , r e s t r i c t ; the R . C . M . P . or the m u n i c i p a l p o l i c e from i n d e p e n d e n t l y i n i t i a t -i n g an i n v e s t i g a t i o n i f they have r e a s o n a b l e cause f o r b e l i e v -i n g a c r ime has been c o m m i t t e d . Lega l A c t i o n In Canada , o n l y the a t t o r n e y - g e n e r a l d e c i d e s what c h a r g e s , i f a n y , w i l l be p l a c e d . I f he d e c i d e s t h a t i t i s not i n the p u b l i c i n t e r e s t to p r o s e c u t e , he may not p roceed w i t h p r o s e c u t i o n . When the i n v e s t i g a t i o n i n v o l v e s i n f l u e n -t i a l i n d i v i d u a l s i t has been a l l e g e d t h a t p o l i t i c a l c o n s i d e r -a t i o n s can r e s u l t i n a d e c i s i o n by the a t t o r n e y - g e n e r a l , an e l e c t e d member o f the p r o v i n c i a l l e g i s l a t u r e , not to p r o s e -cu te . u 9 P r o s e c u t i o n , i t s e l f , i s i n i t i a t e d under the C r i m i n a l Code. To d a t e , both the number o f a t t emp ted and s u c c e s s f u l p r o s e c u t i o n s has been s m a l l f o r the f o l l o w i n g r e a s o n s : (1) the l a c k o f s o p h i s t i c a t i o n and manpower o f the i n v e s t i g a t i n g u n i t s , (2) the i n e x p e r i e n c e o f d e a l i n g w i t h and the l a c k o f u n d e r s t a n d i n g o f such v i o l a t i o n s by the j u d g e s , p r o s e c u t i n g a t t o r n e y s and j u r i e s , (3) the p o p u l a r Canad ian b e l i e f t h a t the v i c t i m s o f such v i o l a t i o n s were e i t h e r g reedy or s t u p i d and t h e r e f o r e s h o u l d r e c e i v e no p r o t e c t i o n f rom the c o u r t s , and (4) the l a c k o f r e c e n t r e v i s i o n i n the C r i m i n a l Code (no s i g n i f i c a n t - r e v i s i o n s ' i n the l a s t e i g h t y e a r s ) . En fo rcemen t Prob lems One o f the major p rob lems e n c o u n t e r e d by the i n v e s t i -65 g a t i n g u n i t s i s manpower. At p r e s e n t , the R . C . M . P . commer-c i a l c r ime s e c t i o n c o n s i s t s o f 329 o f f i c e r s to p o l i c e a l l a r e a s o f c o r p o r a t e and b u r e a u c r a t i c f r a u d and c o r r u p t i o n . T h i s l a c k o f manpower r e s u l t s f rom the s e c t i o n ' s r e l a t i v e newness . The s e c t i o n was c r e a t e d on November 1, 1967 , a f t e r the c o l l a p s e o f A t l a n t i c A c c e p t a n c e i n 1965 and P r u d e n t i a l F i -nance i n 1966. A second major p rob lem e n c o u n t e r e d by the i n v e s t i g a -t i o n u n i t s i s t h a t the c o m p l e x i t y o f f i n a n c i a l i n v e s t i g a t i o n s r e q u i r e s the e x p e n d i t u r e o f much t i m e . For examp l e , a r e c e n t r e p o r t s t a t e d t h a t : . . . two members o f the R . C . M . P . Commerc ia l F raud Squad , w i t h the a s s i s t a n c e o f v a r i o u s peop le i n the S e c u r i t i e s C o m m i s s i o n , devo ted more than e i g h t e e n months to the p r o s e c u t i o n o f one case a l o n e . 5 0 SUMMARY In t h i s c h a p t e r , Canad ian r e g u l a t o r y l a w , a g e n c i e s and en fo r cemen t p r o c e d u r e s f o r l i s t e d s e c u r i t i e s i n the a r e a o f c o r p o r a t e d i s c l o s u r e have been p r e s e n t e d . In the nex t chap -t e r , e m p i r i c a l t e s t s o f the p r e d i c t i o n s o f the NRYand SR hy-po theses w i t h r e g a r d to the e f f e c t s o f t r a d i n g s u s p e n s i o n s on market e f f i c i e n c y and the b e h a v i o u r o f s t o c k p r i c e s w i l l be p r e s e n t e d . 66 E x h i b i t 1 O n t a r i o S e c u r i t i e s C o m m i s s i o n ' s T i m e l y D i s c l o s u r e P o l i cy POLICY NO. 2-12 TIMELY DISCLOSURE The t o p i c o f t i m e l y d i s c l o s u r e o f m a t e r i a l i n f o r m a t i o n i s one t h a t i s o f g r e a t c o n c e r n to a l l pe rsons i n t e r e s t e d i n s e -c u r i t i e s , whether as i n v e s t o r s , as e x e c u t i v e s or r e g u l a t o r y b o d i e s . Wi th the i n t e n t i o n o f p r o v i d i n g some g u i d e l i n e s on t h i s d i f f i c u l t s u b j e c t the C o m m i s s i o n , a f t e r d i s c u s s i o n w i t h the To ron to S tock E x c h a n g e , have p r e p a r e d the f o l l o w i n g : I t i s e s s e n t i a l t h a t a l l i n v e s t o r s be p l a c e d on an equa l f o o t i n g i n s o f a r as knowledge o f the m a t e r i a l f a c t s r e g a r d i n g the company wh ich has s e c u r i t i e s i n the hands o f the p u b l i c . T h e r e f o r e , immedia te d i s c l o s u r e o f a l l m a t e r i a l and s i g n i f i ^ can t i n f o r m a t i o n th rough news media i s e n c o u r a g e d . U n f a v o u r -a b l e f a c t s must be d i s c l o s e d as p r o m p t l y , f u l l y and p l a i n l y as f a v o u r a b l e f a c t s . D i s c l o s u r e s h o u l d be made, o f a p r o p o s a l o r p roposed . change when a d e c i s i o n a c c e p t i n g or recommending a c c e p t a n c e o f such p r o p o s a l or p roposed change has been made, i n o t h e r c a s e s o f m a t e r i a l change when such change has o c c u r r e d or when such change has been agreed upon by the r e l e v a n t p a r -t i e s , n o t w i t h s t a n d i n g t h a t a l l the d e t a i l s may not have been documented. M a t e r i a l changes or deve lopment i n c l u d e : 1. A c t u a l o r p roposed changes i n the c o n t r o l o f the com-pany ; 2. A c t u a l or p roposed a c q u i s i t i o n or d i s p o s i t i o n o f ma-t e r i a l a s s e t s ; 3 . P roposed t a k e - o v e r s , m e r g e r s , c o n s o l i d a t i o n s , a m a l g a -ma t i ons or r e o r g a n i z a t i o n s ; 4 . Any m a t e r i a l d i s c o v e r i e s , changes or deve lopments i n the company 's r e s o u r c e s , t e c h n o l o g y , p r o d u c t s o r c o n -t r a c t s , wh ich would m a t e r i a l l y a f f e c t the e a r n i n g s o f the company upwards o r downwards; 5 . P roposed changes i n c a p i t a l s t r u c t u r e , i n c l u d i n g s t o c k s p l i t s o r s t o c k d i v i d e n d s ; 6. I n d i c a t e d changes i n e a r n i n g s upwards or downwards o f more than r e c e n t ave rage s i z e and changes i n d i v i d e n d s ; E x h i b i t 1 ( C o n t ' d ) 67 7. Any o t h e r m a t e r i a l change i n the a f f a i r s o f the com-pany wh ich c o u l d r e a s o n a b l y be e x p e c t e d to a f f e c t ma-t e r i a l l y the v a l u e o f the s e c u r i t y . In t h i s c o n n e c t i o n the Commiss ion w i shes to p o i n t ou t t h a t under the 1968 amendments i t has a u t h o r i t y i n the p u b l i c i n -t e r e s t to o r d e r t h a t t r a d i n g i n a s e c u r i t y cease and i t . a l s o may deny the r i g h t to t r a d e to i n d i v i d u a l s o r c o m p a n i e s . E i t h e r o r both o f t h e s e p r o c e d u r e s may be evoked by the Com-m i s s i o n i f companies f a i l to make t i m e l y d i s c l o s u r e of m a t e r i a l f a c t s as i n d i c a t e d a b o v e , o r i f pe rsons knowing such m a t e r i a l i n f o r m a t i o n t r a d e i n the company 's s e c u r i t i e s b e f o r e the i n -f o r m a t i o n has been made p u b l i c . I t i s no ted t h a t the T o r o n t o S tock Exchange has a p o l i c y r e g a r d i n g " T i m e l y D i s c l o s u r e " s u b s t a n t i a l l y to the same e f f e c t as the above . Comp l i ance w i t h the r e q u i r e m e n t s o f the Exchange by companies whose s e c u r i t i e s a re l i s t e d t h e r e o n w i l l n o r m a l l y be v iewed as c o m p l i a n c e w i t h the C o m m i s s i o n ' s p o l i c y h e r e i n . C o n v e r s e l y , the f a i l u r e by a company to comply w i t h the r e q u i r e -ments o f the Exchange may r e s u l t i n the Commiss ion c o n s i d e r i n g the i s s u a n c e o f an o r d e r o r o r d e r s i n the p u b l i c i n t e r e s t , as ment ioned a b o v e . The Commiss ion r e c o g n i z e s t h a t t h e r e may be cases where d i s c l o s u r e might o c c a s i o n harm to the company wh ich might o u t -weigh any p o s s i b l e damage to the s h a r e h o l d e r by w i t h h o l d i n g the i n f o r m a t i o n . Where t h i s a r i s e s management s h o u l d t ake eve ry p o s s i b l e p r e c a u t i o n to ensu re t h a t no t r a d i n g wha t soeve r t a k e s p l a c e by any i n s i d e r s or i n d i v i d u a l s who a re a s s o c i a t e d w i t h the company and who may be i n p o s s e s s i o n o f the c o n f i d e n -t i a l i n f o r m a t i o n . The Commiss ion r e a l i z e s the d i f f i c u l t i e s t h a t may a r i s e i n the i m p l e m e n t a t i o n o f t h i s p o l i c y . The o u t l i n e s s e t out above a re g u i d e l i n e s . I f management has an unusua l o r d i f f i -c u l t s i t u a t i o n c o n f r o n t i n g i t , i t s h o u l d d i s c u s s the m a t t e r p romp t l y w i t h the Commiss ion whether the s e c u r i t i e s o f the company a re l i s t e d or u n l i s t e d and a l s o w i t h the exchange r e c -o g n i z e d by the Commiss ion on wh ich the s e c u r i t i e s a re l i s t e d and p o s t e d f o r t r a d i n g . The f o l l o w i n g m a t e r i a l changes must be d i s c u s s e d w i t h the Commiss ion p r i o r to d i s c l o s u r e to the i n v e s t i n g p u b l i c : 1. A c t u a l or p roposed changes i n the c o n t r o l o f the com-pany ; 2 . A c t u a l o r p roposed a c q u i s i t i o n or d i s p o s i t i o n o f ma-t e r i a l a s s e t s ; 3. P roposed t a k e - o v e r s , m e r g e r s , c o n s o l i d a t i o n s , ama lga -m a t i o n s , o r r e - o r g a n i z a t i o n s ; o r E x h i b i t 1 ( C o n t ' d ) 4 . P roposed changes i n c a p i t a l s t r u c t u r e , i n c l u d i n g c o n -v e r s i o n s , s t o c k s p l i t s o r s t o c k d i v i d e n d s . R e v i s e d December 6 t h , 1971 . 69 E x h i b i t 2 O n t a r i o S e c u r i t i e s - . C o m m i s s i o n ' s P o l i c y f o r A d m i n i s t e r i n g the T i m e l y D i s c l o s u r e P o l i c y POLICY NO. 3-23 ADMINISTRATION: TIMELY DISCLOSURE POLICY: UNIFORM ACT POLICY 2-12 The Commiss ion i s aware t h a t the a d d i t i o n a l pa rag raph added on December 6 t h , 1971 , to Un i f o rm Ac t P o l i c y 2-12 has g i v e n r i s e ' to- o:o:nic.e.-rn".. The Commiss ion p roposes to a d m i n i s t e r the p o l i c y i n the f o l l o w i n g manner : (1) The p o l i c y s t a t e s t h a t " t h e f o l l o w i n g m a t e r i a l changes must be d i s c u s s e d w i t h the Commiss ion p r i o r to d i s c l o s u r e to the i n v e s t i n g p u b l i c . . . " In f a c t the Commiss ion w i shes to be a d v i s e d o f the p r o p o s a l s . Some b r i e f d i s c u s s i o n s may be neces-s a r y . S i n c e t i m i n g i s o f t e n c r i t i c a l i t i s a n t i c i p a t e d the a d v i c e and d i s c u s s i o n f r e q u e n t l y w i l l be by t e l e p h o n e . (2) The C o m m i s s i o n ' s i n t e r e s t i s i n " t i m e l y d i s c l o s u r e " . The purpose o f r e q u e s t i n g t h a t i t be a d v i s e d i n t h e s e cases i s so t h a t i t may be p r e p a r e d to s top t r a d i n g , i f n e c e s s a r y , i n o r d e r to a f f o r d an o p p o r t u n i t y f o r the i n f o r m a t i o n to be r e -l e a s e d and d i s s e m i n a t e d . Be ing aware o f the deve lopments be -f o r e the i n f o r m a t i o n i s p u b l i s h e d the Commiss ion a l s o may be a l e r t to s top t r a d i n g where i t appears the market i s r e s p o n d -i ng to rumours and not to f a c t . (3) The a d v i c e to the Commiss ion p r i o r to r e l e a s e o f i n -f o r m a t i o n w i l l be on a c o n f i d e n t i a l b a s i s . A l l w r i t t e n com-m u n i c a t i o n s under t h i s p o l i c y s h o u l d be a d d r e s s e d to the Chai rman and marked " C o n f i d e n t i a l " . P e r s o n a l c o n t a c t , t h rough t e l e p h o n e o r i n p e r s o n , s h o u l d o n l y be w i t h the Chai rman o r V i c e - C h a i r m a n , o r i n t h e i r absence w i t h the D i r e c t o r or the C h i e f Lega l I n v e s t i g a t i o n O f f i c e r . December 6 , 1971 . 70 E x h i b i t 3 Quebec S e c u r i t i e s C o m m i s s i o n ' s P o l i c y R e g a r d i n g T i m e l y D i s c l o s u r e o f M a t e r i a l F a c t s T i m e l y D i s c l o s u r e o f M a t e r i a l F a c t s P o l i c y S ta temen t No. 24 S e c t i o n 1 I n t e r p r e t a t i o n 1 . 1 . The i n t e r p r e t a t i v e p r o v i s i o n s o f the S e c u r i t i e s A c t ( R . S . Q . 1964 , c h . 274 , as amended) a p p l y to t h i s p o l i c y s t a t e m e n t . 1 . 2 . The e x p r e s s i o n " m a t e r i a l f a c t s " o r " m a t e r i a l c h a n g e s " i n c l u d e a n y - f a c t - , ' G h a n g e ^ O r e d e y e l opment i n t h e - a f -f a i rs o f a person^or . -a ' ' company Which might r e a s o n a b l y , be e x p e c t e d - t o - a f f e c t mate r ia 'd l ye the" v a : l u e - o f " i t s a s e c u r i t i e s a nd '-mo r e-~ p a.r t i c u 1 a r 1 y : 1 . 2 . 1 . a c t u a l o r p roposed changes i n c o n t r o l ; 1 . 2 . 2 . a c t u a l or p roposed a c q u i s i t i o n or d i s p o s i t i o n of m a t e r i a l a s s e t s ; 1 . 2 . 3 . p roposed t a k e - o v e r s , m e r g e r s , c o n s o l i d a t i o n s , ama lgamat ions o r r e o r g a n i z a t i o n s ; 1 . 2 . 4 . any m a t e r i a l d i s c o v e r i e s , changes or deve lopments i n r e s o u r c e s , t e c h n o l o g y , p r o d u c t s or c o n t r a c t s , wh ich would m a t e r i a l l y a f f e c t e a r n i n g s upwards or downwards; 1 . 2 . 5 . p roposed changes i n c a p i t a l s t r u c t u r e , i n c l u d i n g c o n v e r s i o n s , s t o c k s p l i t s o r s t o c k d i v i d e n d s ; 1 . 2 . 6 . i n d i c a t e d changes i n e a r n i n g s upwards o r downwards of more than r e c e n t ave rage s i z e and changes i n d i v i d e n d s . S e c t i o n 2 P u b l i c D i s c l o s u r e A l l i n v e s t o r s must have equa l a c c e s s to m a t e r i a l f a c t s r e -g a r d i n g a pe rson or company hav ing s e c u r i t i e s i n t h e ' hands of the p u b l i c . T h e r e f o r e , such pe rsons or companies must immed i -a t e l y d i s c l o s e to the i n v e s t i n g p u b l i c a l l m a t e r i a l f a c t s wh ich a r i s e i n the c o u r s e o f t h e i r b u s i n e s s . U n f a v o u r a b l e f a c t s must be d i s c l o s e d p r o m p t l y , f u l l y and p l a i n l y as f a v o u r a b l e f a c t s . S e c t i o n 3 Time of D i s c l o s u r e E x h i b i t .3 ( C o n t ' d ) 71 D i s c l o s u r e o f a p roposed change s h o u l d be made when a de -c i s i o n a c c e p t i n g or recommending a c c e p t a n c e o f such p r o p o s a l o r p roposed change has been made a n d , i n o t h e r cases o f ma-t e r i a l change , when such change has o c c u r r e d or when such a change has been ag reed upon by the r e l e v a n t p a r t i e s , n o t w i t h -s t a n d i n g t h a t a l l the d e t a i l s may not have been s t i p u l a t e d . S e c t i o n 4 Method o f D i s c l o s u r e The d i s c l o s u r e o f m a t e r i a l f a c t s must be e f f e c t e d i n a manner c a l c u l a t e d to o b t a i n the b r o a d e s t p o s s i b l e d i s s e m i n a -t i o n to the i n v e s t i n g p u b l i c i n g e n e r a l , such as may be done , f o r e x a m p l e , by the r e l e a s e o f a p r e s s communique to the a p -p r o p r i a t e p u b l i c i n f o r m a t i o n m e d i a . S e c t i o n 5 P r e j u d i c i a l D i s c l o s u r e There may be cases where t i m e l y d i s c l o s u r e o f c e r t a i n ma-t e r i a l f a c t s m igh t o c c a s i o n harm to the pe rson or company wh ich might ou twe igh any p o s s i b l e damage to the s h a r e h o l d e r s by w i t h h o l d i n g the i n f o r m a t i o n . Where t h i s a.ris.e.s, management must t ake a l l p r e c a u t i o n s n e c e s s a r y to ensu re t h a t the i n f o r -ma t ion rema ins c o n f i d e n t i a l and t h a t no i n s i d e r s or a s s o c i a t e s of the pe rson or company who may be i n p o s s e s s i o n o f the c o n -f i d e n t i a l i n f o r m a t i o n , t r a d e i n the s e c u r i t i e s o f such pe rson or company o r a c q u i r e any o p t i o n s on such s e c u r i t i e s . S e c t i o n 6 C l a r i f i c a t i o n or C o n f i r m a t i o n of Rumours and R e p o r t s and Un-usua l Marke t A c t i o n 6 . 1 . As soon as the management of a pe rson or company whose s e c u r i t i e s a re h e l d by the p u b l i c becomes aware of a r u -mour o r r e p o r t wh ich has had o r may have an e f f e c t on the v a l -ue of i t s s e c u r i t i e s , i t must p u b l i c l y c l a r i f y , deny or c o n -f i r m the rumour o f the r e p o r t . 6 . 2 . S i m i l a r l y , management must t r y to d e t e r m i n e the r e a -sons f o r unusua l o r sudden marke t a c t i o n of the s e c u r i t i e s of the pe rson or company. I f , a f t e r i n q u i r y , the a c t i v i t y remains u n e x p l a i n e d , i t i s i n the p u b l i c i n t e r e s t t h a t management a n -nounces t h a t t h e r e has been no m a t e r i a l deve lopment i n the ' b u s i n e s s of the pe rson or company a n d , to i t s know ledge , t h e r e i s n o t h i n g wh ich j u s t i f i e s such a c t i v i t y . S e c t i o n 7 E x c e p t i o n a l C i r c u m s t a n c e s 72 E x h i b i t 3 ( C o n t ' d ) When management i s c o n f r o n t e d by an e x c e p t i o n a l o r p a r t i c -u l a r l y d i f f i c u l t s i t u a t i o n i t s h o u l d i m m e d i a t e l y n o t i f y the Commiss ion t h e r e o f . S e c t i o n 8 N o t i c e to the Commiss ion 8 . 1 . N o t i c e must be g i v e n to the C o m m i s s i o n , b e f o r e any d i s c l o s u r e to the i n v e s t i n g p u b l i c , when i t i s r e a s o n a b l y f o r e -s e e a b l e by reason o f e x c e p t i o n a l c i r c u m s t a n c e s t h a t i t w i l l be n e c e s s a r y to i s s u e a cease t r a d i n g o r d e r w i t h r e s p e c t to the s e c u r i t i e s o f a pe rson or company i n o r d e r to p e r m i t the d i s c l o s u r e and d i s s e m i n a t i o n of a m a t e r i a l f a c t . 8 . 2 . S i n c e t ime i s o f the essence i n such c i r c u m s t a n c e s , the Commiss ion a n t i c i p a t e s t h a t the n o t i c e w i l l be g i v e n by t e l e p h o n e i n most i n s t a n c e s . 8 . 3 . A l l t e l e p h o n i c commun ica t i ons under t h i s p o l i c y s t a t e m e n t s h o u l d be made to the S e c r e t a r y o f the Commiss ion and a l l w r i t t e n commun ica t i ons s h o u l d be a d d r e s s e d to him and marked " C o n f i d e n t i a l " . S e c t i o n 9 Coming i n t o F o r c e 9 . 1 . The f o r e g o i n g P o l i c y S ta temen t i s e f f e c t i v e immed i -a t e l y . May 14 , 1974. 73 E x h i b i t 4 T o r o n t o S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r -r u p t i o n s o f R e g u l a r F l o o r T r a d i n g The Board has c o n s i d e r e d the v a r i o u s f a c t o r s wh ich come i n t o p l a y when r e g u l a r f l o o r t r a d i n g has been i n t e r r u p t e d and has d e v e l o p e d the f o l l o w i n g p o l i c y s t a t e m e n t : -De layed Opening H a l t i n t r a d i ng Suspended f rom the t r a d i n g l i s t Suspended f rom the t r a d i ng l i s t (1) An a c c u m u l a t i o n of o r d e r s a t an open ing or d u r i n g the c o u r s e of a t r a d i n g day may make i t i m p o s s i b l e f o r the u s u a l a u c t i o n p r o c e s s to t ake p l a c e . (2) P r i o r to an open ing or d u r i n g the day the Exchange may be a d v i s e d t h a t a c o r p o r a t e announcement i s imminen t . The marke t may i n d i c a t e t h a t t h i s i n f o r m a t i o n i s known to some pe rsons and not to o t h e r s . A d e c i s i o n may be made t h a t i t i s u n d e s i r a b l e to have the s e c u r i t y t r a d e d u n t i l the i n f o r m a t i o n i s made p u b l i c . The i n t e r v a l o f t ime i n such c i r c u m s t a n c e s i s u s u a l l y s h o r t and w i l l not ex tend beyond one t r a d i n g s e s s i o n . (3) The Exchange may have reason to b e l i e v e t h a t a s e c u r i t y i s be ing t r a d e d w i t h i n a d e q u a t e c o r p o r a t e i n f o r m a t i o n and has r e q u e s t e d the company to make a s t a temen t and i t i s unab le or u n w i l l i n g to comply w i t h the r e q u e s t . T r a d i n g i n t h e s e c i r c u m s t a n c e s may be i n t e r -r u p t e d f o r an i n d e f i n i t e p e r i o d u n t i l the l a c k of i n f o r m a t i o n i s r e c t i f i e d . (4) A l i s t e d company has f a i l e d to comply w i t h l i s t i n g r e q u i r e m e n t s . The company may be g i v e n a p e r i o d o f t ime to r e c t i f y the s i t u a -t i o n wh ich may be q u i t e p r o t r a c t e d . The Board c o n s i d e r s t h a t i n the f i r s t c i r c u m s t a n c e i t i s u n a p p r o p r i a t e t h a t t r a d i n g s h o u l d t a k e p l a c e o v e r - t h e - c o u n -t e r w h i l e the r e g u l a r marke t i s no l o n g e r f u n c t i o n i n g . O v e r -t h e - c o u n t e r t r a d i n g would make i t d i f f i c u l t to resume the func-t i o n i n g o f the r e g u l a r m a r k e t . The i n t e r r u p t i o n i n t r a d i n g w i l l be r e f e r r e d to as a " d e l a y e d o p e n i n g " and as the s e c u r i t y w i l l rema in on the t r a d i n g l i s t , o v e r - t h e - c o u n t e r t r a d i n g by member o r g a n i z a t i o n s w i l l not be p e r m i t t e d . In the second c i r c u m s t a n c e the i n t e r r u p t i o n i n t r a d i n g w i l l be r e f e r r e d to as a " h a l t i n g of t r a d i n g " or " t r a d i n g h a l t e d " to rji nd i c a t e ->.tha t i t i s t e m p o r a r y - a n d - w i Tl .not ex tend beyond the .ucu r ren t t r a d i n g e s e s s - t o n and ' a s t h e : secur- i t y w i l l r.eman'n •on.rthertr ia 'dtng l i s t ; - , ' o v e r u ^ t h e ^ c o u n t e r " t r a d i n g by member o r g a n i z a t i o n s w i l l not be permi t ted! . , E x h i b i t 4 (Con t ' d ) . 74 In the t h i r d and f o u r t h c i r c u m s t a n c e s the i n t e r r u p t i o n i n t r a d i n g w i l l be r e f e r r e d to as a " s u s p e n s i o n " o r " suspended f rom the t r a d i n g l i s t " to i n d i c a t e a more p r o l o n g e d p e r i o d o f i n t e r r u p t i o n . As the s e c u r i t y w i l l no l o n g e r be pos ted f o r t r a d i n g , member o r g a n i z a t i o n s w i l l be p e r m i t t e d to t r a d e i n the o v e r - t h e - c o u n t e r m a r k e t , as they may see f i t , i n t h e i r own i n t e r e s t s o r i n the i n t e r e s t s o f t h e i r c l i e n t s . There may be o c c a s i o n s when a h a l t i n g o f t r a d i n g w i l l be f o l l o w e d by a s u s p e n s i o n i n t r a d i n g the f o l l o w i n g day when, f o r examp le , the l a c k o f i n f o r m a t i o n has not been r e c t i f i e d p r i o r to the open ing o f the marke t and member o r g a n i z a t i o n s w i l l be a d v i s e d a c c o r d i n g l y . S o u r c e : To ron to S tock E x c h a n g e , " P o l i c y S ta temen t on O v e r -t h e - C o u n t e r T r a d i n g i n L i s t e d S e c u r i t i e s , " N o t i c e to Members No. 4 5 3 , November 8 , 1967. 75 E x h i b i t 5 M o n t r e a l S t o c k Exchange R u l e D e a l i n g w i t h M a n i p u l a t i v e or De-c e p t i v e T r a d i n g Methods 6180 M a n i p u l a t i v e or D e c e p t i v e T r a d i n g Me thods . - No mem-b e r , p a r t n e r , d i r e c t o r , s h a r e h o l d e r , o f f i c e r o r employee o f a member c o r p o r a t i o n or o f an a f f i l i a t e d company s h a l l use or k n o w i n g l y p a r t i c i p a t e i n the use o f any m a n i p u l a t i v e or d e c e p -t i v e method of t r a d i n g i n c o n n e c t i o n w i t h the pu r chase or s a l e of any s t o c k l i s t e d on a s t o c k exchange wh ich c r e a t e s or may c r e a t e a f a l s e or m i s l e a d i n g appearance o f t r a d i n g a c t i v i t y o r an a r t i f i c i a l p r i c e f o r the s a i d s t o c k . W i t hou t i n any way l i m i t i n g the g e n e r a l i t y o f the f o r e -go ing the f o l l o w i n g s h a l l be deemed m a n i p u l a t i v e or d e c e p t i v e methods o f t r a d i n g : (a) making a f i c t i t i o u s t r a n s a c t i o n or g i v i n g or a c c e p t -i ng an o r d e r wh ich i n v o l v e s no change i n the b e n e f i c i a l owne rsh ip o f such a s t o c k ; (b) e n t e r i n g an o r d e r or o r d e r s on the Exchange f o r the p u r c h a s e o f such a s t o c k w i t h the knowledge t h a t an o r -der o r o r d e r s of s u b s t a n t i a l l y the same s i z e , a t s u b -s t a n t i a l l y the same t ime and at s u b s t a n t i a l l y the same p r i c e , f o r the s a l e o f any such s t o c k , has been or w i l l be e n t e r e d by o r f o r the same or d i f f e r e n t pe rsons and w i t h the i n t e n t i o n of c r e a t i n g a f a l s e or m i s l e a d i n g ap -pea rance of a c t i v e p u b l i c t r a d i n g i n a s t o c k or w i t h r e s p e c t to the market p r i c e o f a s t o c k ; (c ) e n t e r i n g an o r d e r or o r d e r s on the Exhange f o r the s a l e o f such a s t o c k w i t h the knowledge t h a t an o r d e r o r o r d e r s of s u b s t a n t i a l l y the same s i z e , a t s u b s t a n -t i a l l y the same t ime and at s u b s t a n t i a l l y the same p r i c e f o r the p u r c h a s e o f such s t o c k , has been o r w i l l be e n -t e r e d by o r f o r the same or d i f f e r e n t pe rsons and w i t h the i n t e n t i o n o f c r e a t i n g a f a l s e or m i s l e a d i n g a p p e a r -ance o f a c t i v e p u b l i c t r a d i n g i n a s t o c k or w i t h r e s p e c t to the market p r i c e of a s t o c k ; (d) m a k i n g , on the Exchange , p u r c h a s e s o f or o f f e r s to p u r c h a s e any s e c u r i t y a t s u c c e s s i v e l y h i g h e r p r i c e s o r s a l e s o f o r o f f e r s to s e l l any s t o c k at s u c c e s s i v e l y l ower p r i c e s f o r the purpose of c r e a t i n g o r i n d u c i n g a f a l s e o r m i s l e a d i n g appearance o f t r a d i n g i n such s t o c k or f o r the purpose of undu ly or i m p r o p e r l y i n f l u e n c i n g the market p r i c e of such s t o c k ; (e) e f f e c t i n g , a l o n e o r w i t h one or more p e r s o n s , a s e r i e s o f t r a n s a c t i o n s i n any such s t o c k , f o r the purpose of i n d u c i n g the pu rchase or s a l e o f ' s u c h a s t o c k , wh ich c r e -a t e s a c t u a l o r appa ren t t r a d i n g i n such s t o c k o r r a i s e s or d e p r e s s e s the p r i c e of such s t o c k . E x h i b i t 5 ( C o n t ' d ) 76 N o t w i t h s t a n d i n g the f o r e g o i n g , a member may pu rchase or o f f e r to pu r chase a s t o c k f o r h i m s e l f o r f o r a c l i e n t f o r the pu rpose of s t a b i l i z i n g the market i n such a s t o c k p r o v i d e d t h a t such pu rchase may not be u n d e r t a k e n a t a p r i c e h i g h e r than t h a t a t wh ich the s t o c k was t r a d e d by o t h e r s p r i o r to the commencement of p u r c h a s e s f o r such p u r p o s e . 77 E x h i b i t 6 M o n t r e a l S t o c k Exchange Ru les D e a l i n g w i t h T i m e l y D i s c l o s u r e 9451 Immediate P u b l i c D i s c l o s u r e o f M a t e r i a l I n f o r m a t i o n . -A l i s t e d company and i t s management i s r e q u i r e d to make i m -m e d i a t e p u b l i c d i s c l o s u r e o f a l l m a t e r i a l changes i n i t s - a f -f a i r s wh ich migh t r e a s o n a b l y be expec ted to a f f e c t m a t e r i a l l y the v a l u e of i t s l i s t e d s e c u r i t i e s . G e n e r a l l y , i n d e c i d i n g whether the change i s l i k e l y to ma-t e r i a l l y a f f e c t the v a l u e of the s e c u r i t i e s , the e f f e c t o f the change on the market p r i c e of the s e c u r i t i e s i s the bes t t e s t . I f i t can be r e a s o n a b l y e x p e c t e d t h a t the announcement of the change would r e s u l t i n a sudden change i n the p r i c e of the s e -c u r i t y , management s h o u l d c o n c l u d e t h a t the change i s one t h a t m a t e r i a l l y a f f e c t s the v a l u e o f the s e c u r i t y and an announce-ment s h o u l d be made. W i thou t i n any way l i m i t i n g the g e n e r a l i t y of the f o r e -g o i n g , the f o l l o w i n g even ts i n c l u d e m a t e r i a l changes i n the g e n e r a l c h a r a c t e r or n a t u r e o f the b u s i n e s s or a f f a i r s o f com-p a n i e s wh ich a re p a r t i c u l a r l y l i k e l y to r e q u i r e prompt announce-ments : (a) a j o i n t v e n t u r e , m e r g e r , a m a l g a m a t i o n , a c q u i s i t i o n , c o n s o l i d a t i o n or r e o r g a n i z a t i o n ; (b) the d e c l a r a t i o n o r o m i s s i o n o f d i v i d e n d s o r the d e -t e r m i n a t i o n o f e a r n i n g s ; (c ) a s t o c k s p l i t , s t o c k d i v i d e n d or any o t h e r change i n c a p i t a l s t r u c t u r e ; (d) the a c q u i s i t i o n o r l o s s of a s i g n i f i c a n t c o n t r a c t ; (e) a s i g n i f i c a n t new p r o d u c t o r d i s c o v e r y ; ( f ) a change i n c o n t r o l o r a s i g n i f i c a n t change i n owner -s h i p o r i n management^ (g) a c a l l o f s e c u r i t i e s f o r r e d e m p t i o n ; (h) the bo r row ing of a s i g n i f i c a n t amount o f f u n d s ; ( i ) the p u b l i c or p r i v a t e s a l e o f a s i g n i f i c a n t amount of a d d i t i o n a l s e c u r i t i e s ; ( j ) s i g n i f i c a n t l i t i g a t i o n ; (k) the pu rchase o r s a l e o f a s i g n i f i c a n t a s s e t ; (1) a s i g n i f i c a n t change i n c a p i t a l i n v e s t m e n t p l a n s ; E x h i b i t 6 ( C o n t ' d ) 78 (m) a s i g n i f i c a n t l a b o u r d i s p u t e or d i s p u t e s w i t h s u b c o n -t r a c t o r s o r s u p p l i e r s ; (n) e s t a b l i s h m e n t o f a program to make p u r c h a s e s o f the Company's own s h a r e s , where p e r m i t t e d ; (o) a t e n d e r o f f e r f o r a n o t h e r company 's s e c u r i t i e s ; (p) any m a t e r i a l d i s c o v e r i e s , changes or deve lopments i n the company 's r e s o u r c e s , t e c h n o l o g y , p r o d u c t s or c o n -t r a c t s , wh ich would m a t e r i a l l y a f f e c t the e a r n i n g s of the company upwards or downwards; (q) a change i n the n a t u r e o f b u s i n e s s o f the company; ( r ) any o t h e r m a t e r i a l change i n the a f f a i r s o f the com-pany wh ich c o u l d r e a s o n a b l y be e x p e c t e d to a f f e c t ma-t e r i a l l y the v a l u e of the s e c u r i t y . 9452 Thorough P u b l i c D i s s e m i n a t i o n . - A l i s t e d company i s r e q u i r e d to r e l e a s e m a t e r i a l i n f o r m a t i o n to the p u b l i c i n a manner d e s i g n a t e d to o b t a i n i t s f u l l e s t p o s s i b l e p u b l i c d i s -s e m i n a t i o n . The recommended p r o c e d u r e i s t h a t the announcement be made to t hose s e r v i c e s wh ich d i s s e m i n a t e f i n a n c i a l news over a broad a rea and i n the main p o p u l a t i o n c e n t r e s . The Exchanges s h o u l d be a d v i s e d s i m u l t a n e o u s l y o f the announcement and s u p -p l i e d w i t h a copy f o r t h w i t h upon i t s r e l e a s e . R l^:e:a?s-e:-s when made s h o u l d be f a c t u a l and b a l a n c e d , n e i t h e r o v e r - e m p h a s i z i n g f a v o u r a b l e news nor u n d e r - e m p h a s i z i n g u n f a v o u r -a b l e news. I t i s a p p r e c i a t e d t h a t r e l e a s e s under t h i s p o l i c y may not be a b l e to c o n t a i n a l l the d e t a i l t h a t would be i n c l u d e d i n a p r o s p e c t u s or s i m i l a r document . R e l e a s e s s h o u l d however c o n t a i n s u f f i c i e n t d e t a i l to i n d i c a t e the n a t u r e of the change and to e n a b l e i n v e s t o r s to f o r m u l a t e i n v e s t m e n t d e c i s i o n s . The company s h o u l d be p r e p a r e d to s u p p l y f u r t h e r i n f o r m a t i o n when the o c c a s i o n c a l l s f o r i t . P r o p e r t i m i n g i s i m p o r t a n t . The p o l i c y r e q u i r e s t h a t news i s to be i s s u e d as p romp t l y as p o s s i b l e a f t e r an i m p o r t a n t c o r p o r a t e d e v e l o p m e n t . Unusua l t r a d i n g p r i o r to an announce-ment o f i m p o r t a n t c o r p o r a t e i n f o r m a t i o n i s e m b a r r a s s i n g to management and damaging to the r e p u t a t i o n o f the s e c u r i t i e s marke t s i n c e the p u b l i c may assume t h a t someone had a c c e s s to and a c t e d upon " i n s i d e " i n f o r m a t i o n . Prompt and r a p i d r e l e a s e o f i n f o r m a t i o n i s a l l i m p o r t a n t . 9453 C l a r i f i c a t i o n or C o n f i r m a t i o n of Rumours and R e p o r t s . -Whenever a l i s t e d company becomes aware of a rumour or r e p o r t , t r u e or f a l s e , t h a t c o n t a i n s i n f o r m a t i o n t h a t i s l i k e l y to h a v e , or has had , an a f f e c t on the t r a d i n g i n the company 's s e c u r i t i e s or would be l i k e l y to have a b e a r i n g on i n v e s t m e n t d e c i s i o n s , E x h i b i t 6 ( C o n t ' d ) 79 the company i s r e q u i r e d to p u b l i c l y c l a r i f y , deny the rumour , o r r e p o r t as p r o m p t l y as p o s s i b l e . 9454 Response to Unusual Marke t A c t i o n . - Whenever unusua l marke t a c t i o n t a k e s p l a c e i n a l i s t e d company 's s e c u r i t i e s , the company i s e x p e c t e d to make i n q u i r y to d e t e r m i n e whe ther rumours or o t h e r c o n d i t i o n s r e q u i r i n g c o r r e c t i v e a c t i o n e x i s t , a n d , i f s o , to t ake wha tever a c t i o n i s a p p r o p r i a t e . I f , a f t e r the company 's r e v i e w , the unusua l market a c t i o n remains unex-p l a i n e d , i t may be a p p r o p r i a t e f o r the company to announce t h a t t h e r e has been no m a t e r i a l deve lopment i n i t s b u s i n e s s and a f f a i r s not p r e v i o u s l y d i s c l o s e d n o r , to i t s know ledge , any o t h e r r eason to accoun t f o r the unusua l market a c t i o n . 9455 Unwar ran ted P r o m o t i o n a l D i s c l o s u r e . - A l i s t e d com-pany s h o u l d r e f r a i n f rom p r o m o t i o n a l d i s c l o s u r e a c t i v i t y wh ich exceeds t h a t n e c e s s a r y to e n a b l e the p u b l i c to make i n fo rmed i n v e s t m e n t d e c i s i o n s . Such a c t i v i t y i n c l u d e s i n a p p r o p r i a t e l y worded news r e l e a s e s , p u b l i c announcements not j u s t i f i e d by a c t u a l deve lopments i n a company 's a f f a i r s , e x a g g e r a t e d r e p o r t s o r p r e d i c t i o n s , f l a m b o y a n t word ing and o t h e r forms of o v e r -s t a t e d o r o v e r - z e a l o u s d i s c l o s u r e a c t i v i t y wh ich may m i s l e a d i n v e s t o r s and cause unwar ran ted p r i c e movements and a c t i v i t y i n a company 's s e c u r i t i e s . 9456 I n s i d e r T r a d i n g . - There a re o c c a s i o n a l s i t u a t i o n s where management has c o n f l i c t i n g d u t i e s to r e s o l v e ; such a s , the duty to keep i t s s h a r e h o l d e r s i n fo rmed and i t s du ty to the company to keep i n f o r m a t i o n c o n f i d e n t i a l . When i t i s e s s e n t i a l f o r the w e l f a r e o f the company not to make d i s c l o -s u r e , then i t f o l l o w s the i n f o r m a t i o n s h o u l d be kept c o n f i d e n -t i a l by t h o s e pe rsons who f o r c o r p o r a t e r easons a re r e q u i r e d to know the i n f o r m a t i o n . A l l companies s h o u l d have a f i r m r u l e p r o h i b i t i n g t hose who have c o n f i d e n t i a l i n f o r m a t i o n f rom t r a d i n g pend ing f u l l d i s c l o s u r e to the p u b l i c . When t h e r e i s a s i t u a t i o n where i n f o r m a t i o n i s r e q u i r e d to be kept c o n f i d e n t i a l f o r c o r p o r a t e r easons management s h o u l d watch c l o s e l y the market a c t i v i t y i n i t s s e c u r i t i e s . Unusua l market a c t i v i t y i n terms o f p r i c e or volume i s the bes t i n d i -c a t i o n o f whether c o n f i d e n t i a l i t y has not been m a i n t a i n e d . I f such a c t i v i t y o c c u r s , the Exchanges r e q u i r e t h a t an announce-ment be made c l a r i f y i n g the s i t u a t i o n . 80 E x h i b i t 7 M o n t r e a l S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r -r u p t i o n s o f R e g u l a r F l o o r T r a d i n g 6406 O v e r - t h e - c o u n t e r T r a d i n g i n S e c u r i t i e s removed f rom t r a d i n g l i s t . - T r a d i n g i n a s e c u r i t y may be i n t e r r u p t e d by the Exchange f o r r easons wh ich f a l l w i t h i n the f o l l o w i n g c a t e g o r i e s : (1) De layed O p e n i n g : An a c c u m u l a t i o n o f o.rders a t an open -ing or d u r i n g the c o u r s e of a t r a d i n g day may make i t i m p o s s i b l e f o r the usua l a u c t i o n p r o c e s s to t ake p l a c e . (2) H a l t i n t r a d i n g : P r i o r to an open ing or d u r i n g the day the Exchanges may be a d v i s e d t h a t a c o r p o r a t e * announcement i s imminen t . The marke t may i n d i c a t e t h a t t h i s i n f o r m a t i o n i s known to some pe rsons and not to o t h e r s . A d e c i s i o n may be made t h a t i t i s u n d e s i r a b l e to have the s e c u r i t y t r a d e d u n t i l the i n f o r m a t i o n i s made p u b l i c . The i n t e r v a l o f t ime i n such c i r c u m s t a n c e s i s u s u a l l y s h o r t and w i l l not ex tend beyond one t r a d i n g s e s s i o n . (3) Suspended f rom the t r a d i n g l i s t : The Exchange may have reason to b e l i e v e t h a t a s e c u r i t y i s be ing t r a d e d w i t h i n a d e q u a t e c o r p o r a t e i n f o r m a t i o n and has r e q u e s t e d the company to make a s t a t e m e n t and i t i s unab le or u n w i l l i n g to comply w i t h the r e q u e s t . T r a d i n g i n t h e s e c i r c u m s t a n c e s may be i n t e r r u p t e d f o r an i n d e f i n i t e p e r i o d u n t i l the l a c k o f i n f o r m a t i o n i s r e c t i f i e d . A l i s t e d company may be g i v e n a p e r i o d o f t ime to r e c t i f y the s i t u a t i o n wh ich may be q u i t e p r o t r a c t e d . 6407 De layed O p e n i n g . - O v e r - t h e - c o u n t e r t r a d i n g by member f i r m s and c o r p o r a t i o n s w i l l not be p e r m i t t e d when t r a d i n g has been i n t e r r u p t e d f o l l o w i n g a d e l a y e d open ing as the s e c u r i t y w i l l remain on the t r a d i n g l i s t . The Exchange c o n s i d e r s t h a t i t i s i n a p p r o p r i a t e t h a t t r a d -i ng s h o u l d t ake p l a c e o v e r - t h e - c o u n t e r w h i l e the r e g u l a r market i s no l o n g e r f u n c t i o n i n g . O v e r - t h e - c o u n t e r t r a d i n g would make i t d i f f i c u l t to resume the f u n c t i o n i n g of the r e g u l a r m a r k e t . 6408 H a l t i n T r a d i n g . - O v e r - t h e - c o u n t e r t r a d i n g by member f i r m s and c o r p o r a t i o n s w i l l not be p e r m i t t e d f o l l o w i n g a h a l t i n t r a d i n g as the s e c u r i t y w i l l rema in on the t r a d i n g l i s t . T h i s i n t e r r u p t i o n i s temporary and w i l l not n o r m a l l y ex tend beyond the c u r r e n t t r a d i n g s e s s i o n . 6409 Suspended f rom the T r a d i n g L i s t . - A s u s p e n s i o n i n d i -c a t e s a more p r o l o n g e d p e r i o d o f i n t e r r u p t i o n and the s e c u r i t y w i l l no l o n g e r be pos ted f o r t r a d i n g , member f i r m s and member - c o r p o r a t i o n ^ / ' w i 11 b e . p e r m i t t e d ; to.^ t r a d e i n * t h e o v e r - t h e - c o u n t e r E x h i b i t 7 ( C o n t ' d ) m a r k e t , as they may see f i t , i n t h e i r own i n t e r e s t s or i n the i n t e r e s t s of t h e i r c l i e n t s , u n l e s s o t h e r w i s e p r o h i b i t e d and so s t a t e d by the Exchange . 82 E x h i b i t 8 Vancouve r S tock Exchange R u l e s D e a l i n g w i t h M a n i p u l a t i v e or D e c e p t i v e Methods o f T r a d i n g R u l e 3 8 5 . 1 . ( P r o h i b i t e d methods o f t r a d i n g ) . - No s e a t -h o l d e r , p a r t n e r or employee o f a s e a t h o l d e r , d i r e c t o r , o f f i c e r or employee o f a s e a t h o l d e r or an a f f i l i a t e d company s h a l l use or know ing l y p a r t i c i p a t e i n the use of any m a n i p u l a t i v e or d e c e p t i v e method o f t r a d i n g i n c o n n e c t i o n w i t h the pu rchase or s a l e of any s e c u r i t y l i s t e d on a s t o c k exchange wh ich c r e -a t e s or may c r e a t e a f a l s e . o r .m is1ead ing appearance of t r a d i n g a c t i v i t y o r an a r t i f i c i a l p r i c e f o r the s a i d s e c u r i t y . 385 .2 (O the r p r o h i b i t i o n s ) . - W i thou t i n any way l i m i t i n g the g e n e r a l i t y of the f o r e g o i n g , the f o l l o w i n g s h a l l be deemed m a n i p u l a t i v e or d e c e p t i v e methods o f t r a d i n g : (a) making a f i c t i t i o u s t r a n s a c t i o n or g i v i n g or a c c e p t i n g an o r d e r wh ich i n v o l v e s no change i n the b e n e f i c i a l owne rsh ip of such a s e c u r i t y ; (b) e n t e r i n g an o r d e r o r o r d e r s on the exchange f o r the p u r c h a s e of such a s e c u r i t y w i t h the knowledge t h a t an o r d e r o r o r d e r s of s u b s t a n t i a l l y the same s i z e , a t s u b -s t a n t i a l l y the same t ime and a t s u b s t a n t i a l l y the same p r i c e , f o r the s a l e of any such s e c u r i t y , has been or w i l l be e n t e r e d by or f o r the same or d i f f e r e n t pe rsons and w i t h the i n t e n t i o n o f c r e a t i n g a f a l s e or m i s l e a d i n g appearance of a c t i v e p u b l i c t r a d i n g i n a s e c u r i t y o r w i t h r e s p e c t to the marke t p r i c e o f a s e c u r i t y ; ( c ) e n t e r i n g an o r d e r o r o r d e r s on the exchange f o r the s a l e o f such a s e c u r i t y w i t h the knowledge t h a t an o r d e r o r o r d e r s o f s u b s t a n t i a l l y the same s i z e , a t s u b s t a n t i a l l y the same t ime and a t s u b s t a n t i a l l y the same p r i c e f o r the p u r c h a s e of such s e c u r i t y , has been or w i l l be e n t e r e d by o r f o r the same o r d i f f e r e n t pe rsons and w i t h the i n t e n t i o n of c r e a t i n g a f a l s e or m i s l e a d i n g appearance of a c t i v e p u b l i c t r a d i n g i n a s e c u r i t y or w i t h r e s p e c t to the marke t p r i c e o f a s e c u r i t y ; (d) m a k i n g , on the e x c h a n g e , p u r c h a s e s of or o f f e r s to p u r c h a s e any s e c u r i t y a t s u c c e s s i v e l y h i g h e r p r i c e s or s a l e s o f o r o f f e r s to s e l l any s e c u r i t y a t s u c c e s s i v e l y l ower p r i c e s f o r the purpose of c r e a t i n g or i n d u c i n g a f a l s e or m i s l e a d i n g appearance of t r a d i n g i n such s e c u r i t y or f o r the pu rpose of undu ly or i m p r o p e r l y i n f l u e n c i n g the marke t p r i c e o f such s e c u r i t y ; (e) e f f e c t i n g , a l o n e or w i t h one or more p e r s o n s , a s e r i e s o f t r a n s a c t i o n s i n any such s e c u r i t y , f o r the purpose o f i n d u c i n g the p u r c h a s e o r s a l e o f such a s e c u r i t y , wh ich c r e a t e s a c t u a l or a p p a r e n t t r a d i n g i n such s e c u r i t y or r a i s e s or d e p r e s s e s the p r i c e of such s e c u r i t y . 83 E x h i b i t 8 ( C o n t ' d ) 385 .3 ( E x c e p t i o n s ) . - N o t w i t h s t a n d i n g the f o r e g o i n g , a member may pu rchase or o f f e r to p u r c h a s e a s e c u r i t y f o r h im-s e l f or f o r a c l i e n t f o r the purpose of s t a b i l i z i n g the market i n such a s e c u r i t y . 84 E x h i b i t 9 Vancouve r S tock Exchange P o l i c y R e g a r d i n g I n d i s c r i m i n a t e I n t e r r u p t i o n s of R e g u l a r F l o o r T r a d i n g VANCOUVER STOCK EXCHANGE POLICY STATEMENT - JANUARY 2 8 , 1974 1 . S u s p e n s i o n s I f the c i r c u m s t a n c e s a re such t h a t a s u s p e n s i o n becomes n e c e s s a r y , then the P r e s i d e n t must be a p p r i s e d o f the r e a s o n f o r the s u s p e n s i o n and h i s a p p r o v a l o b t a i n e d . I f the P r e s i d e n t i s not a v a i l a b l e , the" V i c e - P r e s i d e n t , L i s t -i n g , i n c o n j u n c t i o n w i t h any o t h e r V i c e - P r e s i d e n t or the F l o o r Manager , may o r d e r the s u s p e n s i o n . I f the V i c e -P r e s i d e n t , L i s t i n g , i s not a v a i l a b l e , the s u s p e n s i o n may be o r d e r e d by any V i c e - P r e s i d e n t , a c t i n g i n c o n j u n c t i o n w i t h a n o t h e r V i c e - P r e s i d e n t o r the F l o o r Manager . I f t ime p e r m i t s , p r i o r n o t i c e of a s u s p e n s i o n mu.s.t be g i v e n to the P r e s i d e n t o f the E x c h a n g e , vor. i f u n a v a i l a b l e , the  Cha i rman o f the B o a r d , or a member of the E x e c u t i v e Com-m i t t e e , s h o u l d the Cha i rman a l s o be u n a v a i l a b l e . In any e v e n t , such pe rsons must be a d v i s e d o f f u l l d e t a i l s o f any s u s p e n s i o n as soon as p o s s i b l e a f t e r the a c t i o n has been t a k e n . As soon as i t has been d e t e r m i n e d t h a t s u s p e n s i o n i s to be o r d e r e d , the B . C . S e c u r i t i e s Commiss ion must be n o t i -f i e d by T e l e x , and be g i v e n r e a s o n s f o r the i n t e n d e d s u s -p e n s i o n . 2 . H a l t T r a d i n g Where a c t i o n i s an i n t e r i m or tempora ry m e a s u r e , e f f e c t i v e o n l y f o r the b a l a n c e o f any t r a d i n g s e s s i o n , and as such may be an emergency s i t u a t i o n , then a h a l t i n t r a d i n g may be o r d e r e d by the P r e s i d e n t o f the E x c h a n g e . I f the P r e s i -de n t ~ T s ~ l T o T T l m ^ then the a c t i o n may be t a k e n by the V i c e - P r e s i d e n t , L i s t i n g , or i n h i s a b s e n c e , any o t h e r V i c e - P r e s i d e n t o r the F l o o r Manager . Subsequen t to a h a l t - i n t r a d i n g , the P r e s i d e n t of t he E x c h a n g e , i n h i s a b s e n c e , the Chai rman of the B o a r d , o r a member of the ' E x e c u t i v e Commit tee s h a l l be n o t i f i e d . The B . C . S e c u r i t i e s Commiss ion s h o u l d be n o t i f i e d , by  t e l e p h o n e of the s i t u a t i o n , and the r e a s o n s f o r wh ich the a c t i o n was t a k e n . 3 . L i s t i n g and D e l i s t i n g L i s t i n g and d e l i s t i n g of s e c u r i t i e s must be by r e s o l u t i o n 85 E x h i b i t 9 ( C o n t ' d ) o f the L i s t i n g Commit tee a t a r e g u l a r meet ing o f t h a t Com-m i t t e e . In the even t o f d e l i s t i n g , the company must im -m e d i a t e l y be n o t i f i e d , i n w r i t i n g , a t the r e g i s t e r e d o f f i c e . 4 . Cease and D e s i s t Orde r f rom the S u p e r i n t e n d e n t o f B r o k e r s The P r e s i d e n t , a l l V i c e - P r e s i d e n t s and s e n i o r p e r s o n n e l a re to be a d v i s e d o f such o r d e r s and a n o t i c e put ou t on the F l o o r . 5 . T r a d i n g S e s s i o n In the absence of the P r e s i d e n t , a t r a d i n g s e s s i o n may o n l y  be suspended by a V i c e - P r e s i d e n t i n c o n j u n c t i o n w i t h ano the r  V i c e - P r e s i d e n t , and w i t h c o n s e n t o f the Cha i rman or V i c e -Cha i rman o f the Board o f G o v e r n o r s . In the even t t h a t the Cha i rman or V i c e - C h a i r m a n i s not a v a i l a b l e , then w i t h the c o n s e n t of a member of the E x e c u t i v e Commi t t ee . 6 . I n f o r m a t i o n S e r v i c e s , C h i e f Examiner and Data P r o c e s s i n g I t i s e s s e n t i a l t h a t our Manager , I n f o r m a t i o n S e r v i c e s , the C h i e f Examiner and the Manager o f the Data P r o c e s s i n g Depar tments a re a l l a d v i s e d o f any s u s p e n s i o n s , h a l t s , c e a s e t a n d d e s i s t o r d e r s and e t c . The Manager , I n f o r m a t i o n S e r v i c e s , s h o u l d be g i v e n wha teve r i n f o r m a t i o n may be made a v a i l a b l e to the p u b l i c as to the r easons f o r wh ich any a c t i o n has been t a k e n . 7. P o l i c y S ta temen t da ted March 8 , 1973 , i n r e l a t i o n to the p r e c e d i n g i s hereby c a n c e l l e d , da ted J a n u a r y 16 , 1974. S i g n e d C y r i l Whi te C y r i l W h i t e , Q. C. P r e s i d e n t 86 FOOTNOTES J J . P e t e r W i l l i a m s o n , S e c u r i t i e s R e g u l a t i o n i n C a n a -da ( T o r o n t o : U n i v e r s i t y of To ron to P r e s s , 1 9 6 0 ) . 2 J . P e t e r W i l l i a m s o n , Supplement to S e c u r i t i e s Regu-l a t i o n i n Canada ( O t t a w a : Q u e e n s P r i n t e r , 1 9 6 6 ) . 3 J . W. B :ai.lTnVe3, "The P r o t e c t i o n of the I n v e s t o r i n On-t a r i o , " Canad ian P u b l i c A d m i n i s t r a t i o n , ( J u n e , 1 9 6 5 ) , pp. 17 2 -268 and (Sep tember , 1 9 6 5 ) , pp . 3 2 5 - 4 3 2 . " O n t a r i o , Repor t of the A t t o r n e y G e n e r a l ' s Commit tee  on S e c u r i t i e s L e g i s l a t i o n i n O n t a r i o , M a r c h , 1965. 5 0 n t a r i o , R e p o r t o f the Commit tee o f the O n t a r i o S e -c u r i t i e s Commiss ion on the Prob lems o f D i s c l o s u r e R a i s e d f o r  I n v e s t o r s by B u s i n e s s C o m b i n a t i o n s and P r i v a t e P l a c e m e n t s . 6 Q u e b e c , Repor t of the Study Commit tee on the S e c u r i -t i e s I n d u s t r y i n Quebec , 1972. 7 T h i s s e c t i o n has r e l i e d e x t e n s i v e l y on E . P . N e u f e l d , The F i n a n c i a l System of Canada ( T o r o n t o : M a c M i l l a n Company of C a n a d a , 1 9 7 2 ) , pp . 532-41 ; and the s o u r c e s r e f e r e n c e d i n f o o t -no tes 1 to 6. 8 J . P e t e r W i l l i a m s o n , S e c u r i t i e s R e g u l a t i o n i n Canada . 9 T o r o n t o S tock Exchange , M i n u t e s o f a meet ing of J a n u -a ry 3 0 , 1890. 1 0 T h i s r e s u l t e d from (1) the a d o p t i o n of the Kansas " b l u e s k y " l e g i s l a t i o n , d e a l i n g e s s e n t i a l l y w i t h a n t i - f r a u d l e g i s l a t i o n , r e g i s t r a t i o n o f b r o k e r s and d e a l e r s and r e g i s t r a -t i o n o f new i s s u e s , by Man i t oba ( 1 9 1 2 ) , Saska tchewan ( 1 9 1 5 ) , A l b e r t a ( 1 9 1 6 ) , New B runsw ick (1923) and Quebec (1924) and (2) the i n t r o d u c t i o n of r e g u l a t i o n s p r o t e c t i n g i n v e s t o r s a g a i n s t new i s s u e f r a u d by Man i t oba ( 1 9 2 6 ) , O n t a r i o (1928) and s i x p r o v i n c e s ( 1 9 3 0 ) . ^ W i l l i a m s o n , S e c u r i t i e s R e g u l a t i o n i n C a n a d a , p. 30 . 1 2 T h e O n t a r i o S e c u r i t i e s Commiss ion f i r s t appeared by name i n l e g i s l a t i o n o f 1933 and i n 1937 the Commiss ion was f o r -m a l l y e s t a b l i s h e d . P r i o r to 1933 a board e x i s t e d to a d m i n i s t e r the a c t . 1 3 " E d m o n t o n Exchange Suspends O p e r a t i o n s , " N o r t h e r n  M i n e r , F e b r u a r y 1 3 , 1958. 87 1 H T h i s i s the p r a c t i c e o f i s s u i n g s h a r e s to the pub-l i c d i r e c t l y f rom the t r e a s u r y of m i n i n g and o i l companies t h rough the f a c i l i t i e s of an exchange (such as the T S E ) . 1 5 S e e O n t a r i o , Repor t o f the A t t o r n e y G e n e r a l ' s Com-m i t t e e on S e c u r i t i e s L e g i s l a t i o n i n O n t a r i o , M a r c h , 1965. 1 6 0 n t a r i o , Repor t of the A t t o r n e y G e n e r a l ' s Commi t tee . 1 7 N e w s R e l e a s e , Monday, August 2 9 , 1966, o f a paper by F . R . M a t t h e w s , " O n t a r i o B i l l 66 - - What i t means f o r s e c u r i -t i e s 1 eg i s 1 a t i on i n C a n a d a , " 64th CICA Annual C o n f e r e n c e , Re-g i n a , S a s k a t c h e w a n . 1 8 " 0 n t a r i o showing the way w i t h tough new a c t , " The  F i n a n c i a l T i m e s , J a n u a r y 1 8 , 1967 , p. 69 . 1 9 " L e t t e r to the E d i t o r , " The G lobe and Mai 1 , J a n u a r y 2 5 , 1967. 2 0 0 n t a r i o S e c u r i t i e s C o m m i s s i o n , B u l l e t i n ( T o r o n t o : 555 Yonge S t r e e t , A u g u s t , 1 9 7 3 ) , p. 109. 2 1 " T i g h t e r R e i n Now on S tock P u s h e r s , " F i n a n c i a l P o s t , March 2 , 1957. i n 1957 2 2 T o r o n t o S tock Exchange , S tock Exchanges o f Canada 2 3 C a n a d i a n S e c u r i t i e s Law R e p o r t s (CCH Canada L i m i t e d , June 24 , 1 9 7 4 ) . ^ C a n a d i a n S e c u r i t i e s Law R e p o r t s (CCH Canada L i m i t e d , June 2 4 , 1 9 7 4 ) . 2 5 C a n a d i a n S e c u r i t i e s Law R e p o r t e r , CCH Canad ian L i m i -t e d , C a n a d a , Number 109 , March 3 1 , 1975. 2 6 T h i s s e c t i o n r e l i e s e x t e n s i v e l y on M a r t i n ' s C r i m i n a l  Code , 1973 , pp . 2 5 8 - 7 1 . 2 7 R e J . H. (1 91 2) , 25 0 . L . R . 1 3 2 . 2 8 R . v . DALLEY, R . S . O . 1950 , c . 3 5 1 , s . 6 . 2 9 R . v . PIEPGRASS ( 1 9 5 9 ) , 125 C . C . C . 3 6 5 . 3 0 R . v . LAMPARD ( 1 9 6 8 ) , 4 C . C . C . 2 0 1 , (1968) 2 0 . R . 4 7 0 ( C . A . ) . 3 1 S e e (1 969) 3 C . C . C . 2 4 9 , 6 C R . N . S . 1 5 7 ( S . C . C . ) . 3 2 S e e R. v JAY ( i l966) 1 C . C . C . 7 0 , ( 1 965) 2 0 . R . 4 7 1 . -3 3 S e e R . v . D.MMMi!l iAN-; 9 (1 969;) , o 2 0 C \ . C . C . 289., ( 1 968) 1 0 . R . 4 7 5 ( C l A . : ) . . - - n <)WIv*b\i * . r r t Q^EEfv ,> , : 88 3 " S e e R. v . DAVIDSON ( 1 9 7 1 ) , 3 C . C . C . (2d) 509 , (1971) 4 W . W . R . 7 3 1 , sub nom. DAVIDSON v . THE QUEEN ( 2 ; 1 ) ( B . C . C . A . ) . 3 5 C 0 X and PATON v . THE QUEEN, ( 1 9 6 3 ) , 2 C . C . C . 1 4 8 , 40 C . R . 5 2 . 3 6 R . v . COLUCCI, (1965) 4 C . C . C . 5 6 , 46 C . R . 2 5 6 , (1965) 2 0 . R . 6 6 5 . 3 7 C C H , Number 108 , F e b r u a r y 2 8 , 1975. 3 8 C a n a d i a n S e c u r i t i e s Law R e p o r t s , CCH, Volume 1, p. 531 • 3 9 O . S . C . B u l l e t i n , May, 1969. " " F o r an e a r l y e x a m i n a t i o n o f Canad ian s e c u r i t i e s e x -changes see James E. W a l t e r and J . P e t e r W i l l i a m s o n , " O r g a n i z e d S e c u r i t i e s Exchanges i n C a n a d a , " The J o u r n a l o f F i n a n c e , V o l . XV, (Sep tember , 1 9 6 0 ) , pp. 3 0 7 - 2 4 ; and J . G . K . S t r a t h y , "The S tock Exchange - I t s O r i g i n and F u n c t i o n i n the Economy," Cana-d i a n C h a r t e r e d A c c o u n t a n t , ( F e b r u a r y , 1 9 5 8 ) , p. 107. ftlSee "The S tock L i s t D e p a r t m e n t , " The To ron to S tock  Exchange R e v i e w , (December , 1 9 7 0 ) , p. 6 . " 2 L i s t e d i n d u s t r i a l companies do not c a r r y out new i s -sues th rough the Exchange , but must f i l e a p r o s p e c t u s w i t h the S e c u r i t i e s Commiss ion and have the p r i m a r y d i s t r i b u t i o n e f f e c t e d t h rough the u n l i s t e d or o v e r - t h e - c o u n t e r m a r k e t . " 3 I n a d d i t i o n to the s u p e r v i s i o n o f t r a d i n g i n the a u c -t i o n m a r k e t , the depar tment t h rough i t s c l e a r i n g house hand les the s e t t l e m e n t o f t r a n s a c t i o n s and th rough i t s c o m p l i a n c e s e c -t i o n m a i n t a i n s an i n s p e c t i o n program of member f i r m s . " " S e e " S t o c k Watch : P r o t e c t i n g I n v e s t o r and B r o k e r , " The To ron to S t o c k Exchange R e v i e w , Sep tember , 1970 , p. 6 . " 5 C a n a d i a n S e c u r i t i e s Law R e p o r t e r , CCH, V o l . 2 , p a r a . 5 4 - 8 8 2 , V o l . 3 , p a r a . 9 2 - 0 0 4 . " 6 T h e methods o f "making the marke t " employed on the T S E , NYSE, and 0TC a re d i s c u s s e d i n Seha M. T i n i c and R i c h a r d R. Wes t , " M a r k e t a b i l i t y o f Common S t o c k s i n Canada and the U . S . A . : A Compar ison o f Agent Ve rsus D e a l e r Dominated M a r k e t s , " The J o u r n a l o f F i n a n c e , XXIX ( J u n e , 1 9 7 4 ) , pp . 4 6 - 7 2 . " 7 " R u n n i n g the box" i s the name g i v e n to the m a r k e t -making sys tem used to p r o v i d e l i q u i d i t y i n Canad ian j u n i o r and v e n t u r e s e c u r i t y m a r k e t s . " 8 T h e Penny M i n e r , "Sudden d i s a s t e r f o r f o u r s t o c k s , " The G a z e t t e , M o n t r e a l , J a n u a r y 1 3 , 1973 , p. 2 1 . 89 " 9 " W h i t e - c o l 1 a r c r ime pays too w e l l , " The M o n t r e a l  S t a r , September 2 0 , 1 9 7 5 , p. H- l . 5 " C o o r d i n a t e d Law En fo rcement U n i t , I n i t i a l Repo r t on  O r g a n i z e d Cr ime i n B . C . , Depar tment o f A t t o r n e y - G e n e r a l o f B r i t i s h Co lumb ia ( O c t o b e r , 1 9 7 4 ) , p. 27 . C h a p t e r 3 THE EFFECTIVENESS OF TRADING SUSPENSIONS: A REGULATORY ACTION DESIGNED TO PREVENT THE EXPLOITATION OF MONOPOLY INFORMATION In c o n t r a s t to the l a s t c h a p t e r , wh ich was d e s c r i p t i v e , i n t h i s c h a p t e r , the NR and SR hypo theses a re e m p i r i c a l l y t e s t e d . More s p e c i f i c a l l y , the p r e d i c t i o n s of the NR and SR hypo theses on the e f f e c t i v e n e s s of t r a d i n g s u s p e n s i o n s a re f o r m u l a t e d and e m p i r i c a l l y t e s t e d . The a n a l y s i s i s c o n f i n e d to the t r a d i n g s u s p e n s i o n s t h a t were i s s u e d i n o r d e r to p r e -ven t the e x p l o i t a t i o n o f monopoly i n f o r m a t i o n by f o r c i n g the p u b l i c d i s c l o s u r e of p r e v i o u s l y p r i v a t e f i r m - s p e c i f i c i n f o r m a -t i o n . The r e g u l a t o r y r a t i o n a l e f o r t r a d i n g s u s p e n s i o n s , the p r e d i c t i o n s o f each h y p o t h e s i s on the e f f e c t i v e n e s s o f t r a d i n g s u s p e n s i o n s , the da ta u s e d , the methodo logy o f the t e s t i n g p r o c e d u r e and the e m p i r i c a l f i n d i n g s a re d i s c u s s e d i n the f o l -l ow ing s e c t i o n s . THE DESIRED IMPACT OF TRADING SUSPENSIONS The p o l i c y o f the v a r i o u s exchanges r e g a r d i n g the s u s p e n s i o n of r e g u l a r f l o o r t r a d i n g f o r l i s t e d s t o c k s was p r e s e n t e d i n C h a p t e r 2 . A c c o r d i n g to t h a t s t a t e d p o l i c y , r e g u -l a t o r s use t r a d i n g s u s p e n s i o n s when they b e l i e v e t h a t a s e c u r -i t y i s be ing t r a d e d w i t h i n a d e q u a t e o r p o o r l y d i s p e r s e d c o r -p o r a t e i n f o r m a t i o n and the management of the a f f e c t e d f i r m i s e i t h e r unab le or u n w i l l i n g to comply w i t h the r e q u e s t f o r the p u b l i c d i s s e m i n a t i o n of t h a t i n f o r m a t i o n . 90 91 I m p l i c i t i n the p o l i c y i s the r e g u l a t o r y b e l i e f t h a t a r e q u i r e d p u b l i c d i s c l o s u r e of i n f o r m a t i o n d u r i n g a p e r i o d when r e g u l a r f l o o r t r a d i n g i s suspended w i l l : (1) improve the s t r o n g form of market e f f i c i e n c y by making monopoly i n f o r m a t i o n p u b l i c l y a v a i l a b l e to a l l i n v e s t o r s , and (2) improve i n v e s t o r e q u i t y by e n s u r i n g t h a t a l l i n v e s t o r s have equa l and c o s t l e s s a c c e s s to a l l r e l e v a n t i n f o r m a t i o n about s t o c k s they own or c o n t e m p l a t e p u r c h a s i n g or s e l l i n g . The rema inde r o f t h i s c h a p t e r w i l l dea l w i t h the p o s -s i b l e and a c t u a l economic i m p l i c a t i o n s of t r a d i n g s u s p e n s i o n s on market e f f i c i e n c y (and s e c u r i t y r e t u r n s ) . THE POSSIBLE IMPACT OF TRADING SUSPENSIONS ON MARKET EFFICIENCY AND THE BEHAVIOUR OF STOCK PRICES A n e c e s s a r y c o n d i t i o n f o r marke t e f f i c i e n c y to be im-proved by t r a d i n g s u s p e n s i o n s i s t h a t the r e g u l a t o r s have a c -cess to i n f o r m a t i o n t h a t i s not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s . In o t h e r w o r d s , i f the use of the t r a d i n g s u s -p e n s i o n i s to be e f f e c t i v e , i n f o r m a t i o n t h a t a f f e c t s i n v e s t o r s ' e x p e c t a t i o n s about the f i r m ' s f u t u r e p r o s p e c t s , r i s k i n e s s , c o n t r o l , f i n a n c i a l a f f a i r s , r e l a t i o n s h i p s to o t h e r f i r m s , e t c . , s h o u l d be conveyed to i n v e s t o r s d u r i n g the s u s p e n s i o n p e r i o d . The p u b l i c d i s c l o s u r e o f p r e v i o u s l y m o n o p o l i s t i c i n f o r -ma t ion d u r i n g the t r a d i n g s u s p e n s i o n s h o u l d cause market d i s -e q u i l i b r i u m . The m a r k e t , i f i t i s e f f i c i e n t i n the s e m i - s t r o n g f o r m , s h o u l d respond i n the p o s t - s u s p e n s i o n p e r i o d by impounding the new p u b l i c l y ava i1 ab1e i n f o r m a t i o n as i t moves toward a new e q u i l i b r i u m s t a t e . The d i r e c t i o n o f t h i s market movement w i l l 92 depend upon whether the market a s s e s s e s the "new" i n f o r m a t i o n as be ing " f a v o u r a b l e " o r " u n f a v o u r a b l e " . To e m p i r i c a l l y t e s t the p r e d i c t i o n s of the NR and SR h y p o t h e s e s , the market r e a c t i o n s i n the p o s t - s u s p e n s i o n p e r i o d to any new i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n must be s p e c i f i e d i n g r e a t e r d e t a i l . The f o u r p o s s i b l e marke t r e a c t i o n s i n the p o s t - s u s p e n s i o n p e r i o d to " u n f a v o u r a b l e new" or "no new" i n f o r m a t i o n a re p i c t u r e d i n F i g u r e l . 1 These f o u r p o s s i b l e marke t r e a c t i o n s can be d e s c r i b e d a s : (1) R e a c t i o n AC: In t h i s case the r e g u l a t o r s d i d not p o s -s e s s any i n f o r m a t i o n t h a t had not been " f u l l y r e f l e c t e d " i n s t o c k p r i c e s p r i o r to the t r a d i n g s u s p e n s i o n . T h e r e f o r e , the marke t made no ad jus tmen t i n the p o s t - s u s p e n s i o n p e r i o d to the "new" i n f o r m a t i o n s u p p o s e d l y d i s s e m i n a t e d d u r i n g the t r a d i n g s u s p e n s i o n . (2) R e a c t i o n BD: In t h i s case the r e g u l a t o r s d i d p o s s e s s i n f o r m a t i o n t h a t was not " f u l l y r e f l e c t e d " i n s t o c k p r i c e s p r e v i o u s to the t r a d i n g s u s p e n s i o n . T h e r e f o r e , the m a r k e t , be ing e f f i c i e n t i n the s e m i - s t r o n g f o r m , a d j u s t e d i m m e d i a t e l y i n the p o s t - s u s p e n s i o n p e r i o d to the " u n f a v o u r a b l e new" i n f o r -ma t ion d i s s e m i n a t e d d u r i n g the t r a d i n g s u s p e n s i o n . (3) R e a c t i o n AD: In t h i s case the r e g u l a t o r s d i d p o s s e s s " u n f a v o u r a b l e new" i n f o r m a t i o n t h a t was not " f u l l y r e f l e c t e d " i n s t o c k p r i c e s p r e v i o u s to the t r a d i n g s u s p e n s i o n . T h e r e -f o r e , the m a r k e t , not be ing ve ry e f f i c i e n t i n the s e m i - s t r o n g f o r m , a d j u s t e d s l o w l y i n the p o s t - s u s p e n s i o n p e r i o d to the " u n f a v o u r a b l e new" i n f o r m a t i o n d i s s e m i n a t e d d u r i n g the t r a d i n g s u s p e n s i o n . 93 F i g u r e 1: P o s s i b l e market r e a c t i o n s i n the p o s t -s u s p e n s i o n p e r i o d to a d i s s e m i n a t i o n of " u n f a v o u r a b l e new" or "no new" i n f o r m a t i o n d u r i n g the t r a d i n g s u s p e n s i o n . where -1 i s the da te o f s u s p e n s i o n o f - t r a d i n g , +1 i s the da te o f r e i n s t a t e m e n t o f t r a d i n g , F i s the f i r m - s p e c i f i c component of r e t u r n f o r the s t o c k a t the da te o f s u s p e n s i o n , A , B a re p o s s i b l e f i r m - s p e c i f i c components o f r e t u r n f o r the s t o c k at the da te o f r e i n s t a t e -ment , and C, D a re p o s s i b l e f i r m - s p e c i f i c components o f r e t u r n f o r the s t o c k a t a da te subsequen t to the da te of r e i n s t a t e m e n t . * D e f i n e d l a t e r to be the e r r o r term f rom the s i n g l e f a c t o r market m o d e l . 94 (4) R e a c t i o n BC: In t h i s case the r e g u l a t o r s d i d not p o s -s e s s any i n f o r m a t i o n t h a t was not " f u l l y r e f l e c t e d " i n s t o c k p r i c e s p r e v i o u s to the t r a d i n g s u s p e n s i o n . However , the mar-k e t , be i ng i n e f f i c i e n t i n the s e m i - s t r o n g f o r m , i n i t i a l l y p e r -c e i v e d t h a t " u n f a v o u r a b l e new" i n f o r m a t i o n had been d i s s e m i - ' na ted d u r i n g the t r a d i n g s u s p e n s i o n and a d j u s t e d s t o c k p r i c e s a c c o r d i n g l y . L a t e r , a f t e r a c a r e f u l r e a s s e s s m e n t o f the d i s -semina ted i n f o r m a t i o n and f i n d i n g i t to be o f no s i g n i f i c a n c e , the marke t r e a d j u s t e d s t o c k p r i c e s to t h e i r f o rmer l e v e l s . The NR h y p o t h e s i s would p r e d i c t a market r e a c t i o n such as AC or BC a f t e r a t r a d i n g s u s p e n s i o n . Ma rke t r e a c t i o n AC i s c o n s i s t e n t w i t h the NR n o t i o n t h a t a t r a d i n g s u s p e n s i o n would be i n e f f e c t i v e because the ave rage v a l u e of " u n f a v o u r a b l e new" (or " f a v o u r a b l e new") i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s and known to r e g u l a t o r s would be s m a l l . Marke t r e a c t i o n BC i s c o n s i s t e n t w i t h a NR n o t i o n t h a t a t r a d -ing s u s p e n s i o n i s not o n l y i n e f f e c t i v e but t h a t i t may a l s o be d e t r i m e n t a l . That i s , the t r a d i n g s u s p e n s i o n may i n t r o d u c e a p r o f i t e e r i n g p o t e n t i a l by c a u s i n g i n c o r r e c t market a d j u s t m e n t s , to the t r a d i n g suspens ion . - . The SR h y p o t h e s i s would p r e d i c t a marke t r e a c t i o n such as BD or AD a f t e r a t r a d i n g s u s p e n s i o n . Marke t r e a c t i o n s BD and AD a re both c o n s i s t e n t w i t h the SR n o t i o n t h a t the ave rage v a l u e of the " n o n - p u b l i c " i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s and known to r e g u l a t o r s would be o f s u f f i -c i e n t v a l u e to cause a s i g n i f i c a n t f a l l ( r i s e ) i n s t o c k p r i c e s e i t h e r ove r the s u s p e n s i o n p e r i o d or d u r i n g the p o s t - s u s p e n s i o n p e r i o d . HYPOTHESES 95 ion The f o u r p o s s i b l e marke t r e a c t i o n s d i s c u s s e d above l e a d to two t e s t a b l e h y p o t h e s e s . H y p o t h e s i s 1 Hi i s s t a t e d a s : Any new i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s -p e n s i o n p e r i o d i s f u l l y r e f l e c t e d i n s t o c k p r i c e s on the da te o f t r a d i n g r e i n s t a t e m e n t . T e s t s o f H-| w i l l d e t e r m i n e whether or not the market makes u n b i a s e d f o r e c a s t s o f the impact o f any new i n f o r m a t i d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n and whether or not the f o r e c a s t s a re q u i c k l y and u n b i a s e d l y r e f l e c t e d i n s t o c k p r i c e s . T h u s , i f H-j f a i l s to h o l d , t h i s would imp ly t h a t the marke t i s i n e f f i c i e n t i n the s e m i - s t r o n g form and t h a t t r a d i n g s u s p e n s i o n s may not be as e f f e c t i v e as i n t e n d e d . H y p o t h e s i s 2 H^ i s s t a t e d a s : A t r a d i n g s u s p e n s i o n does not convey any new i n f o r m a -t i o n wh ich i s impounded i n s t o c k p r i c e s d u r i n g or subsequen t to the s u s p e n s i o n p e r i o d . T e s t s o f Hg w i l l d e t e r m i n e whether o r not r e g u l a t o r s p o s s e s s any s i g n i f i c a n t m o n o p o l i s t i c i n f o r m a t i o n wh ich i s d i s s e m i n a t e d to the market d u r i n g a t r a d i n g s u s p e n s i o n . T h u s , i f Hg f a i l s to h o l d , t h i s would imp ly t h a t the marke t i s i n e f f i -c i e n t i n the s t r o n g form and t h a t t r a d i n g s u s p e n s i o n s a re e f f e c t i v e . The s e l e c t i o n , e x t e n t and r e l i a b i l i t y of the da ta s e t i s d e s c r i b e d n e x t . 96 THE SAMPLE AND DATA SOURCES " I n t e r r u p t e d " S t o c k s The f i r s t s t ep was to u n d e r t a k e an e x t e n s i v e s e a r c h o f both p u b l i c and p r i v a t e s o u r c e s 2 f o r i n t e r r u p t i o n s o f r e g u l a r f l o o r t r a d i n g o f s t o c k s l i s t e d on C a n a d a ' s f o u r major s t o c k e x c h a n g e s : The Canad ian S t o c k Exchange ( C S E ) , The M o n t r e a l S tock Exchange (MSE) , The To ron to S tock Exchange (TSE) and the Vancouver S tock Exchange ( V S E ) . The s e a r c h i d e n t i f i e d 778 t r a d i n g i n t e r r u p t i o n s d u r i n g the p e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , i n c l u s i v e . Of the t o t a l i d e n t i f i e d , t h e r e were no d e l a y e d open ings (open ing o f t r a d i n g d e l a y e d f o r a ve ry s h o r t p e r i o d o f t i m e ) , 28 were t r a d i n g d e l a y s ( t r a d i n g d e l a y e d d u r i n g the t r a d i n g s e s s i o n f o r a ve ry s h o r t p e r i o d of t i m e ) , 362 were t r a d i n g h a l t s ( t r a d i n g h a l t e d d u r i n g the t r a d ^ i ng s e s s i o n f o r a p e r i o d o f t ime up to one t r a d i n g s e s s i o n ) and 388 were t r a d i n g s u s p e n s i o n s ( t r a d i n g s topped d u r i n g or :• a f t e r a t r a d i n g s e s s i o n f o r an ex tended p e r i o d o f t i m e ) . 3 A more d e t a i l e d breakdown of t r a d i n g i n t e r r u p t i o n s by exchange i s p r e s e n t e d i n T a b l e I. The n a t u r e and e x t e n t o f p u b l i c d i s c l o s u r e of t r a d i n g i n t e r r u p t i o n s d i f f e r s by Exchange . Wh i l e the D a i l y Record o f each exchange i n c l u d e s a n o t i c e of a l l t r a d i n g s u s p e n s i o n s , i t does not i n c l u d e a n o t i c e f o r most d e l a y e d o p e n i n g s , t r a d -ing d e l a y s and t r a d i n g , h a l t s . A l s o , the f i n a n c i a l p r e s s does not p u b l i s h a c c o u n t s o f t r a d i n g i n t e r r u p t i o n s on a c o n s i s t e n t b a s i s . In f a c t , the o n l y c o n s i s t e n t p u b l i c d i s c l o s u r e method f o r t r a d i n g i n t e r r u p t i o n s i s a message at the t ime of the t r a d -ing i n t e r r u p t i o n on the E x c h a n g e ' s t a p e . 97 T a b l e I Number and Type o f I n t e r r u p t i o n s of R e g u l a r F l o o r T r a d i n g of S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE Du r i ng the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e . R e g u l a t o r y Body De layed Openings D e l a y s 9 H a l t s b S u s p e n s i o n s 0 T o t a l CSE - 000 027 11 3 140 MSE - 000 014 01 6 030 TSE - 028 268 102 398 VSE - 000 053 1 57 210 TOTAL - 028 362 388 778 a 0 n l y i n f o r m a t i o n on the TSE was a v a i l a b l e . b 0 n l y p a r t i a l i n f o r m a t i o n f o r the C S E , MSE and VSE was a v a i l -a b l e . I n f o r m a t i o n f o r the TSE was o b t a i n e d f rom an i n t e r n a l TSE f i l e . c B e l i e v e d to be a l l the s u s p e n s i o n s i s s u e d . 98 T h i s h i s t o r i c l a c k of adequa te d i s c l o s u r e has r e s u l t e d i n v e r y i n c o m p l e t e da ta a v a i l a b i l i t y f o r i n t e r r u p t i o n s o t h e r than t r a d i n g s u s p e n s i o n s . As a r e s u l t , e m p i r i c a l a n a l y s i s was c o n f i n e d to t r a d i n g s u s p e n s i o n s . The second s tep was the c o l l e c t i o n of the da te of s u s -p e n s i o n , the da te of r e i n s t a t e m e n t ( i f a p p l i c a b l e ) and the s u s p e n s i o n r a i o n a l e f o r each suspended s t o c k . A c c o r d i n g to the o f f i c i a l p o l i c y on t r a d i n g s u s p e n s i o n s p r e s e n t e d i n C h a p t e r 2 , suspended sjto.cJos a re c a t e g o r i z e d i n t o two broad g r o u p s : (1) t hose suspended because o f a f a i l u r e to d i s s e m i n a t e r e q u e s t e d i n f o r m a t i o n and (2) t hose suspended because o f a f a i l u r e to meet l i s t i n g ( t e c h n i c a l ) r e q u i r e m e n t s . S i n c e suspended s t o c k s i n the second group a re not r e l e v a n t f o r the t e s t i n g o f the NR and SR h y p o t h e s e s , the t h i r d s t ep was to c l a s s i f y each of the 388 suspended s t o c k s i n t o one of the two g r o u p s . T h i s was a c c o m p l i s h e d i n two s t a g e s . F i r s t , a l l the d i f f e r e n t r easons f o r a s u s p e n s i o n were c l a s s i f i e d under one of the above two broad g roups (see T a b l e I I ) . T h e n , the r e s u l t a n t c l a s s i f i c a t i o n o f r easons was used to c a t e g o r i z e the suspended s t o c k s i n t o one o f the two g r o u p s . C l a s s i f i c a -t i o n a c c o r d i n g to t h i s p r o c e d u r e r e s u l t e d i n 225 and 163 s u s -pended s t o c k s be ing c a t e g o r i z e d as b e l o n g i n g to g roups one and two , r e s p e c t i v e l y . (For more d e t a i l see T a b l e s I I I and I V . ) F u r t h e r m o r e , of the 225 suspended s-toc k<s i n group o n e , o n l y 134 were s u b s e q u e n t l y r e i n s t a t e d and t r a d e d f o r a p e r i o d of a t l e a s t s i x months . T h i s r e s u l t a n t sample o f 134 suspended s t o c k s was f u r t h e r reduced to 120 when m u l t i - e x c h a n g e s u s p e n -s i o n s o f the same s e c u r i t y f o r the same t ime p e r i o d were i n c l u d e d 99 T a b l e II A C l a s s i f i c a t i o n o f Reasons G iven f o r T r a d i n g S u s p e n s i o n s Un-der the O f f i c i a l P o l i c i e s o f the V a r i o u s Exchanges Group I: T r a d i n g s u s p e n s i o n c l a s s i f i e d as f a i l u r e to d i s s e m -i n a t e r e q u e s t e d i n f o r m a t i o n i f the r a t i o n a l e g i v e n f o r the s u s p e n s i o n i s one o r more o f the f o l l o w i n g : 1. Pend ing c l a r i f i c a t i o n o f p r o p e r t y a c q u i s i t i o n (o r a f f a i r s , o r c a p i t a l s t r u c t u r e r e o r g a n i z a -t i o n , o r s e t t l e m e n t of company a f f a i r s , o r change o f c o n t r o l , or of the company 's o v e r s e a s a c t i v i t i e s , o r o f m i s l e a d i n g o r i n c o n c l u s i v e i n f o r m a t i o n a n d / o r rumour g i v e n to the i n v e s t -i ng publ i c ) . 2 . Pend ing company (or s h a r e h o l d e r ) announcement . 3 . Pend ing i n f o r m a t i o n or r e l e a s e of i n f o r m a t i o n or d i s s e m i n a t i o n o f i n f o r m a t i o n ( e . g . , o f e x p l o r a t i o n news) . 4 . No n o t i f i c a t i o n of m a t e r i a l changes i n the com-p a n y ' s c o r p o r a t e (o r f i n a n c i a l ) a f f a i r s . 5. U n s a t i s f a c t o r y f i l i n g s t a temen t about a f f a i r s or u n t i l an adequa te t e c h n i c a l r e p o r t i s a v a i l -a b l e to the p u b l i c . 6 . Lack of p u b l i c i n f o r m a t i o n . 7. No reason f o r sudden sha re p r i c e i n c r e a s e (or d e c r e a s e ) . 8 . Exchange i n v e s t i g a t i o n i n t o c o r p o r a t e a f f a i r s (o r t r a d i n g a c t i v i t y ) . Group I I : T r a d i n g s u s p e n s i o n c l a s s i f i e d as f a i l u r e to meet exchange ( t e c h n i c a l ) r e q u i r e m e n t s i f the r a t i o n a l e g i v e n f o r the s u s p e n s i o n i s one or more o f the f o l -1ow i ng : 1. F a i l u r e to meet exchange r e q u i r e m e n t s f o r c o n -t i n u e d l i s t i n g p r i v i l e g e s : (a) F a i l e d to m a i n t a i n t r a n s f e r f a c i l i t i e s . (b) I n s u f f i c i e n t s h a r e s i n the p u b l i c ' s hands . (c ) F a i l u r e to meet c a p i t a l r e q u i r e m e n t s (e . g . , p l a c e d i n l i q u i d a t i o n o r i n s o l v e n t and unab le to meet l i a b i l i t i e s ) . (d) No annua l r e p o r t . (e) Pend ing c o m p l e t i o n o f a r i g h t s o f f e r i n g (o r o f n e g o t i a t i o n s o r s a l e o f company a s -s e t s o r of p r i m a r y d i s t r i b u t i o n e l s e w h e r e ) . 100 T a b l e II ( C o n t ' d ) 2 . Pend ing c l a r i f i c a t i o n o f the company 's l i s t e d s t a t u s . 3 . In o r d e r to p e r m i t a d d i t i o n a l f i n a n c i n g (or r e f i n a n c i n g or r e o r g a n i z a t i o n or the r e s o l u t i o n o f c e r t a i n u n d i s c l o s e d j u d g e m e n t s ) . 101 T a b l e I I I Number and Type o f P o s t - S u s p e n s i o n . P e r i o d R e g u l a t o r y A c t i o n s S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich Regu l a r F l o o r T r a d i n g was Suspended because of a F a i l u r e to D i s -semina te Reques ted I n f o r m a t i o n Dur ing the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e . R e i n s t a t e d  Not D e l i s t e d D e l i s t e d R e g u l a t o r y Body W i t h i n 6 Months W i t h i n 6 Months D e l i s t e d S t i l l Suspended T o t a l CSE 044 003 026 005 078 • MSE 01 5 000 001 000 016 TSE 016 001 010 003 030 VSE 059 002 033 007 101 TOTAL 1 34 006 070 01 5 225 a A s o f J a n u a r y 3 1 , 1974. 102 T a b l e IV Number and Type of P o s t - S u s p e n s i o n P e r i o d R e g u l a t o r y A c t i o n s : S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich Regu-l a r F l o o r T r a d i n g was Suspended because of F a i l u r e to Meet Exchange Requ i remen ts D u r i n g the P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1973 , I n c l u s i v e . Re i n s t a t e d  Not. Del i s t e d Del i s t e d R e g u l a t o r y Body W i t h i n 6 Months W i t h i n 6 Months D e l i s ted S t i l l Suspended T o t a l CSE 004 000 025 006 035 MSE 000 000 000 000 000 TSE 002 000 064 006 072 VSE 020 000 026 010 056 TOTAL 026 000 115 022 1 63 a A s of J a n u a r y 3 1 , 1974. 103 o n l y once i n the s a m p l e . 4 ( T h i s sample o f suspended s t o c k s a l o n g w i t h the da te o f s u s p e n s i o n , the da te o f r e i n s t a t e m e n t and the s u s p e n s i o n r a t i o n a l e a re p r e s e n t e d i n Append ix I.) S t o c k s Suspended f o r A l l e g e d M a n i p u l a t i o n The m a n i p u l a t e d s t o c k s i n the sample were i d e n t i f i e d nex t because the s u s p e n s i o n p r i c e e f f e c t s f o r such suspended s t o c k s may be u n i q u e . S i n c e i n s t a n c e s o f s t o c k m a n i p u l a t i o n a re d i f f i c u l t to v e r i f y o r s u c c e s s f u l l y p r o s e c u t e , many i n s t a n c e s o f a c t u a l (o r s u s p e c t e d ) m a n i p u l a t i o n were not p r o s -e c u t e d . T h u s , i n t h i s s t u d y , m a n i p u l a t i o n s h o u l d be CON-STRUED TO MEAN ALLEGED MANIPULATION. A s t o c k was a l l e g e d to have been m a n i p u l a t e d i f the r e g u l a t o r y body ( g e n e r a l l y , one o f the exchanges) had used one o r more o f the r easons g i v e n i n T a b l e V as the r a t i o n a l e f o r the t r a d i n g s u s p e n s i o n a g a i n s t the s t o c k . 5 As a r e s u l t , 34 (o f the 120) suspended s t o c k s were i d e n t i f i e d as be ing a l l e g e d l y m a n i p u l a t e d . A more d e t a i l e d breakdown by exchange i s p r e s e n t e d i n T a b l e V I . Suspended S tock Sample C l a s s i f i e d by " F a v o u r a b l e n e s s " o f the  I n f o r m a t i o n D i s s e m i n a t e d S i n c e the s u s p e n s i o n p r i c e e f f e c t s f o r " f a v o u r a b l e " i n f o r m a t i o n s u s p e n s i o n s s h o u l d be d i f f e r e n t f rom t h a t f o r " u n f a v o u r a b l e " i n f o r m a t i o n s u s p e n s i o n s , the sample o f suspended s t o c k s was nex t c l a s s i f i e d by the " f a v o u r a b l e n e s s " o f the i n f o r m a t i o n d i s s e m i n a t e d d u r i n g the t r a d i n g s u s p e n s i o n . To a c c o m p l i s h t h i s , the i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n was de te rm ined to be f a v o u r a b l e or u n f a v o u r a b l e a c -c o r d i n g to the c r i t e r i a p r e s e n t e d i n T a b l e V I I . The p rocedu re i d e n t i f i e d 43 and 77 s u s p e n s i o n s as hav ing had f a v o u r a b l e and 104 T a b l e V R e a s o n s , For T r a d i n g S u s p e n s i o n s , That I n d i c a t e A l l e g e d M a n i p u l a t i o n 1. P r i c e i n c r e a s e ( d e c r e a s e ) w i t h o u t a p p a r e n t r e a s o n . 2 . Unusua l p r i c e (o r t r a d i n g ) a c t i v i t y . 3 . Abnormal t r a d i n g a c t i v i t y . 4 . P u z z l i n g market a c t i v i t y . 5 . U n e x p l a i n e d market a c t i v i t y . 6 . Pe r fo rmed i n a v o l a t i l e manner i n the m a r k e t . 7 . To i n q u i r e i n t o the t r a d i n g a s p e c t s of t h a t s t o c k . 8 . O r d e r l y marke t was not d e v e l o p i n g . 9 . Scheme to m a n i p u l a t e the s h a r e s p r i c e . 10 . M a i n t a i n e d the p r i c e s of t h e s e s e c u r i t i e s , thus c r e a t i n g an a r t i f i c i a l m a r k e t . 1 1 . A p p a r e n t l y been (marke t ) p romo t i on of the company. 12 . So the f i r m (o r i n d i v i d u a l ) c o u l d not s u p p o r t the s t o c k . 13 . D i s s e m i n a t i o n of f a l s e or u n s u b s t a n t i a t e d i n f o r m a t i o n . 14 . I n c o n c l u s i v e i n f o r m a t i o n and rumours have been d i s s e m i -na ted . . . r e g a r d i n g p o s s i b l e r e s u l t s wh ich the company 3 . i s s a i d to have o b t a i n e d . 15 . Wash t r a d i n g or wash t r a d i n g a r r a n g e m e n t s . 105 T a b l e VI Number and Type o f P o s t T r a d i n g I n t e r r u p t i o n P e r i o d R e g u l a -t o r y A c t i o n s : S t o c k s L i s t e d on the C S E , MSE, TSE a n d / o r VSE f o r wh ich R e g u l a r F l o o r T r a d i n g was .Suspended f o r A l l e g e d M a n i p u l a t i o n Du r i ng the P e r i o d o f J a n u a r y 1, 1967 , to Decem-ber 3 1 , 1973 , I n c l u s i v e . T r a d i n g R e i n s t a t e d Not D e l i s t e d D e l i s t e d R e g u l a t o r y Body W i t h i n 6 Months W i t h i n 6 Months D e l i s t e d S t i l l Suspended T o t a l CSE 18 03 10 03 34 CSE & TSE 01 00 00 00 01 CSE & VSE 01 00 00 00 01 MSE 00 00 00 00 00 TSE 05 00 02 02 09 VSE 09 00 04 02 1 5 TOTAL 34 03 16 07 60 a A s of J a n u a r y 31 ,1 1 974. 106 T a b l e VI I R a t i o n a l e f o r the C l a s s i f i c a t i o n of Suspended S t o c k s by the " F a v o u r a b l e n e s s " of the I n f o r m a t i o n D i s s e m i n a t e d D u r i n g a T r a d i n g S u s p e n s i o n C o n s i d e r e d F a v o u r a b l e I n f o r m a t i o n : 1. F i n a n c i n g ( e . g . , to p e r m i t f i n a n c i n g or pend ing an u n d e r -w r i t i n g announcemen t ) ; 2 . A l l e g e d m a n i p u l a t i o n o f sha re p r i c e downwards ( e . g . , no r e a s o n f o r sudden sha re p r i c e d r o p ) ; 3 . P r o p e r t y a c q u i s i t i o n ( e . g . , pend ing i n f o r m a t i o n about p r o -posed p r o p e r t y a c q u i s i t i o n ( s ) ) ; 4 . A c q u i r e r o r t a r g e t i n a merger o r a c q u i s i t i o n ; 5 . C o n s o l i d a t i o n , r e o r g a n i z a t i o n or image c h a n g e ; 6 . Company r e q u e s t , pend ing ( f a v o u r a b l e ) company announcement re a f f a i r s ; and 7. Pend ing company announcement re p r e v i o u s l y w i t h h e l d i ( f a v o u r a b l e ) i n f o r m a t i o n . C o n s i d e r e d U n f a v o u r a b l e I n f o r m a t i o n : 1. A l l e g e d m a n i p u l a t i o n of s h a r e p r i c e upwards ( e . g . , pend ing exchange i n v e s t i g a t i o n o f t r a d i n g or sha re p r i c e i n c r e a s e s w i t h o u t a p p a r e n t r eason or unusua l marke t a c t i v i t y or pend-i ng f u l l i n v e s t i g a t i o n i n t o company a f f a i r s o r m a i n t a i n e d the p r i c e thus c r e a t i n g an a r t i f i c i a l marke t o r pend ing i n q u i r y i n t o t r a d i n g a s p e c t s of the s t o c k ) ; 2 . D i s s e m i n a t i o n of m i s i n f o r m a t i o n ( e . g . , two c o n f l i c t i n g e n g i n e e r i n g r e p o r t s or d i s t r i b u t i o n of e r r o n e o u s i n f o r m a -t i o n or i n c o n c l u s i v e i n f o r m a t i o n and rumours d i s s e m i n a t e d or d i s s e m i n a t i o n of f a l s e or u n s u b s t a n t i a t e d i n f o r m a t i o n ) ; 3 . Company mismanagement ( e . g . , pend ing f u l l i n v e s t i g a t i o n i n t o company a f f a i r s ) ; 4 . U n s a t i s f a c t o r y f i l i n g s t a t e m e n t ( e . g . , pend ing r e c e i p t o f a d d i t i o n a l p a r t i c u l a r s on p r o d u c t i o n or pend ing c l a r i f i -c a t i o n o f company agreement on c l a i m s or pend ing company announcement re p r o p e r t y a s s a y s ) ; 5 . Pend ing c l a r i f i c a t i o n and s e t t l e m e n t o f company a f f a i r s ; T a b l e VI I ( C o n t ' d ) 107 6. Company r e q u e s t , pend ing ( u n f a v o u r a b l e ) company announce-ment re a f f a i r s ; and 7 . Pend ing company announcemen t ' r e p r e v i o u s l y w i t h h e l d ( u n f a v o u r a b l e ) i n f o r m a t i o n . 108 u n f a v o u r a b l e i n f o r m a t i o n d i s s e m i n a t e d , r e s p e c t i v e l y . Data C o l l e c t i o n f o r the Sample Weekly c l o s i n g p r i c e s were c o l l e c t e d f o r a p e r i o d o f 104 weeks b e f o r e and 104 weeks a f t e r each t r a d i n g s u s p e n s i o n . 6 The c h o i c e o f 104 weeks b e f o r e and a f t e r the s u s p e n s i o n , w h i l e a r b i t r a r y , i s c o n s i s t e n t w i t h s i m i l a r s t u d i e s . 7 In a d d i t i o n , s t o c k d i v i d e n d s , cash d i v i d e n d s , and t h e i r r e s p e c t i v e e x -d i v i d e n d da te were r e c o r d e d . The p r i c e q u o t a t i o n s employed were a d j u s t e d f o r a l l s t o c k s p l i t s and r e v e r s e s p l i t s and were g a t h e r e d f rom the f o l l o w i n g s o u r c e s : (1) the F i n a n c i a l Re-s e a r c h I n s t i t u t e 8 f o r s t o c k s l i s t e d on the C S E , MSE and TSE a f t e r J u l y , 1969 , (2) l e a d i n g f i n a n c i a l n e w s p a p e r s 9 and (3) the D a i l y B u l l e t i n (Reco rd ) o f each E x c h a n g e . 1 0 Dur i ng the c o u r s e o f t h i s da ta c o l l e c t i o n , one s u s -pended s t o c k , Granby M i n i n g Co . L t d . , had to be d e l e t e d f rom the sample because no t r a d e s o c c u r r e d w i t h i n i t s da ta c o l l e c -t i o n p e r i o d . DESCRIPTION OF THE VARIABLES B e f o r e p r o c e e d i n g i t i s n e c e s s a r y to d e f i n e the f o l l o w -i ng t e r m s : P. . i s the c l o s i n g p r i c e on the i t h s e c u r i t y a t the end o f week t , a d j u s t e d f o r a l l c a p i t a l changes ( e . g . , s t o c k s p l i t s , r e v e r s e s t o c k s p l i t s and s t o c k d i v i -dends) , D. . i s the cash d i v i d e n d " p a i d " on the i t h s e c u r i t y d u r i n g week t , 109 Mj. i s the c l o s i n g v a l u e o f the market i ndex a t the end o f week t , u n a d j u s t e d f o r d i v i d e n d s , 1 1 R. . i s the r a t e o f r e t u r n f o r s e c u r i t y i assuming c o n -i , z t i n u o u s compounding and i s equa l to In ((D. . + P. . ) / p i , t - l > ' R,. . i s a v a l u e r e l a t i v e f o r the TSE I n d u s t r i a l Index M, t and i s equa l to In (Mj. / M t _ i ) , s.j i s the l e n g t h o f the t r a d i n g s u s p e n s i o n i n weeks f o r s t o c k i , and w i s an i ndex o f t ime i n weeks r e l a t i v e to the s u s p e n s i o n p e r i o d . Weeks w = 0" and w = 0 + denote the f i r s t and l a s t week f o r wh ich t r a d i n g was suspended f o r a g i v e n t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . (Note t h a t 0" and 0 + a re g e n e r a l l y not the same c h r o n o l o g i c a l da tes f o r a l l s e c u r i t i e s . ) T r a d i n g weeks , w = 1, 2 , e t c . , a re then the f i r s t , s e c o n d , e t c . , t r a d i n g weeks i m m e d i a t e l y f o l l o w i n g the l a s t week f o r wh ich t r a d i n g was s u s p e n d e d . S i m i l a r l y , t r a d i n g weeks , w = - 1 , - 2 , e t c . , a re the f i r s t , s e c o n d , e t c . , t r a d i n g weeks i m m e d i a t e l y p r e c e e d i n g the f i r s t week f o r wh ich t r a d i n g was s u s p e n d e d . ASSESSING THE MARKET'S REACTION TO NEW INFORMATION 1 2 The m a r k e t ' s r e s p o n s e to new i n f o r m a t i o n , such as the " n o n - p u b l i c " i n f o r m a t i o n s u p p o s e d l y d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n , i s a d i s e q u i l i b r i u m phenomenon. M e a s u r i n g t h i s phenomenon r e q u i r e s a p r e c i s e s p e c i f i c a t i o n o f e q u i l i b r i u m , no t h a t i s , what " w o u l d " have o c c u r r e d i f the i n f o r m a t i o n d i s -s e m i n a t i o n (and c o r r e l a t e d e v e n t s ) had not o c c u r r e d . E q u i l i b r i u m i n the C a p i t a l Marke t I f the c a p i t a l market i s i n e q u i l i b r i u m a t the end o f p e r i o d ( t - 1 ) , t h e n , g i v e n the i n f o r m a t i o n a v a i l a b l e a t t h a t p o i n t i n t i m e , a l l a s s e t s w i l l be c o r r e c t l y p r i c e d . That i s , i n e q u i l i b r i u m , each a s s e t i s p r i c e d such t h a t i t s p r o b a b i l i t y d i s t r i b u t i o n o f y i e l d ove r the i m m e d i a t e l y e n s u i n g p e r i o d ( t ) i s e x a c t l y the d i s t r i b u t i o n r e q u i r e d f o r t h a t a s s e t . O r , s t a t e d i n terms o f a two -pa rame te r model o f c a p i t a l marke t e q u i l i b r i u m : the e x p e c t e d r e t u r n s on common s t o c k s o f s i m i l a r r i s k a re e q u a l i z e d . Thus f o r each a s s e t : E ( R i > t | * t _ , ) - E ( R i ) t | X . f t ) , (1) where R. . i s a random v a r i a b l e o f the r e t u r n on s e c u r i t y i , <J>£_1 i s the s e t o f a l l a v a i l a b l e i n f o r m a t i o n a t the end o f p e r i o d ( t - 1 ) c o n c e r n i n g the p r o b a b i l i t y d i s t r i b u t i o n o f r e t u r n s f o r a l l a s s e t s d u r i n g p e r i o d t , A. . i s a measure o f the r i s k o f r e t u r n s (however d e f i n e d ) f o r a s s e t i i n p e r i o d t , and E i s the e x p e c t a t i o n o p e r a t o r t aken i m m e d i a t e l y p r i o r to p e r i o d t . I t i s now n e c e s s a r y to s p e c i f y p r e c i s e l y the measure of r i s k and i t s r e l a t i o n s h i p to e x p e c t e d r e t u r n . In e q u i l i b r i u m , the two -pa rame te r model s t a t e s t h a t each a s s e t i s p r i c e d i n . such a manner t h a t i t s o n e - p e r i o d e x p e c t e d r e t u r n i s d e t e r m i n e d by the a t t emp ts o f i n v e s t o r s to h o l d mean -s tanda rd d e v i a t i o n , o f r e t u r n e f f i c i e n t p o r t f o l i o s . 1 3 In the B l a c k f o r m u l a t i o n , wh ich assumes the e x i s t e n c e o f no r i s k l e s s s e c u r i t y , the c a p i -I l l t a l - a s s e t - p r i c i n g model s t a t e s t h a t the r e l a t i o n s h i p between r i s k and e x p e c t e d r e t u r n i s as f o l l o w s : E | . X i f t ) = E ( S 0 i t ) + IE ( . R M > t ) - E ( „ R 0 } t ) } 0 ^ , (2) where E (R. . I X. .) i s the e x p e c t e d r a t e o f r e t u r n on a s s e t i g i v e n a s s e t i ' s r i s k o f r e t u r n , E (RJYJ t ) i s the e x p e c t e d r a t e o f r e t u r n on the market p o r t f o l i o , E (Rg t ) i s the e x p e c t e d r a t e o f r e t u r n on any a s s e t t h a t i s u n c o r r e l a t e d w i t h the market p o r t f o l i o , and 6 i j t i s equa l to cov ( R i j t , R M j t ^ 1 ° 2 ^ R M , t ^ a n d r e P r e -s e n t s the r i s k o f a s s e t i r e l a t i v e to the t o t a l r i s k o f the market p o r t f o l i o M. In the Sharpe f o r m u l a t i o n , R Q t , i s assumed to have z e r o v a r i -ance and can be r e p l a c e d by a known r a t e R Q ^ . The c a p i t a l - a s s e t - p r i c i n g model (CAPM) i m p l i e s t h a t the e x p e c t e d r e t u r n on an a s s e t i s equa l to E ( R Q t ) ( the e x p e c t e d r e t u r n on an a s s e t , a t t ime p e r i o d t , t h a t i s r i s k l e s s w i t h r e s p e c t to the market p o r t f o l i o ) , p l u s a r i s k premium, equa l to {E (Rjyj t ) - E ( R Q t )^3- | t" T n e market p o r t f o l i o M i n c l u d e s a l l the a s s e t s i n the m a r k e t , each we igh ted i n p r o p o r t i o n to the t o t a l market v a l u e o f o u t s t a n d i n g s h a r e s . The model a l s o i m p l i e s a l i n e a r r e l a t i o n s h i p between the e x p e c t e d r e t u r n on a s t o c k and i t s r i s k i n the market p o r t f o l i o . D i s e q u i l i b r i u m i n the C a p i t a l Marke t R e c e i p t o f new i n f o r m a t i o n d u r i n g the p e r i o d t s h o u l d cause R. . to d i f f e r f rom i t s e x p e c t a t i o n , as g i v e n by ^ i , t <*t } * * i , t ( M " E ( P i , t l * t - l ) ' ( 3 ) I f the market was i n e q u i l i b r i u m b e f o r e and a f t e r the "new" 11 2 i n f o r m a t i o n i n tf>t became a v a i l a b l e , then t w i l l measure the market a d j u s t m e n t to the new i n f o r m a t i o n ( the "marke t v a l u e " of the new i n f o r m a t i o n ) . Us ing CAPM r e l a t i o n s h i p (2) to s u b s t i t u t e f o r E (R. t •'| <f>t_-|) i n r e l a t i o n s h i p ( 3 ) , « i , t <*t> = * 1 , t ( * t > - { E ' ^ O . t > + { E <*M,t> " E ( * 0 , t ' } = R i > t U t ) - (1 - B 1 ) t ) E ( R Q ) t ) - B 1 > t E ( R M > t ) . _ (4) In an " e f f i c i e n t " m a r k e t , E {£. t | <j>t) = 0 , t h a t i s , "new" i n f o r m a t i o n i s q u i c k l y impounded i n s t o c k p r i c e s and t h e r e f o r e d i s e q u i 1 i b r i a a re " r a p i d l y " removed by the m a r k e t . Sou rces o f D i s e q u i l i b r i u m The p o s s i b l e s o u r c e s o f d i s e q u i l i b r i u m i n the two-paramete r models i n c l u d e : (1) The a r r i v a l o f new i n f o r m a t i o n c o n c e r n i n g the e x p e c t e d v a l u e o f the u n c e r t a i n d o l l a r r e t u r n to be g e n e r a t e d by an i n d i v i d u a l i n v e s t m e n t . I n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n s h o u l d be o f t h i s t y p e . (2) I n f o r m a t i o n c o n c e r n i n g the r i s k (as measured by the s y s t e m a t i c r i s k ) o f the u n c e r t a i n d o l l a r r e t u r n f rom an i n d i -v i d u a l i n v e s t m e n t . For examp le , a change i n s y s t e m a t i c r i s k ( $ . . ) s h o u l d change the e x p e c t e d r a t e o f r e t u r n {E (R. . ) } , and h e n c e , h o l d i n g f u t u r e r e t u r n s c o n s t a n t , the c u r r e n t p r i c e . (3) At the a g g r e g a t e market l e v e l , f a c t o r s wh ich change the r e l a t i o n s h i p between s y s t e m a t i c r i s k and the e x p e c t e d r a t e o f r e t u r n . Wh i l e most s t u d i e s have i g n o r e d d i s e q u i l i b r i u m from a l l but the f i r s t s o u r c e , the s i m u l t a n e o u s o c c u r r e n c e o f the 113 v a r i o u s d i s e q u i 1 i b r i a can c r e a t e numerous s p e c i f i c a t i o n p r o b -l e m s . Techn iques w i l l be employed to de te rm ine i f t h e s e s p e c i f i c a t i o n prob lems e x i s t i n t h i s s t u d y . Methods o f M e a s u r i n g Marke t D i s e q u i l i b r i u m There a re many p o s s i b l e methods (mode ls ) o f measu r i ng market d i s e q u i l i b r i u m . The two models to be p r e s e n t e d nex t a re c o n s i s t e n t w i t h the c a p i t a l - a s s e t - p r i c i n g m o d e l . The s i n g l e f a c t o r market m o d e l . The s i n g l e f a c t o r market m o d e l , p roposed by S h a r p e , was e m p i r i c a l l y t e s t e d by B l u m e . 1 " The model assumes t h a t s e c u r i t y r e t u r n s , R. . , a re l i n e a r l y r e l a t e d to the r e t u r n s on a market p o r t f o l i o , R^ t , as f o l 1 o w s : 1 5 * i , t = a i + J>i * M , t + g i , t ' <5> where R. . and R M . a re as d e f i n e d e a r l i e r , i , t M, t a . and b. a re c o n s t a n t (and t h e r e f o r e i ndependen t o f t ) , j_ = E (R|Y| t ) + v^., where v t has ze ro e x p e c t a t i o n and i s s e r i a l l y i n d e p e n d e n t , (5a) R^ t i s measured w i t h o u t e r r o r , and e . . i s the d i s t u r b a n c e term f o r p e r i o d t and s t o c k i . 1 , L S u b s t i t u t i n g (5a) i n t o (4) and r e a r r a n g i n g (4) g i v e s : R 1 f t U t ) = (1 - 3 1 f t ) E ( R 0 j t ) + 3 1 f t ( R M j t - v t ) + ^ i , t ( c M f ( 1 " B i , t > E 1*0,0 + 3 i , t h,t + * 1 , t ( * t ) - 8 i f t v t . (6) R e w r i t i n g (6) i n terms o f the above s i n g l e f a c t o r model ( 5 ) : R ' 1 f t U t ) = (1 - bn.) a . + b i R M > t + ( h ) -bq. v t . (7) T h e r e f o r e , i t f o l l o w s t h a t the r e s i d u a l (o r e r r o r t e r m ) , § . , , 114 f rom the o r d i n a r y l e a s t squa res (OLS) r e g r e s s i o n : R i , t = a i + b i R M , t I § i , t ' ( 8 ) p r o v i d e s an e s t i m a t e o f t (<j>t) - b.. v ^ . O r , s t a t e d more s i m p l y , the s y s t e m a t i c (o r n o n - d i v e r -s i f i a b l e ) p a r t o f the s e c u r i t y ' s r e t u r n i s presumed to be c a p t u r e d by i t s e s t i m a t e d l i n e a r r e l a t i o n s h i p w i t h the r e t u r n s on the market p o r t f o l i o . Any r e t u r n s not accoun ted f o r by t h i s r e l a t i o n s h i p w i l l be r e f l e c t e d i n the e r r o r t e r m , e . . . The e r r o r term ( E . T . ) , t h e r e f o r e , c a p t u r e s the e f f e c t s o f s p e c i f i c company i n f l u e n c e s l i k e the monopoly i n f o r m a t i o n s u p -p o s e d l y made p u b l i c d u r i n g a t r a d i n g s u s p e n s i o n . The two f a c t o r market m o d e l . The two f a c t o r (o r ze ro be ta ) market model was p roposed by B l a c k and i s b a s i c a l l y an e x t e n s i o n o f the s i n g l e f a c t o r market m o d e l . . The model has been s u b j e c t e d to e x t e n s i v e e m p i r i c a l t e s t i n g by B l a c k - J e n s e n -S c h o l e s and Fama-MacBeth and i t has been found to p r o v i d e a r e a s o n a b l e d e s c r i p t i o n o f the s t o c h a s t i c p r o c e s s g e n e r a t i n g a s s e t r e t u r n s . 1 6 The two f a c t o r model i s : R i , t = V t " - b i , t > + b i , t R M , t + g i , t ' ( 9 ) where ^ , RQ t and R^ t have a l r e a d y been d e f i n e d , e. . i s a s t o c h a s t i c d i s t u r b a n c e term i n the r e t u r n on i , x. s e c u r i t y i i n p e r i o d t , assumed to have mean o f ze ro w i t h p o s i t i v e v a r i a n c e , to be i ndependen t o f b. and to be u n c o r r e l a t e d a c r o s s i , and b. . i s the s y s t e m a t i c r i s k o f s e c u r i t y i a t t ime p e r i o d 1 , L t . In t h i s m o d e l , the r e t u r n on a s e c u r i t y i s assumed to 115 be a f u n c t i o n o f the g e n e r a l market v a r i a b l e s , Rg t and R^ t , and a l s o the f i r m - s p e c i f i c v a r i a b l e s , b. . and e. . . G e n e r a l l y , i t i s a l s o assumed t h a t b^ i s c o n s t a n t ove r t i m e . THE IMPACT OF TRADING SUSPENSIONS USING THE SINGLE FACTOR MARKET MODEL 1 7 A l t h o u g h the two f a c t o r market model i s g e n e r a l l y c o n -s i d e r e d to be s u p e r i o r to the s i n g l e f a c t o r market (SFM) m o d e l , the l a c k o f a v a i l a b l e da ta f o r e s t i m a t i n g the m a r k e t -de te rm ined ex pos t r e l a t i o n s h i p between r i s k and r e t u r n n e c e s -s i t a t e d the use o f the SFM m o d e l . P o t e n t i a l L i m i t a t i o n s o f the S i n g l e F a c t o r Marke t Model As a model o f d i s e q u i l i b r i u m , the s i n g l e f a c t o r market model p o s s e s s e s s e v e r a l w e a k n e s s e s . Many o f t h e s e appear (and must be d e a l t w i t h ) when the model i s a p p l i e d to the sample o f 120 suspended s t o c k s . Agg rega te d i s e q u i l i b r i u m . Suppose the e . . were ave raged a c r o s s suspended s t o c k s a t s i m i l a r p o i n t s i n c h r o n o -l o g i c a l t i m e , then the s t a n d a r d d e v i a t i o n o f t hese ave raged e r r o r terms may not be " s m a l l " because f i n d i n g s p r e s e n t e d i n K i n g 1 8 and M e y e r s 1 9 s t r o n g l y sugges t t h a t the r e s i d u a l s o f d i f f e r e n t s e c u r i t i e s a t the same p o i n t i n c h r o n o l o g i c a l t ime are c o r r e l a t e d . However , t h i s s h o u l d not be i m p o r t a n t i n t h i s s t u d y , s i n c e the t r a d i n g s u s p e n s i o n s and t h e i r r e i n s t a t e m e n t s a re sp read r a t h e r u n i f o r m l y over a seven y e a r p e r i o d . (See T a b l e V I I I f o r the number o f s u s p e n s i o n s and r e i n s t a t e m e n t s by q u a r t e r . ) 116 T a b l e V I I I Number o f S u s p e n s i o n s and R e i n s t a t e m e n t s by C h r o n o l o g i c a l Time P e r i o d i n Q u a r t e r s C h r o n o l o g i c a l Number of Number o f Time P e r i o d S u s p e n s i o n s Re i n s t a t e m e n t s Q u a r t e r 1 1967 2 0 Q u a r t e r 2 1967 4 3 Q u a r t e r 3 1967 2 2 Q u a r t e r 4 1 967 7 3 Q u a r t e r 1 1 968 0 6 Q u a r t e r 2 1 968 3 2 Q u a r t e r 3 1968 4 3 Q u a r t e r 4 1 968 1 2 Q u a r t e r 1 1 969 4 4 Q u a r t e r 2 1969 3 1 Q u a r t e r 3 1 969 0 2 Q u a r t e r 4 1969 1 1 Q u a r t e r 1 1970 3 1 Q u a r t e r 2 1970 1 1 Q u a r t e r 3 1 970 4 3 Q u a r t e r 4 1 970 6 7 Q u a r t e r 1 1971 3 3 Q u a r t e r 2 1 971 6 6 Q u a r t e r 3 1971 2 5 Q u a r t e r 4 1971 8 5 Q u a r t e r 1 1972 8 2 Q u a r t e r 2 1972 5 8 Q u a r t e r 3 1 972 5 9 Q u a r t e r 4 1 972 12 9 Q u a r t e r 1 1 973 10 8 Q u a r t e r 2 1 973 7 7 Q u a r t e r 3 1973 3 8 Q u a r t e r 4 1 973 6 7 Q u a r t e r 1 1974 0 2 N o t e : S u s p e n s i o n s ( r e i n s t a t e m e n t s ) were o n l y c o l l e c t e d f rom the f i r s t q u a r t e r , 1967 , to the f o u r t h q u a r t e r , 1973 ( f i r s t q u a r t e r , 1 9 7 4 ) , i n c l u s i v e . 117 Mean d i s e q u i l i b r i u m f o r a suspended s t o c k . I f t h e r e a re p r i c e e f f e c t s a s s o c i a t e d w i t h a t r a d i n g s u s p e n s i o n , then the e x p e c t e d v a l u e of the e r r o r terms f o r the a f f e c t e d weeks w i l l be n o n z e r o . The i n c l u s i o n o f t hese weeks i n f o r m i n g the r e g r e s s i o n e s t i m a t e s would v i o l a t e a b a s i c assump t i on o f OLS, t h a t i s , t h a t the e x p e c t e d v a l u e o f the e r r o r terms i s equal to z e r o . T h e r e f o r e , any o b s e r v a t i o n s f o r wh ich t h i s assump t i on i s not s a t i s f i e d s h o u l d be e x c l u d e d f rom paramete r e s t i m a t i o n . V a r i a b i l i t y i n RQ t > I f (5) i s e s t i m a t e d when (9) i s the t r u e m o d e l , then a i = R i , t " b i R M , t = Ro.tO-bi) + b i R M > T - b , R M > T = R 0 l t ( 1 - b 1 ) + ( " i - V R M , t ' a n d * i , t = R i , t " a i " b i R M , r ( 1 0 ) I t f o l l o w s t h a t the e s t i m a t e d e r r o r term can be r e w r i t t e n a s : * 1 , t = R 0 , t ( 1 - b i } + b i R M , t + £ i , t " a i " b i R M , t " ( b i " b i ) R M , t " b i R M , t = ( ] " b i ) ( Ro , t- Ro , t ) + e 1 . f J ^ ^ R 0 t ~ R 0 t^ 1 S n o n z e r o ' e i t h e r due to s a m p l i n g f l u c t u a t i o n s (not p o s s i b l e i n the Sharpe f o r m u l a t i o n ) or changes i n RQ T , and the average sample v a l u e o f ( 1 - b ^ ) i s n o n z e r o , then r a t e s o f r e t u r n may be s y s t e m a t i c a l l y o v e r - o r u n d e r - p r e d i c t e d i n p r e - and p o s t - s u s p e n s i o n weeks thus g i v i n g a f a l s e appearance o f d i s e q u i 1 i b r i um. 118 E s t i m a t i o n o f Pa rame te rs The pa rame te rs o f the market model were e s t i m a t e d u s i n g the r e t u r n s f romweeks -104 to -41 and +41 to +104 f o r each o f the 119 suspended s t o c k s i n the sample . 2 0 The num-ber o f weeks d e l e t e d was chosen a p r i o r i as l i k e l y to be l o n g enough to c o n t a i n any d i s c e r n i b l e p r i c e movements caused by a t r a d i n g s u s p e n s i o n . V i s u a l i n s p e c t i o n o f the e r r o r terms appeared to s u p p o r t the a s s u m p t i o n t h a t any abnormal b e h a v i o u r caused by a t r a d i n g s u s p e n s i o n was e n t i r e l y c o n t a i n e d i n the e r r o r terms f o r the e x c l u d e d p e r i o d . C a l c u l a t i o n o f E r r o r Terms (o r R e s i d u a l s ) 2 1 The e s t i m a t e d pa rame te rs o f the market model were then used to compute the week ly e r r o r t e r m s , the e . t ' s , f o r each suspended s t o c k f o r each t r a d i n g week s u r r o u n d i n g the t r a d i n g s u s p e n s i o n . The week l y e r r o r terms f o r s e c u r i t y i can be found f r o m : * 1 , t = R i , t " ( * i + £ 1 R M , t > ' where R^ t and R^ ^ a re as d e f i n e d e a r l i e r and a., and b^ a re the e s t i m a t e d c o e f f i c i e n t s o f the market m o d e l . Because o f the v a r i a b l e l e n g t h o f the s u s p e n s i o n p e r i o d f o r each suspended s t o c k , the e r r o r t e r m , e . , , ove r the t r a d i n g s u s p e n s i o n p e r i o d f o r s e c u r i t y i i s found i n the f o l l o w i n g manner: = R i ! i - ( s i *T + £ i r M ! I > > ^ s *^  ^ s where e^ ^ , s., a^ and b^ a re as d e f i n e d e a r l i e r , and R^ ^ and R ^ i a re the r a t e o f r e t u r n f o r s e c u r i t y i and the mar-119 k e t , r e s p e c t i v e l y , ove r the t r a d i n g s u s p e n s i o n p e r i o d , s^ . " s e.. i i s i n f a c t the c u m u l a t i v e e r r o r term f o r s e c u r i t y i ove r the t r a d i n g s u s p e n s i o n p e r i o d , s . . " P r o c e d u r e f o r E s t i m a t i n g the Magn i tude o f the E r r o r Terms Any e s t i m a t e o f the impac t o f a t r a d i n g s u s p e n s i o n on the market b e h a v i o u r o f a s p e c i f i c s e c u r i t y i s s u b j e c t to e r r o r because many o t h e r f a c t o r s b e s i d e g e n e r a l economic c o n -d i t i o n s and the t r a d i n g s u s p e n s i o n a re s i m u l t a n e o u s l y a f f e c t -i ng market p r i c e s . T h e r e f o r e , i t i s not f e a s i b l e to use the above model to c a r r y out a d e t a i l e d assessmen t o f the impac t o f a t r a d i n g s u s p e n s i o n on an i n d i v i d u a l s e c u r i t y . T h i s makes i t n e c e s s a r y to f ocus the a n a l y s i s on the g e n e r a l e f f e c t o f a t r a d i n g s u s p e n s i o n on market p r i c e s . To a c c o m p l i s h t h i s , the week ly e r r o r terms must be c r o s s - s e c t i o n a l 1 y ave raged to purge a l l i n f l u e n c e s not a l r e a d y a c c o u n t e d f o r (examples i n c l u d e changes i n d i v i d e n d s , l a b o u r c o n t r a c t s and t e c h n o l o g y ) . The v a l i d i t y o f t h i s a v e r a g i n g p r o -cess depends upon the s a t i s f a c t i o n o f the i m p l i c i t a s s u m p t i o n t h a t " e v e n t s " , o t h e r than the ones o f i n t e r e s t ( the t r a d i n g s u s p e n s i o n s ) , o c c u r i n d e p e n d e n t l y o f each o t h e r and t h e i r e f f e c t s c a n c e l out when they a re c r o s s - s e c t i o n a l 1 y a v e r a g e d . The c r o s s - s e c t i o n a l ave rage e r r o r t e r m , e w or A . E . T . , f o r t r a d i n g week w (where w i s a lways measured r e l a t i v e to : the t r a d i n g s u s p e n s i o n p e r i o d ) i s g i v e n by N w . w where e . i s the e r r o r term f o r s e c u r i t y i i n t r a d i n g week w, 1 20 N i s the number o f s t o c k s f o r wh ich da ta i s a v a i l a b l e i n w t r a d i n g week w. The week ly ave rage e r r o r terms were a l s o c u m u l a t e d . The c u m u l a t i v e ave rage e r r o r t e r m , e,c, o r C . A . E . T . , f o r t r a d i n g w week w i s g i v e n by w w T=W* N T * ) w 1 E - e . N i = 1 1 ' T £ e f o r w* <_ w x=w* T where e . i s the e r r o r term f o r s e c u r i t y i i n t r a d i n g week • T , N i s the number o f s t o c k s f o r wh ich da ta i s a v a i l a b l e i n T t r a d i n g week x and x runs f rom week w* to week w where w i s a lways measured r e l a t i v e to the t r a d i n g s u s p e n s i o n p e r i o d . 2 2  The E m p i r i c a l R e s u l t s In t h i s s e c t i o n , H-| and H ( a n d i m p l i c i t l y the NR and SR h y p o t h e s e s ) a re t e s t e d . i m p l i e s t h a t the ave rage abnormal r e t u r n s ( A . E . T . ) o f suspended s t o c k s i n the p o s t -s u s p e n s i o n p e r i o d s h o u l d not be s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . S i m i l a r l y , p r e d i c t s t h a t the ave rage abnormal r e -t u r n s ( A . E . T . ) o f suspended s t o c k s over o r subsequen t to a t r a d i n g s u s p e n s i o n s h o u l d not be s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . The F a m a - F i s h e r - J e n s e n - R o l 1 (FFJR) t e s t . The f i r s t t e s t , the FFJR t e s t , c o n s i s t s s i m p l y o f a v i s u a l e x a m i n a t i o n o f the A . E . T . and C . A . E . T . s e r i e s f o r each week r e l a t i v e to (and o v e r ) the t r a d i n g s u s p e n s i o n f o r s i g n i f i c a n t nonzero b e h a v i o u r . The FFJR t e s t was f i r s t a p p l i e d to the sample o f 119 suspended s t o c k s . The e m p i r i c a l r e s u l t s f o r weeks -40 to +40 are summar ized i n T a b l e IX and E x h i b i t 1 0 . 2 3 The C . A . E . T . r i s e by 38 .8 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g 121 T a b l e IX Summary R e s u l t s o f Weekly Sample A n a l y s i s o f A l l and of the A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s O b s e r v a t i o n s -40 to +40 D e l e t e d i n the E s t i m a t i o n of Pa rame te rs A l l 119 I A l l e g e d l y M a n i p u l a t e d T r a d i n g ^ . ; . ... . - / % of Sample , •'" f % o f Sample week T . F.," E . T . S i z e - _ c E . T . S i z e i.i . S^ . a C Man M o P N p d N -40 0 ,016 0.01 6 38 97i :. 0003 5 5 0.035 39 28 -39 0.021 0.037 52 98 - 0 . 0 1 7 •0.018 54 28 -38 -0 .001 0 .036 55 98 0 .006 0 .024 61 28 -37 0 .010 0 .045 51 98 - 0 . 0 1 7 0.007 54 28 -36 - 0 . 0 0 5 0 .040 48 99 -0 .031 - 0 . 0 2 4 61 28 -35 0 .005 0 .045 54 99 0 .053 0 .029 46 28 -34 0.017 0 .062 41 100 0 .026 0 .055 46 28 -33 - 0 . 0 1 4 0 .048 53 101 0.004 0 .059 46 28 -32 0.011 0 .059 42 1 03 0 .032 0.090 38 29 -31 - 0 . 0 0 2 0.057 47 103 0 .042 0 .132 34 29 -30 -00014" 0 .043 51 104 0 .002 0 .134 55 29 -29 0 .004 0.047 49 1 04 0.007 0.141 45 29 -28 0 .009 0 .056 48 105 0 .040 0 .182 41 29 -27 - 0 . 0 0 2 0.054 50 107 0 .025 0 .207 41 29 -26 0 .000 0 .054 . 52 110 - 0 . 0 0 8 • 0.1 98 61 31 -25 0 .010 0.064 49 n o 0 .043 0 .242 39 31 -24 0.007 0.071 49 111 - 0 . 0 0 6 0 . 235 44 32 -23 0 .013 0.084 44 111 0 .025 0.261 44 32 -22 0 .005 0 .089 44 111 0 .009 0 .270 41 32 -21 - 0 . 0 2 4 0 .065 52 112 - 0 . 0 4 4 0 .226 59 32 -20 0.027 0 .092 40 11 2 0 .034 0 .260 38 32 -19 0 .014 0 .105 41 111 0 .043 0 .303 32 31 -18 0 .003 0 .109 45 111 - 0 . 0 2 8 0 .275 48 31 -17 0.01 2 0 .120 45 111 0 .053 . 0 .328 29 31 -16 0.01 9 0 .139 46 111 - 0 . 0 1 4 0 .314 52 31 -15 0 .017 0.1 57 46 11 3 0 .064 0 .378 31 32 -14 0 .002 0 .158 45 113 - 0 . 0 1 9 0 .359 50 32 -1 3 0 .005 0 .163 42 113 - 0 . 0 0 2 0 .356 41 32 -12 0 .005 0 .168 56 114 0 .005 0 .362 53 32 -1 1 0 .046 0.214 46 114 0.044 0 .406 50 32 -10 0 .015 0 .229 43 11 5 0 .010 0.41 5 53 32 -09 0.01 2 0.241 44 11 5 0 .026 0.441 44 32 -08 0 .020 0 .260 46 11 5 0 .069 0.511 28 32 -07 - 0 . 0 0 7 0.254 47 116 0.064 0 .575 28 32 -06 0 .028 0 .282 47 11 6 0 .026 0.601 47 32 -05 0 .018 0 .300 42 115 0 .048 0 .649 38 32 -04 0.01 0 0 .310 47 115 -0 .001 0 .648 47 32 -03 0 .025 0 .336 43 115 0.057 0 .705 34 32 -02 0 .030 0 .365 41 11 7 0 .028 0 .733 47 32 -01 0 .022 0 .388 44 118 - 0 . 0 1 8 0 .715 41 32 01 - 0 ; 0 2 2 0 .366 47 119 - 0 . 4 7 4 0.241 73 33 T a b l e IX ( C o n t ' d ) 122 A l l 119 T r a d i n g % of Sample week E . T . S i z e w K '< Neg. N w i 02 - 0 . 0 2 7 0 . 3 3 9 55 119 03 - 0 . 0 3 7 0 . 3 0 1 57 119 04 - 0 . 0 3 4 0 . 2 6 8 55 119 05 - 0 . 0 0 7 0 .261 54 119 06 - 0 . 0 2 2 0 . 2 3 8 58 119 07 0 . 0 0 6 0 . 2 4 4 48 119 08 - 0 . 0 2 3 0 . 2 2 1 56 119 09 - 0 . 0 1 2 0 . 2 1 0 53 119 10 - 0 . 0 0 0 0 . 2 1 0 49 119 11 - 0 . 0 0 0 0 . 2 1 0 51 119 12 - 0 . 0 1 5 0 . 1 9 5 57 118 13 - 0 . 0 1 1 0 . 1 8 3 57 118 14 0 . 0 1 2 0 . 1 9 6 40 118 1 5 - 0 . 0 0 7 0 . 1 8 9 52 118 16 - 0 . 0 2 3 0 . 1 6 6 50 118 17 - 0 . 0 1 0 0 . 1 5 6 55 11 7 18 - 0 . 0 1 3 0 . 1 4 3 52 117 19 r o c o . i o 0 . 1 5 3 44 117 20 0 . 0 0 7 0 . 1 6 0 54 117 21 - 0 . 0 0 4 0 .1 56 53 117 22 0 . 0 0 4 0 . 1 6 0 55 118 23 - 0 . 0 1 7 0 . 1 4 3 60 118 24 0 . 0 1 5 0.1 58 50 118 25 - 0 . 0 0 4 0 . 1 5 4 53 118 26 - 0 . 0 1 3 0 . 1 4 0 53 118 27 - 0 . 0 0 0 0 . 1 4 0 50 117 28 0 . 0 0 5 0 . 1 4 5 50 11 6 29 r ; o : o 0 2 0 . 1 4 8 47 11 7 30 0 . 0 0 5 0 . 1 5 2 53 117 31 - 0 . 0 1 2 0 . 1 4 0 57 117 32 - 0 . 0 0 8 0.1 32 53 116 33 - 0 . 0 0 5 0.1 27 57 11 6 34 0 . 0 0 1 0 . 1 2 8 52 11 5 35 - 0 . 0 0 9 0 . 1 1 9 48 11 5 36 0 . 0 0 9 0 . 1 2 8 48 115 37 - 0 . 0 1 1 0 . 1 1 7 59 115 38 0 . 005 0 . 1 2 2 51 116 39 - 0 . 0 0 1 0 . 1 2 1 51 116 40 0 . 0 0 3 0 . 1 2 4 40 116 A l l e g e d l y M a n i p u l a t e d % o f Sample E . T . S i z e w • 0 . 0 6 0 • 0 . 0 5 6 • 0 . 0 4 6 - 0 . 0 0 8 - 0 . 0 1 7 0 . 0 3 5 - 0 . 0 2 0 - 0 . 0 1 3 - 0 . 0 1 6 0 .01 2 - 0 . 0 1 3 - 0 . 0 4 3 - 0 . 0 3 4 - 0 . 0 2 0 - 0 . 0 5 3 - 0 . 0 3 7 - 0 . 0 2 3 0 . 0 0 3 0 . 0 0 3 - 0 . 0 0 1 0 .017 - 0 . 0 3 0 . 0 . 0 1 0 - b ; o i 9 - 0 . 0 0 7 0 . 0 2 0 0 . 0 0 9 0 . 0 1 4 0 . 0 4 4 - 0 . 0 2 0 - 0 . 0 5 9 0 . 0 1 1 - 0 . 0 0 3 - 0 . 0 1 1 - 0 . 0 1 7 - 0 . 0 4 0 - 0 . 0 0 5 0 . 0 0 7 - 0 . 0 0 7 0 . 1 8 0 0 . 1 2 4 0 . 0 7 8 0 . 0 7 0 0 . 0 5 3 0 . 0 8 7 0 . 0 6 8 0 . 0 5 5 0 . 0 3 9 0 . 0 5 0 0 . 0 3 8 - 0 . 0 0 6 - 0 . 0 3 9 - 0 . 0 5 9 - 0 . 1 1 3 - 0 . 1 50 - 0 . 1 7 3 - 0 . 1 7 0 - 0 . 1 6 7 - 0 . 1 6 9 - 0 . 1 5 2 - 0 . 1 8 2 - 0 . 1 7 2 - 0 . 1 9 2 - 0 . 1 9 9 - 0 . 1 7 9 - 0 . 1 7 0 - 0 . 1 5 - 6 - 0 . 1 1 2 - 0 . 1 3 3 - 0 . 1 9 2 - 0 . 1 8 1 - 0 . 1 8 3 - 0 . 1 9 4 - 0 . 2 1 1 - 0 . 2 5 1 - 0 . 2 5 6 - 0 . 2 4 9 - 0 . 2 5 6 Neg. 67 67 61 61 67 42 58 52 58 61 61 73 61 58 67 70 64 52 55 55 55 58 48 58 48 58 56 47 41 63 63 47 48 65 61 71 50 50 56 N w 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 33 32 32 32 32 32 32 31 31 31 31 32 32 32 The s u s p e n s i o n p e r i o d s o c c u r d u r i n g the p e r i o d -01 to + 0 1 . C u m u l a t i v e Ave rage E r r o r Terms ( C . A . E . T . ) i o m O 8 U l o + # * 1 M 1 a a + s I 3 0-4 CO Co 1 9 1 ro a * i t * O ! a* t ro -o + • • i u U l U l U4 U l ro * ru * ro * ro * *-ru •ru * * * * * * * » * U t ru * ru ru U4 o -fc -4-U J ru ru * *• ru ru * ru ru * ru » «-* ru * ru * *•» * * ru * *- ru * * »-* ru * * o cr Co fD o - J c < 3 CU £Z c + — • - J . co O r + 3 - • • to < fD 4=. 3a O < fD r + -5 O Cu I Q + fD o m - s o - s m fD O X —• -s zr fD —•• rt- —1 ry fD fD — j . Q . ~i r t -3 — C O — i 3 O m i CO r + -1 -J. o 3 <+ CU CU c+ —• I. o s : 3 fD fD O 7 T -h —• .<< - a cu o o -s cu cu 3 3 -a fD — ' r t - fD fD - J CO 124 s u s p e n s i o n and f a l l by 2 .2 and 24 .2 p e r c e n t ove r and s u b s e -quent to the t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . The b e h a v i o u r o f the C . A . E . T . i s not c o n s i s t e n t w i t h e i t h e r ( the marke t f u l l y r e f l e c t s any new i n f o r m a t i o n d i s p e r s e d d u r i n g a t r a d i n g s u s p e n s i o n i n s t o c k p r i c e s r a p i d l y ) o r H 2 (a t r a d i n g s u s p e n -s i o n does not convey any new i n f o r m a t i o n to the m a r k e t ) . T h e r e f o r e , the b e h a v i o u r o f the C . A . E . T . appears to be c o n s i s t -ent w i t h the SR h y p o t h e s i s ( r e g u l a t o r s a re e f f e c t i v e ) . The FFJR t e s t was then a p p l i e d to i n s t a n c e s where s t o c k s were suspended f o r a l l e g e d m a n i p u l a t i o n . The e m p i r i c a l r e s u l t s f o r weeks -40 to +40 a re summar ized i n T a b l e IX and E x h i b i t 1 1 . The C . A . E . T . r i s e by 71 .5 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and f a l l by 47 .4 and 49 .6 p e r c e n t ove r and subsequen t to the t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . The b e h a v i o u r o f the C . A . E . T . i s not c o n s i s t e n t w i t h e i t h e r o r H^. The FFJR t e s t was then a p p l i e d to the u n f a v o u r a b l e and f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s . The e m p i r i c a l r e s u l t s f o r weeks -40 to +40 f o r each subsample a re summar ized i n T a b l e X and E x h i b i t s 12 and 13 . For the u n f a v o u r a b l e i n f o r m a -t i o n s u s p e n s i o n s , the C . A . E . T . r i s e by 32 .2 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n , f a l l by 22.1 p e r c e n t ove r the s u s p e n s i o n and then f a l l a f u r t h e r 29 .6 p e r -cen t d u r i n g the 39 weeks subsequen t to the end o f the t r a d i n g s u s p e n s i o n . 2 1 * The b e h a v i o u r e x h i b i t e d by the C . A . E . T . i s not c o n s i s t e n t w i t h e i t h e r H-| or H^. For the f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s , the C . A . E . T . r i s e by 50.1 p e r c e n t d u r i n g the 40 weeks p r i o r to E x h i b i t 11 C u m u l a t i v e Average E r r o r Terms - - Weekly Sample o f A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s 0 , 7 3 3 + 1 * - 1 1 m * w * 22 2 «• * 2 2 * * 1* * Z 2 21 0 , 0 3 0 + 1 2 2 * 3 131 * 1 * 2 * * 1 3 * * 3 2 2 2 * 1 2 1 2 1 2 * M 2 2 2 3 * 3 - 12 1 2 2 *3*ft * 1 * * * 2 ». 2 1 * 1 2 3 2 3 2 2 * 2 * * 3 * » . 1 2 * 2 1 * >0 , 6 7 3 + « • - - + - - - - « - - - - - + - - - • » - - - - + - w - - - - - » . » + - . « - - - - . - - - + - « o - - l - * « ? + " 1 0 4 ' , * 6 9 ' . - 3 5 , 0 , 3 5 . 6 9 , 104, T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w 126 T a b l e X Summary R e s u l t s o f Weekly Sample A n a l y s i s o f U n f a v o u r a b l e and F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s O b s e r v a t i o n s -40 to +40 D e l e t e d i n the E s t i m a t i o n o f Pa rame te rs U n f a v o u r a b l e F a v o u r a b l e T r a d i ng % of Sample % o f Sample Week E . T . S i z e E . T . S i z e w K i c w Neg. N w 5w i C w Neg. N w -40 0 .014 0 .014 43 61 0 .018 0 .018 31 36 -39 -0 .001 0.01 3 48 62 0. 059 0 .077 58 36 -38 0 .004 0.01 7 52 62 - 0 . 0 0 9 0 .068 61 36 -37 0 .008 0 .025 52 62 0 .012 0 .080 50 36 -36 - 0 . 0 1 3 0 .012 49 63 0 .008 0 .088 47 36 -35 0 .000 0.01 3 56 63 0 .014 0 .102 50 36 -34 0 .032 0 .044 42 64 - 0 . 0 0 9 0 .093 39 36 -33 - 0 . 0 1 8 .0 .027 59 64 - 0 . 0 0 9 0 .084 43 37 -32 0 .006 0 .033 43 65 0.019 0 .103 39 38 -31 - 0 . 0 0 5 0 .028 46 65 0 .002 0 .105 47 38 -30 - 0 . 0 2 0 0 .008 52 65 - 0 . 0 0 4 0 .102 49 39 -29 0 .006 0.014 49 65 0.001 0 .103 49 39 -28 0.021 0 .035 46 65 -0 .011 0 .092 50 40 -27 - 0 . 0 0 3 0 .032 48 67 -0 .001 0.091 55 40 -26 - 0 . 0 1 4 0 .018 54 69 0 .024 0 .115 49 41 -25 0 .008 0.027 54 69 0 .014 0 .129 41 41 -24 - 0 . 0 0 8 0 .019 50 70 0 .034 0 .162 46 41 - 2 3 0 .018 0 .036 40 70 0 .004 0.166 51 41 -22 0 .007 0 .043 40 70 0.001 0.167 51 41 -21 - 0 . 0 2 7 0 .016 51 71 - 0 . 0 1 9 0 .148 54 41 -20 0 .050 0 .066 32 71 - 0 . 0 1 3 0 .135 54 41 -19 0 .032 0 .098 37 70 - 0 . 0 1 7 0 .118 46 41 -18 - 0 . 0 1 0 0 .088 49 70 0 .025 0 .143 39 41 -17 0 .024 0 .112 43 70 - 0 . 0 0 8 0 .135 49 41 -16 - 0 . 0 0 0 0.112 46 70 0 .052 0 .186 46 41 -15 0.031 0 .142 43 72 - 0 . 0 0 6 0.181 51 41 -14 - 0 . 0 0 4 0 .138 49 72 0 .012 0 .192 39 41 - 1 3 - 0 . 0 0 2 0.136 43 72 0 .016 0 .209 41 41 -12 0 .004 0 .140 56 73 0 .007 0 .216 56 41 -11 0 .060 0 .200 44 73 0 .020 0 .236 49 41 -10 0.011 0.211 47 73 0.022 0 .258 38 42 -09 - 0 . 0 0 5 0 .206 45 73 0 .042 0 .300 43 42 -08 0 .025 0.231 44 73 0 .010 0 .310 50 42 -07 - 0 . 0 0 3 0 .228 47 73 - 0 . 0 1 3 0 .297 49 43 -06 0 .013 0.241 52 73 0 .054 0.351 37 43 -05 0 .033 0 .274 40 72 - 0 . 0 0 7 0.344 44 43 -04 0 .010 0 .283 50 72 0 .012 0 .356 42 43 -03 0 .023 0 .307 44 72 0 .029 0 .385 42 43 -02 0 .029 0. 336 43 74 0 .030 0 .415 37 43 -01 - 0 . 0 1 5 0 .322 48 75 0 .086 0.501 37 43 . 01 -0 .221 0 .103 62 76 0. 331 0 .832 21 43 T a b l e X ( C o n t ' d ) 127 U n f a v o u r a b l e F a v o u r a b l e T r a d i ng w ek E.T e w e c w Neg 02 - 0 . 039 0 . 062 63 03 - 0 . 058 0 . 004 62 04 - 0 . 048 - 0 . 044 58 05 - 0 . 010 - 0 . 054 55 06 - 0 . 022 - 0 . 076 61 07 0 . 012 - 0 . 064 46 08 - 0 . 027 - 0 . 091 63 09 - 0 . 021 - 0 . 112 59 10 0 . 003 - 0 . 109 49 11 0 . 015 - 0 . 094 47 12 - 0 . 014 - 0 . 108 57 1 3 - 0 . 020 - 0 . 128 64 14 0. 014 - 0 . 114 41 15 - 0 . 001 - 0 . 11 5 51 16 - 0 . 035 - 0 . 1 50 56 1 7 - 0 . 008 - 0 . 158 56 18 - 0 . 025 - 0 . 183 55 19 0 . 016 - 0 . 168 45 20 0 . 001 - 0 . 167 53 21 - 0 . 006 - 0 . 173 55 22 0 . 016 - 0 . 156 50 23 - 0 . 007 - 0 . 163 55 24 0 . 008 - 0 . 1 56 53 25 - 0 . 008 - 0 . 164 53 26 - 0 . 007 - 0 . 171 50 27 - 0 . 004 - 0 . 174 52 28 0 . 007 - 0 . 167 53 29 - 0 . 006 - 0 . 1 73 49 30 0 . 019 - 0 . 154 48 31 - 0 . 015 - 0 . 169 57 32 - 0 . 008 - 0 . 177 51 33 0 . 000 - 0 . 177 50 34 - 0 . 002 - 0 . 1 79 56 35 - 0 . 010 - 0 . 190 49 36 0 . 006 - 0 . 184 51 37 - 0 . 01 9 - 0 . 185 64 38 0 . 002 - 0 . 201 51 39 0 . 006 - 0 . 195 47 40 - 0 . 001 - 0 . 196 42 % of Sample S i z e N w 76 76 76 76 76 76 76 76 76 76 75 75 75 75 75 75 75 75 75 75 76 76 76 76 76 75 74 75 75 76 76 76 75 75 75 75 76 76 76 % o f Sampl e E . T . S i z e e w e c w Neg. N w 0. 007 0 . 825 42 43 0 . 002 0 . 823 49 43 0. 008 0 . 816 49 43 0 . 001 0 . 814 51 43 0 . 023 0 . 792 53 43 0 . 006 0 . 786 51 43 0. 016 0. 770 44 43 0 . 005 0 . 774 42 43 0. 005 0 . 769 49 43 0 . 027 0 . 743 58 43 0 . 016 0 . 727 56 43 0 . 003 oO. 730 44 43 0 . 010 0 . 740 37 43 0 . 017 0 . 722 53 43 0 . 001 0 . 721 40 43 0 . 01 3 0 . 708 52 42 0 . 009 0. 717 48 42 0 . 000 0 . 717 40 42 0 . 017 0 . 734 55 42 0 . 000 0. 735 50 42 0 . 019 0 . 716 64 42 0 . 036 0 . 680 69 42 0. 028 0 . 708 45 42 0 . 003 0 . 711 52 42 0 . 025 0 . 686 60 42 0. 007 0 . 693 48 42 0 . 001 0 . 693 45 42 0. 017 0 . 711 43 42 0 . 021 0 . 690 62 42 0 . 008 0. 682 59 41 0 . 008 0 . 674 55 40 0. 014 0 . 660 70 40 0 . 007 0 . 667 45 40 0 . 006 0 . 661 45 40 0 . 015 0 . 676 43 40 0 . 004 0. 679 50 40 0. 011 0 . 691 50 40 0 . 015 0. 676 58 40 0. 01 1 0 . 688 35 40 E x h i b i t 12 C u m u l a t i v e Average E r r o r Terms Weekly Sample o f U n f a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s O b s e r v a t i o n s - 4 0 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s 0,336 + 1 *2 i * * :i i i 0 B 0 2 3 + * 2 2 * - * * 2*1 * * 1*212**11222 1 1 3 * 1 * * * 1 * * 1 * 1 2 2 2 1 * 2 * * 0 .382 + • F* ta mm m - 6 9 ' . • rm m ^ •» •» • » i - 3 5 , * * H * 3 M 2 0 , 322322 *21 11* * 2 1 * 1 3 2 * *2 11221* 1* * 2 2 * * * 3 l * 35'. 6 9 , 1 0 4 , T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w - E x h i b i t 13 C u m u l a t i v e Average E r r o r Terms - - Weekly Sample of F a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s 0„8?4 • m * *3 *22 21 1 1222 12 * 232*2322 13 *2232222 2 *12* * * ** 0 8 H 18 n *1 ** ** 2 •m *2 ** 221 *2*21 1322* A •» 1**32 *21** 1 * 121**21213*2 «io4; ; W 3 5 r o; 35, 6 9 , i o a . T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w 130 the t r a d i n g s u s p e n s i o n and then drop s l i g h t l y b e f o r e r e c o v e r -i ng to t h e i r p r e v i o u s l e v e l ( a t da te o f r e i n s t a t e m e n t ) . The b e h a v i o u r o f the C . A . E . T . i s not c o n s i s t e n t w i t h (a t r a d i n g s u s p e n s i o n does not convey any new i n f o r m a t i o n to the m a r k e t ) . I t may, however , be c o n s i s t e n t w i t h H-| , t h a t i s , the market a d j u s t s f u l l y and r a p i d l y to new i n f o r m a t i o n . P r o b a b i l i t y t e s t s . The abnormal r e t u r n s ( the A . E . T . ) obse rved i n the p r e v i o u s s e c t i o n were nex t t e s t e d to de te rm ine whether o r not they were s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . S i n c e common s e c u r i t y e f f e c t s , such as i n d u s t r y e f -f e c t s , can cause the e r r o r terms a c r o s s s e c u r i t i e s i n a g i v e n c a l e n d a r week to be c o r r e l a t e d , 2 5 a t e s t - s t a t i s t i c wh ich assumes such an independence o f e r r o r terms w i l l be o v e r s t a t e d . T h e r e f o r e , i n o r d e r to p roduce the i d e n t i c a l l y d i s t r i b u t e d d raw ings t h a t a re n e c e s s a r y f o r a t - t e s t , p o r t f o l i o s were c o n s t r u c t e d to a p p r o p r i a t e l y i n c o r p o r a t e the d e p e n d e n c i e s i n the e r r o r terms by s t a n d a r d i z i n g t hese e r r o r t e r m s . 2 6 Whi l e a d e t a i l e d e x p l a n a t i o n o f the s t a n d a r d i z e d t -s t a t i s t i c employed i n t h i s s tudy i s p r e s e n t e d i n Append i x I I , the p r o c e d u r e i s e s s e n t i a l l y based on the a s s u m p t i o n t h a t a h y p o t h e t i c a l i n v e s t o r can b u i l d a p o r t f o l i o f o r each c a l e n d a r week t by a d o p t i n g a p o l i c y o f buy ing the suspended s t o c k s i n our sample a t a p r e d e t e r m i n e d week r e l a t i v e to the s u s p e n s i o n p e r i o d and keep ing t h a t p o r t f o l i o f o r one week. More s p e c i f i c -a l l y , f o r e v e r y c a l e n d a r week t , the i n v e s t o r i s assumed to i n v e s t one d o l l a r e q u a l l y i n each suspended s t o c k wh ich was suspended (o r r e i n s t a t e d ) K to L weeks a f t e r (or p r i o r to ) the t r a d i n g s u s p e n s i o n p e r i o d . 131 The f o l l o w i n g t h r e e examples s h o u l d he lp to c l a r i f y the p o r t f o l i o s t r a t e g y adop ted by the h y p o t h e t i c a l i n v e s t o r : (1) i f K = -10 and L = - 1 0 , the i n v e s t o r i s assumed to have pu rchased i n each c a l e n d a r week t a p o r t f o l i o o f s t o c k s wh ich were suspended ten weeks l a t e r ; (2) i f K = 0 and L = 0 , the i n v e s t o r i s assumed to have p u r c h a s e d i n each c a l e n d a r week t a p o r t f o l i o o f s t o c k s wh ich were j u s t s u s p e n d e d ; and (3) i f K = +1 and L = +5, the i n v e s t o r i s assumed to have pu r -chased i n each c a l e n d a r week t a p o r t f o l i o o f s t o c k s wh ich were r e i n s t a t e d f rom one to f i v e weeks e a r l i e r . The r e s u l t s f rom a p p l y i n g the p o r t f o l i o method to the i n i t i a l sample ( the 119 suspended s t o c k s ) a re p r e s e n t e d i n T a b l e X I . Both the p o s i t i v e abnormal r e t u r n s e x h i b i t e d i n the p r e - s u s p e n s i o n p e r i o d and the n e g a t i v e abnormal r e t u r n s e x h i b i t e d i n the p o s t - s u s p e n s i o n p e r i o d a re s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . T h i s p o s t - s u s p e n s i o n p e r i o d b e h a v i o u r o f the ave rage s t a n d a r d i z e d e r r o r terms i s not c o n s i s t e n t w i t h e i t h e r H-j o r h^ . The r e s u l t s f rom emp loy ing the p o r t f o l i o method to the sample o f a l l e g e d l y m a n i p u l a t e d suspended s t o c k s a re p r e -sen ted i n T a b l e X I I . The p o s i t i v e abnormal r e t u r n s e x h i b i t e d i n the p r e - s u s p e n s i o n p e r i o d f o r v a r i o u s p o r t f o l i o s a re s i g -n i f i c a n t l y d i f f e r e n t f rom z e r o . T h i s i n d i c a t e s c l e a r l y t h a t m a n i p u l a t i o n i s e f f e c t i v e i n c a u s i n g abnormal upward movement i n s t o c k p r i c e s (and r e t u r n s ) i n the p r e - s u s p e n s i o n p e r i o d . The l a r g e n e g a t i v e ave rage abnormal r e t u r n e x h i b i t e d over the s u s p e n s i o n p e r i o d i s s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . T h i s s t r o n g l y s u g g e s t s t h a t r e g u l a t o r s , when they do T a b l e XI P r o b a b i l i t y T e s t s . o n the Average P o r t f o l i o E r r o r Terms A l l Suspended S t o c k s P o r t f o l i o f o r m a t i o n p e r i o d , K:L - 1 0 : - 1 0 - 1 0 : - 0 5 - 1 0 : - 0 1 0 :0 +01:+05 + 01 : + 10 Average u n s t a n d a r d i z e d e r r o r term 0 .055 0.021 0 .017 0 .007 - 0 . 0 2 2 - 0 . 0 1 5 Average s t a n d a r d i z e d e r r o r term 0.347 0.301 0 .298 - 0 . 0 2 1 - 0 . 2 2 3 - 0 . 2 0 0 t - s t a t i s t i c * 2 .617 4.507 5 .093 - 0 . 1 6 6 - 3 . 2 6 4 - 3 . 4 5 0 No. of p o r t f o l i o s 57 224 292 62 215 297 * S i n c e each t - s t a t i s t i c has a l a r g e number of I I ) , the o n e - t a i l e d s i g n i f i c a n c e l e v e l s can be degrees of taken f rom f reedom a normal (>>100 - - See p r o b a b i 1 i ty Append ix t a b l e , Tab le XI I P r o b a b i l i t y T e s t s A l l e g e d l y on the Average P o r t f o l i o E r r o r M a n i p u l a t e d Suspended S t o c k s Terms P o r t f o l i o fprmait ionosi p e r i o d , K:L -10 :-1 0 - 1 0 : - 0 5 - 1 0 : - 0 1 0 :0 +01:+05 + 01 : + l 0 Average u n s t a n d a r d i z e d e r r o r term 0 .043 0 .042 0.041 - 0 . 0 5 8 - 0 . 0 2 2 - 0 . 0 1 3 Average s t a n d a r d i z e d e r r o r term 0. 207 0.491 0 . 505 -1 .362 -0 .151 - 0 . 1 8 8 t - s t a t i s t i c 0 .802 4. 583 5. 933 - 4 . 3 0 9 -1 .312 - 2 . 1 9 2 No. o f p o r t f o l i o s 1 5 87 138 10 75 136 1 33 a c t , can d e f l a t e p r i c e s o f a l l e g e d l y m a n i p u l a t e d s t o c k s by p u b l i c i z i n g t h a t i n f o r m a t i o n d u r i n g a t r a d i n g s u s p e n s i o n . F u r t h e r m o r e , the s e r i e s o f s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n s e x h i b i t e d i n the p o s t - s u s p e n s i o n p e r i o d , sugges t t h a t the market does not impound t h i s new u n f a v o u r -a b l e i n f o r m a t i o n i n t o s t o c k p r i c e s r a p i d l y . The r e s u l t s f rom a p p l y i n g the p o r t f o l i o method to the u n f a v o u r a b l e and f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s a re p r e -sen ted i n T a b l e s X I I I and X I V , r e s p e c t i v e l y . For the un-f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s , t h e r e i s a s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e ave rage abnormal r e t u r n i n the p r e - s u s -p e n s i o n p e r i o d , a s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e ave rage abnormal r e t u r n ove r the t r a d i n g s u s p e n s i o n and s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e ave rage abnormal r e t u r n s i n the p o s t -s u s p e n s i o n p e r i o d . 2 7 T h i s s t r o n g l y i n d i c a t e s t h a t when s i g -n i f i c a n t u n f a v o u r a b l e i n f o r m a t i o n i s d i s s e m i n a t e d to the market d u r i n g a t r a d i n g s u s p e n s i o n t h a t the market does not f u l l y and r a p i d l y impound t h i s new u n f a v o u r a b l e i n f o r m a t i o n i n s t o c k p r i c e s . For the f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s , t h e r e i s a s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e ave rage abnormal r e t u r n near the da te o f s u s p e n s i o n , a s t a t i s t i c a l l y s i g n i f i c a n t p o s i -t i v e ave rage abnormal r e t u r n over the s u s p e n s i o n and no s t a t i s t i c a l l y s i g n i f i c a n t abnormal r e t u r n i n the p o s t - s u s p e n -s i o n p e r i o d . These r e s u l t s i n d i c a t e t h a t the market r a p i d l y impounds s i g n i f i c a n t f a v o u r a b l e i n f o r m a t i o n when i t i s d i s -sem ina ted d u r i n g a t r a d i n g s u s p e n s i o n . The s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e abnormal r e t u r n s near the s u s p e n s i o n date T a b l e X I I I P r o b a b i l i t y T e s t s on the Average P o r t f o l i o E r r o r Terms U n f a v o u r a b l e I n f o r m a t i o n Suspended S t o c k s P o r t f o l i o fofmaitcibnon p e r i o d , K:L - 1 0 : - 1 0 - 1 0 : - 0 5 - 1 0 : - 0 1 - 0:0 +01:+05 +01:+10 Average u n s t a n d a r d i z e d e r r o r term 0.080 0.027 0.017 0 .067 - 0 . 0 3 0 - 0 . 0 1 3 Average s t a n d a r d i z e d e r r o r term 0.395 0.299 0 .278 0 .958 - 0 . 2 8 6 - 0 . 1 7 9 t - s t a t i s t i c 2 .335 3.939 4 .357 5.419 - 3 . 5 6 0 -2 .771 No. o f p o r t f o l i o s 35 173 245 32 1 55 239 T a b l e XIV P r o b a b i l i t y T e s t s on F a v o u r a b l e the Average P o r t f o l i o I n f o r m a t i o n Suspended E r r o r S t o c k s Terms P o r t f o l i o fofmarthionon p e r i o d , K:L - 1 0 : - 1 0 - 1 0 : - 0 5 - 1 0 : - 0 1 0 :0 +01:+05 +01:+ l0 Average u n s t a n d a r d i z e d e r r o r term 0.008 0.013 0 .018 0.101 -0 .011 - 0 . 0 0 8 Average s t a n d a r d i z e d e r r o r term 0.1 52 0.122 0. 220 1 .055 0 .097 -0 .001 t - s t a t i s t i c 0.727 1 .327 2 .990 5 .873 1 .058 - 0 . 0 1 2 No. of p o r t f o l i o s 23 119 185 31 118 197 1 35 can be e x p l a i n e d e i t h e r by the s o p h i s t i c a t i o n o f i n v e s t o r s i n making u n b i a s e d f o r e c a s t s o f the impac t o f the f a v o u r a b l e new i n f o r m a t i o n t h a t was l a t e r d i s s e m i n a t e d d u r i n g the t r a d i n g s u s p e n s i o n s or by the i n e q u i t a b l e d i s s e m i n a t i o n o f such f a v o u r -a b l e new i n f o r m a t i o n ( v i a " l e a k s " ) to the market i n the p r e -s u s p e n s i o n p e r i o d . Measurement e r r o r s i n the e s t i m a t e d a l p h a s . The da ta was nex t examined to d e t e r m i n e whether o r not the abnormal r e t u r n s o b s e r v e d e a r l i e r were s e n s i t i v e to p o s s i b l e measure -ment e r r o r s i n the e s t i m a t e d a l p h a s . In o r d e r to examine such a p o s s i b i l i t y , the e . . 1 s , as s p e c i f i e d i n e q u a t i o n ( 8 ) , were r e c a l c u l a t e d , w i t h a . = 0 , 2 8 as f o l l o w s : i , t i , t i M , t The e m p i r i c a l r e s u l t s f rom a p p l y i n g the FFJR t e s t to a l l 119 suspended s t o c k s (and a l s o the a l l e g e d l y m a n i p u l a t e d suspended s t o c k s , the u n f a v o u r a b l e i n f o r m a t i o n suspended s t o c k s and the f a v o u r a b l e i n f o r m a t i o n suspended s t o c k s ) a re summar ized i n E x h i b i t s 14 to 17 , r e s p e c t i v e l y . For the t o t a l s a m p l e , the C . A . E . T . r i s e by 22 .4 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and f a l l 2.1 and 43.1 p e r c e n t ove r and subsequen t to the t r a d i n g s u s -p e n s i o n , r e s p e c t i v e l y . In compar i son w i t h the r e s u l t s p r e s e n t e d p r e v i o u s l y , t h i s i s a s m a l l e r r i s e i n the p r e -s u s p e n s i o n p e r i o d (.22.4 p e r c e n t v e r s u s 38 .8 p e r c e n t ) and a l a r g e r f a l l i n the p o s t - s u s p e n s i o n p e r i o d (43.1 p e r c e n t v e r s u s 24 .2 p e r c e n t ) . The b e h a v i o u r of the C . A . E . T . i s s t i l l not c o n s i s t e n t w i t h e i t h e r H, o r H 0 . cu > 4 J 03 3 C_3 E x h i b i t 14 C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Sample - - A l l A l phas Se t to Zero O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s 0.220 Z ** n, " I" * OD i — * 1 * * 2 * * 5- **21132121 1 * 2 * *1 ? »* * ***32121 *2322312 * * Z ra 12312 * 2* w * 1 * ^t- « 22 Cn n3 LU i c e *0 9 172 •+ ! * > • » 22* <C CJ> 23* k 2 2 w0,566 + 1* ' *2 22 * 2 U 2 1**21 * i *1 * 122 2*2* 104 , - 6 9 ; - 3 5 , 0 . 3 5 . 6 9 . 104, . T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w CO CM E x h i b i t 15 C u m u l a t i v e Ave rage E r r o r Terms - - T o t a l Weekly Sample o f A l l e g e d l y M a n i p u l a t e d Suspended S t o c k s O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s and A l l A l p h a s Se t to Zero 3,608 + 1 * » • *1 1 » *2 • 2 1 3 1 * * * 2 * 1 3 21 1 2 3 2 2 * 2 2 1 • 1 2 2 * ... * * 1 3 1 3 * * 1 0 4 ' e *69 ' . - 3 5 , 0 , 3 5 ' , 6 9 , 1 0 4 . T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w C u m u l a t i v e Ave rage E r r o r Terms ( C . A . E . T . ) -s &> CL — r . 3 U 3 fD CO 7T TO CD if O •<» CO CD 1 o t o ru o •#• a 'i ' 8 9 I 9 1 I 9 3 s i % g a g a a 4 on 4 8 - 1 9 M CT-a ui on ru * »— * * ui ru ui * +*• * ru »— * ru * ru * ru ru ru * ru ru * ru CU t C + o + . » • 1 < 1 fD 1 g c+ 8 O 4 1 0 0 4 c Ul 1 CO Ul •*• -a • 1 fD 3 3 1 * CO ! ru ), 4 o 1 * * 3 » ru 1 » ru TD cr 8 ru CD + ru * S « ' ru 1 * o I O- 9 ru 8 Ul 1 ru 1 9 Ul «-* s: o 4 Ul * * • ' * U l «• Ui * ru P.: * ru » »-» ru ui * i ui ru o c o 3 cr c: co — ' fD Cu -s c + < — J . CU < r+ fD i. O 3 < co fD -s 1 CU c q o >--i fD CU 3 3 c + - h m C u O O S S - 5 3> + 3 O —i -p> cu -% —• O r + _ . . — | > a o (D —i fD 3 -5 -a —• 3 3 " fD C O CO BJ rtC v*> fD i O . T 3 I C O fD fD - " • 3 SZ c+ 3 C L fD fD fD r + m CL 7 T O CO —< r + c o < < M —•• c + fD 3 O OO - S Cu O CU O t + 7 T 3 ->. CO •a o —i 3 fD O O -h -h TD cr CU 3 -s -h Cu eu 3 < fD o r + c fD -s -$ CU CO C T —i fD X 3 " CD 8£L C u m u l a t i v e Ave rage E r r o r Terms ( C . A . E . T . ) 3 O O cr-a r u ro ~4 - J CU a. 3 ta fD fD X> fD < fD c+ O 00 c (/) -a fD 3 to i. o - a fD -s i. o Q -I I g a s 3 i 9 a M -»• j « a >-» B 3 n ; j i + « * * * ' I H* * a ru « * » * r> i * «-» -£> + ru * » * s ru i * »— *• i * i is» l * i — i ru * UJ i ru u i • * • * ru « i * >-» 9 ru-9 f — » I * » - » • *•—>?• ru * * * 3: * i a i i o -> • - s • 1 I * 9 1 I 1 fl " I < I 8 % t * -t a- i o -4-* i 9 I I * a * o I ru * ru # ru * ru * »-* ru * ui * * ru ru ru »- * ru * o c : c r to fD —1 -s CU < r + CU — i . c + < - j . fD O 3 to 1 ver CU o 1—I ta CU 3 fD 3 rt-- b C L O O m -s -j 3> + 3 ~s — i cu o — 1 O c + -s ;> a o —) — i fD 3 fD T3 — i -s 3- fD o o 3 Cu rt- to to to CL sp 1 GO fD 1 fD — j . 3 r + Q - S fD fD r + m C u fD O to 7T rt-OO — l M — i * <•+'-< fD 3 O -s Cu o 00 o rt-7C Cu i, to 3 O -a fD O -h of ~o CU ~n -s CU CU < 3 o fD c rt- - s fD cu 1 c r to fD X 3 " * * 6C L 140 For the a l l e g e d l y m a n i p u l a t e d s t o c k s , the C . A . E . T . r i s e by 51 .4 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and f a l l 35 .6 and 69 .7 p e r c e n t ove r and subsequen t to the t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . In compar i son w i t h the r e s u l t s p r e s e n t e d p r e v i o u s l y , t h i s i s l e s s o f a r i s e i n the p r e - s u s p e n s i o n p e r i o d ( 51 .4 p e r c e n t v e r s u s 71 .5 p e r c e n t ) , l e s s o f a f a l l ove r the s u s p e n s i o n p e r i o d ( 3 5 . 6 p e r c e n t v e r -sus 47 .4 p e r c e n t ) and more o f a f a l l d u r i n g the p o s t - s u s p e n s i o n p e r i o d (69 .7 p e r c e n t v e r s u s 49 .6 p e r c e n t ) . F u r t h e r m o r e , t h i s i s a s i m i l a r f a l l ove r and subsequen t to the t r a d i n g s u s p e n -s i o n ( 9 5 . 3 p e r c e n t v e r s u s 97 .0 p e r c e n t ) . For the u n f a v o u r a b l e i n f o r m a t i o n s t o c k s , the C . A . E . T . r i s e by 17 .6 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and f a l l 18 .5 and 4 8 . 2 p e r c e n t ove r and subsequen t to the t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . 2 9 In compar i son to the r e s u l t s p r e s e n t e d e a r l i e r , t h i s i s l e s s o f a r i s e i n the p r e - s u s p e n s i o n p e r i o d (17 .6 p e r c e n t v e r s u s 32 .2 p e r c e n t ) , l e s s o f a f a l l ove r the s u s p e n s i o n p e r i o d ( 1 8 . 5 p e r c e n t v e r -sus 22.1 p e r c e n t ) and more o f a f a l l d u r i n g the p o s t - s u s p e n -s i o n p e r i o d (48 .2 p e r c e n t v e r s u s 29 .6 p e r c e n t ) . For the f a v o u r a b l e i n f o r m a t i o n s t o c k s , the C . A . E . T . r i s e by 29 .4 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n , r i s e by a f u r t h e r 26 .9 p e r c e n t ove r the t r a d i n g s u s p e n s i o n and then f a l l 33 .9 p e r c e n t i n the 39 weeks s u b s e -quent to the t r a d i n g s u s p e n s i o n . In compar i son to the r e s u l t s p r e s e n t e d e a r l i e r , t h i s i s l e s s o f a r i s e i n the p r e - s u s p e n s i o n p e r i o d ( 29 .4 p e r c e n t v e r s u s 50.1 p e r c e n t ) , l e s s o f a r i s e ove r the s u s p e n s i o n p e r i o d (26 .9 p e r c e n t v e r s u s 33.1 p e r c e n t ) and 141 more o f a f a l l i n the 39 weeks subsequen t to the s u s p e n s i o n p e r i o d ( 3 3 . 9 p e r c e n t v e r s u s 14 .4 p e r c e n t ) . In g e n e r a l , a compar i son o f the r e s u l t s , w i t h and w i t h o u t a.j = 0 , f o r the p e r i o d -40 to +40, shows t h a t i n a l l c a s e s t h e r e was l e s s o f a r i s e i n the C . A . E . T . i n the p r e -s u s p e n s i o n p e r i o d and more o f a f a l l i n the C . A . E . T . i n the p o s t - s u s p e n s i o n p e r i o d . 3 0 Measurement e r r o r s i n the e s t i m a t e d b e t a s . The da ta was nex t examined to de te rm ine whether o r not the abnormal r e -t u r n s o b s e r v e d e a r l i e r were s e n s i t i v e to measurement e r r o r s i n the e s t i m a t e d b e t a s . In o r d e r to examine such a p o s s i b i l i t y , the e- f ' s , as s p e c i f i e d i n e q u a t i o n ( 8 ) , were c a l c u l a t e d , w i t h b.j = 1 , as f o l 1 ows : e • . = R. . - a • - R.. . . i , t i , t i M, t S i n c e the e a r l i e r r e s u l t s were not m a t e r i a l l y a f f e c t e d f rom such a m o d i f i c a t i o n to e q u a t i o n ( 8 ) , o n l y the e m p i r i c a l r e s u l t s o b t a i n e d f rom a p p l y i n g the FFJR t e s t to a l l 119 s u s -pended s t o c k s a re p r e s e n t e d (see E x h i b i t 18) and d i s c u s s e d i n t h i s s e c t i o n . For the t o t a l s a m p l e , the C . A . E . T . r i s e by 35 .7 pe rs cen t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and f a l l 2 .7 and 21.1 p e r c e n t ove r and subsequen t to the t r a d i n g s u s p e n s i o n , r e s p e c t i v e l y . These r e s u l t s a re ve ry s i m i l a r to t hose o b t a i n e d u s i n g both a^ and b^. (Those r e s u l t s were a r i s e o f 38 .8 p e r c e n t , a f a l l o f 2 .2 p e r c e n t and a f a l l o f 24 .2 p e r c e n t b e f o r e , ove r and subsequen t to the t r a d i n g s u s -p e n s i o n , r e s p e c t i v e l y . ) E x h i b i t 18 C u m u l a t i v e Average E r r o r Terms - - T o t a l Weekly Sample - - A l l Be tas Se t to One O b s e r v a t i o n s -40 to +40 D e l e t e d i n E s t i m a t i o n o f P a r a m e t e r s 0 f 3 5 7 + CO * * * CU »» * *" 1 * ^ ra * ° 1 1 S -LU -—. • 1 1 * * cu i— cn • «i 2 0.151 + * • *2 ^ - 2 2 2 1 * * * < o_ « 1 * * 2 i 3 2 1 * * 2 * cu « 1 1* * 1 * > * 11 M *2 * +> • * 1 1 1 * * * l l 11211 2 » 2 2 * * * * 2 2 * * 121 Z* *1 1 1** 2* 2 * * 1*** 3 ** 1*2*1*121*11111 «*2 * ** * 1*1** •104', »69'„ „35, 0„ 3 5 , 6 9 , 1 0 f l , T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w ro 143 N o n - s t a t i o n a r i t y o f b e t a . The da ta was nex t examined to d e t e r m i n e whether or not the e s t i m a t e d be tas used to com-pute the A . E . T . were s t a t i o n a r y . To t h i s e n d , a moving c r o s s - s e c t i o n a l l y ave raged s e r i e s o f the e s t i m a t e d be tas was c o n s t r u c t e d . More s p e c i f i c a l l y , f o r a g i v e n week t , the e s t i m a t e d be ta f rom (8) was e s t i m a t e d u s i n g the da ta f o r ( t - 4 9 ) th rough ( t ) f o r each suspended s t o c k and then c r o s s -s e c t i o n a l l y a v e r a g e d . 3 1 For examp l e , the o b s e r v a t i o n s used to e s t i m a t e b. . f o r c a l e n d a r week t = -40 were the r e t u r n s f o r c a l e n d a r weeks -99 th rough - 4 0 , i n c l u s i v e , and so o n . 3 2 S i n c e the r e s u l t s o b t a i n e d d i d not m a t e r i a l l y a f f e c t the f i n d i n g s o f t h i s s t u d y , o n l y the e m p i r i c a l r e s u l t s f o r a l l 119 suspended s t o c k s a re p r e s e n t e d . 3 3 The b e h a v i o u r o f the moving ave rage e s t i m a t e d beta s e r i e s (see E x h i b i t 19) s u g -g e s t s t h a t the 119 suspended s t o c k s may have i n c r e a s e d i n s y s t e m a t i c r i s k d u r i n g the p r e - s u s p e n s i o n p e r i o d . THE IMPACT OF TRADING SUSPENSIONS USING A POOLED CROSS-SECTION TIME SERIES REGRESSION MODEL The s t a t i s t i c a l methodo logy employed i n the p r e v i o u s s e c t i o n i s the common one f o r d e t e r m i n i n g what i m p a c t , i f a n y , a s p e c i f i c even t ( such as a t r a d i n g s u s p e n s i o n ) has on s t o c k p r i c e s . However , t h e r e are c i r c u m s t a n c e s when t h i s s t a t i s t i -c a l methodo logy i s not a p p r o p r i a t e . These c i r c u m s t a n c e s i n -c l u d e the f o l l o w i n g : (1) i f s i m u l t a n e o u s even ts o c c u r , (2) i f the magn i tude o f the even t i s i m p o r t a n t , and (3) i f the even t does not o c c u r f r e q u e n t l y enough f o r pa ramete r e s t i m a -t i o n . E x h i b i t 19 50 Week Moving Average E s t i m a t e d Beta - - T o t a l Week ly Sample 0 , 9 5 7 + * <- * * * * 1 * * 21 1 1 ** 1 2 • t . * * * * * * * * * 2 m 1 * 1 * * * *1 **** *1 - * * * * * * * * * * 1 1 * * * M i l * * * * * * * m 1*2 * * * * * 1 * l * t l * 0,6'I6 + * i * * * - * i * » * * * - * * 1 Z * t 1* * 11 *** * * i * * * w 1 ** • * * m 0.330 + * - n - + + + -- + -- + . - . - _ - . - - + - 5 0 ' , -?8?. -1. 25, 51'. 78. 104. T r a d i n g Week R e l a t i v e to S u s p e n s i o n P e r i o d - - w 145 Under such c i r c u m s t a n c e s , e s t i m a t i o n i s bes t a c h i e v e d by c o n s i d e r i n g the t o t a l o f a l l o b s e r v a t i o n s , both a c r o s s t ime and s e c u r i t i e s . Such a p o o l i n g o f c r o s s - s e c t i o n and t ime s e r i e s da ta i n e s t i m a t i o n i s r e f e r r e d to as poo led c r o s s - s e c -t i o n t ime s e r i e s (PCTS) r e g r e s s i o n a n a l y s i s . One o f the f i r s t a p p l i c a t i o n s o f the t e c h n i q u e was the 1966 s tudy by B a l e s t r a and N e r l o v e . 3 h The purpose o f t h i s s e c t i o n o f the t h e s i s i s to p r e -sen t the r e s u l t s o f the a p p l i c a t i o n o f the PCTS r e g r e s s i o n model to an e v a l u a t i o n o f the e f f e c t of t r a d i n g s u s p e n s i o n s . 3 5  P o o l e d C r o s s - S e c t i o n Time S e r i e s R e g r e s s i o n M o d e l s 3 6 In a PCTS r e g r e s s i o n m o d e l , each i ndependen t v a r i a b l e i s c l a s s i f i e d a c c o r d i n g to the un iqueness o f i t s r e g r e s s i o n c o e f f i c i e n t . I f the r e g r e s s i o n c o e f f i c i e n t i s not un ique ( the same) f o r a l l s e c u r i t i e s , the v a r i a b l e , X., . i s not f i r m depend-en t and i s r e f e r r e d to as n o n - f i r m s p e c i f i c . I f the r e g r e s s i o n c o e f f i c i e n t i s un ique to the s e c u r i t y , the v a r i a b l e , V., i s f i r m dependent and i s r e f e r r e d to as f i r m s p e c i f i c . In g e n e r a l , the r e g r e s s i o n e q u a t i o n f o r the i - t h . - i n -s e c u r i t y i s o f the f o r m : ^ = ^  £ + I- d . + U . , (12) where i = 1 , . . . , N and N i s the t o t a l number o f cases ( s u s -pended s t o c k s ) ; T i s the number o f week ly o b s e r v a t i o n s f o r each case (suspended s t o c k ) ; y_. i s a (T XT) v e c t o r o f T ob -s e r v a t i o n s ( g e n e r a l l y r e t u r n s ) f o r the dependent v a r i a b l e ; X_. i s a (K-jXT) v e c t o r o f T o b s e r v a t i o n s f o r the K-j n o n - f i r m s p e c i f i c i ndependen t v a r i a b l e s ; £ i s a (1XK-.) v e c t o r o f c o -146 e f f i c i e n t s f o r the n o n - f i r m s p e c i f i c i ndependen t v a r i a b l e s ; V_. i s a (h^XT) v e c t o r o f T o b s e r v a t i o n s f o r the Y.^ f i r m -s p e c i f i c i ndependen t v a r i a b l e s ; dl^  i s a ( l X I ^ ) v e c t o r o f c o -e f f i c i e n t s f o r the l<2 f i r m - s p e c i f i c i ndependen t v a r i a b l e s and i s a (1XT) v e c t o r o f r e s i d u a l s . For N s e c u r i t i e s , the sys tem of PCTS r e g r e s s i o n e q u a -t i o n s can be w r i t t e n a s : *1 x, v Ko . . . . . , 0 -1 0 - _ = : + ** where the terms a re as d e f i n e d e a r l i e r . The PCTS r e g r e s s i o n model assumes t h a t E (0. . ) = 0 ; 1 , 1 . cov ( U . . , U. ) = of. when i = j and t = s and = 0 , o t h e r w i s e ; 1 j t J j s u i , j = 1, 2 , N; and t , s = 1, 2 , T. The v a l i d i t y o f the c o v a r i a n c e assump t i on i s t e n u o u s . I t i m p l i e s ze ro c o r r e -l a t i o n a c r o s s t ime and between s e c u r i t i e s . I f i t i s not s a t i s -f i e d , then the e s t i m a t e d c o e f f i c i e n t s , w h i l e be ing u n b i a s e d and c o n s i s t e n t , would not be minimum V a r i a n c e ( o r , i n g e n e r a l , a s y m p t o t i c a l l y e f f i c i e n t ) . The c o e f f i c i e n t s (c_, d_-j , d_^ ) i n the PCTS model are e s t i m a t e d by GLS ( G e n e r a l i z e d L e a s t S q u a r e s ) . For l a r g e da ta s a m p l e s , the s p e c i a l s t r u c t u r e o f the m a t r i x (see (13) )'. can be u t i l i z e d to reduce c o m p u t a t i o n a l d i f f i c u l t i e s . 3 7  Model S p e c i f i c a t i o n The e f f e c t o f any new i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n w i l l be a n a l y z e d w i t h a PCTS r e g r e s s i o n model s p e c i f i e d w i t h 1 dependent v a r i a b l e , y . , f o u r n o n - f i r m 147 s p e c i f i c v a r i a b l e s , X _ j n to X_C*.\ and one f i r m s p e c i f i c v a r i -a b l e , V _ j n , f o r each suspended s t o c k . 3 8 The e lemen ts o f the model f o r suspended s t o c k i can be d e f i n e d as f o l l o w s : y . i s a v e c t o r o f r e t u r n s , R. + , f o r suspended s t o c k i f o r weeks t = -40 to +40; _X_| n i s a v e c t o r o f ones (used to c a l c u l a t e the c o n -s t a n t term i n the m o d e l ) ; X^j 2" 1 i s a v e c t o r c o n s i s t i n g o f the p r o d u c t o f s e c u r i t y i ' s e s t i m a t e d be ta (b^) t imes the week ly r e t u r n on the market (R M t ) f o r weeks t = -40 to + 4 0 ; 3 9 X ^ 3 " 1 i s a v e c t o r o f O ' s , e x c e p t f o r a 1 f o r the s u s -p e n s i o n p e r i o d ; X.J1*"1 i s a v e c t o r o f O ' s , e x c e p t f o r a 1 f o r a s p e c i f i e d week i n the p o s t - s u s p e n s i o n p e r i o d ( f o r e x a m p l e , week + 2 ) ; V _ | n i s a ' v e c t o r c o n s i s t i n g o f the e s t i m a t e d a l p h a c o -e f f i c i e n t (a.-) f o r suspended s t o c k i ; " 0 a^ and b. a re the e s t i m a t e d c o e f f i c i e n t s o f the mar-ke t model ( 5 ) , u s i n g the r e t u r n s f o r weeks -104 to -41 and +41 to +104; and R.j t and R^ t a re the r e t u r n s f o r s e c u r i t y i and the m a r k e t , r e s p e c t i v e l y , f o r weeks -40 to +40. The c o e f f i c i e n t s o f dummy v a r i a b l e s , X . J 3 1 and XJ 1 * " 1 - , can be i n t e r p r e t e d as f o l l o w s . The c o e f f i c i e n t o f ^ j 3 1 i s the ave rage week ly abnormal r e t u r n on s e c u r i t y i o ve r the s u s p e n -s i o n p e r i o d . I t i s a measure o f the immedia te e f f e c t on . s e c u r i t y r e t u r n s o f any "new" i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g s u s p e n s i o n . The c o e f f i c i e n t o f i s the abnormal 148 r e t u r n on s e c u r i t y i f o r a s p e c i f i e d week i n the p o s t - s u s p e n -s i o n p e r i o d ( f o r examp le , r e l a t i v e week +2) . I t i s a measure o f the d e l a y e d e f f e c t on s e c u r i t y r e t u r n s (market i n e f f i c i e n c o f any "new" i n f o r m a t i o n d i s s e m i n a t e d d u r i n g a t r a d i n g suspen s i o n. S i n c e the r e t u r n s f o r the p r e - and p o s t - s u s p e n s i o n p e r i o d f o r s e c u r i t y i a re c a l c u l a t e d on a week l y b a s i s and the r e t u r n over the s u s p e n s i o n p e r i o d i s f o r s . weeks , then the r e s i d u a l v a r i a n c e s o f the PCTS r e g r e s s i o n a re no l o n g e r h o m o s c e d a s t i c . In o r d e r to s a t i s f y t h i s a s s u m p t i o n , the r e -t u r n over the s u s p e n s i o n p e r i o d f o r s e c u r i t y i , R n - S - i , was d i v i d e d by Js. . 4 1  The E m p i r i c a l R e s u l t s In t h i s s e c t i o n , H-j and (and i m p l i c i t l y the NR and SR h y p o t h e s e s ) a re t e s t e d . i m p l i e s t h a t the e s t i m a t e d c o -e f f i c i e n t o f the n o n - f i r m s p e c i f i c v a r i a b l e .X / 1 * " 1 , s h o u l d not be s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . S i m i l a r l y , p r e d i c t s t h a t the e s t i m a t e d c o e f f i c i e n t s o f the n o n - f i r m s p e c i f i c v a r i a b l e s , X / 3 " 1 and . X ^ , s h o u l d not be s i g n i f i c a n t l y d i f f e r -ent f rom z e r o . The GLS e s t i m a t e s o f the c o e f f i c i e n t s o f the PCTS m o d e l , a l o n g w i t h t h e i r t - v a l u e s , a re summar ized i n T a b l e XV. The r e s u l t s f o r a l l 119 suspended s t o c k s a re c o n s i s t e n t w i t h e a r l i e r r e s u l t s . Not o n l y i s t h e r e a p o s i t i v e , but not . s t a t i s t i c a l l y s i g n i f i c a n t , ave rage week ly abnormal r e t u r n ove r the t r a d i n g s u s p e n s i o n but the n e g a t i v e abnormal r e -t u r n s i n weeks +2 and +3 (one and two weeks a f t e r t r a d i n g was r e i n s t a t e d , r e s p e c t i v e l y ) a re s t a t i s t i c a l l y s i g n i f i c a n t . T a b l e XV Summary of the PCTS R e g r e s s i o n Runs X / n x m - xr«n Sample A l l Run C o n s t a n t Term Marke t F a c t o r * * S u s p e n s i o n P e r i o d Week +2 Week +3 1 C o e f f i c i ent t - s t a t i s t i c * - 0 . 0 3 5 - 0 . 8 6 9 0.431 5.701 0 .006 0.287 - 0 . 0 3 2 - 2 . 4 6 5 2 C o e f f i c i ent t - s t a t i s t i c - 0 . 0 3 5 - 0 . 8 6 8 0 .438 5.796 0 .006 0 .285 - 0 . 0 3 5 - 2 . 6 8 5 M a n i p u l a t e d 1 C o e f f i c i ent t - s t a t i s t i c - 0 . 2 1 7 - 2 . 4 0 5 0 .475 3.104 0 .019 0 .337 - 0 . 0 6 9 - 2 . 7 8 5 2 C o e f f i c i ent t - s t a t i s t i c - 0 . 2 1 7 - 2 . 4 0 8 0 .490 3 .198 0 .019 0 .344 - 0 . 0 4 5 - 1 . 8 1 5 U n f a v o u r a b l e i n f o r m a t i on 1 C o e f f i c i e n t t - s t a t i s t i c 0 .028 0.496 0 .384 3 .973 - 0 . 0 8 8 - 2 . 6 6 3 - 0 . 0 4 4 -2 .501 2 C o e f f i c i ent t - s t a t i s t i c 0 .028 0.497 0 .395 4 .090 - 0 . 0 8 8 - 2 . 6 6 5 - 0 . 0 5 2 - 2 . 9 6 7 T a b l e XV ( C o n t ' d ) Sample Run X m X f 2 ^ X r 3 ^ X /J^_ X m F a v o u r a b l e 1 C o e f f i c i e n t 0 .059 0 .535 0 .088 - 0 . 0 1 2 i n f o r m a t i o n t - s t a t i s t i c 1.049 4 .516 3.484 - 0 . 6 5 4 2 C o e f f i c i e n t 0.059 0 .536 0 .088 - 0 . 0 0 6 t - s t a t i s t i c 1.048 4 .525 3.487 -0 .301 * S i n c e each t - s t a t i s t i c has a l a r g e number of degrees of f reedom (>>100), the o n e - t a i l e d s i g n i f i c a n c e l e v e l s can be taken from a normal p r o b a b i l i t y t a b l e . * * The e's tiiwateeld coe f f i c i en ts f o r t h i s v a r i a b l e a re not equa l to the i r - t b e o r e t i ca 1 va 1 ue ^of one because o f measurement e r r o r i n X / 2 \ Measurement e r r o r a r i s e s i n " X / 2 i because t h e b . - ' kincfl uded l ci rieX/H a r e 1 r e g r e s s g o n s e s t i mates "s ubj eetb.to ^samp 1 dng : e r r o r (Ray Ba 1 1 , T " R i s k , ' Re tu rn and D>i sequ i 1 i br i um," p. 3 5 0 ) . As a r e s u l t , the measurement e r r o r i r i ^ X ' ' 2 ' 1 causes the c o e f f i c i e n t of X . r ? ^ to be u n d e r e s t i m a t e d . ( L e v i has shown t h a t " i f we have one i ndependen t v a r i a b l e t h a t we expec t to have measurement e r r o r among o t h e r i n d e p e n d e n t v a r i a b l e s then . . . the d i r e c t i o n o f b i a s on the c o e f f i c i e n t of the v a r i a b l e measured w i t h e r r o r i s unambiguous ly downwards" . See M a u r i c e D. L e v i , " E r r o r s i n the V a r i a b l e s B i a s i n the P r e s e n c e of C o r r e c t l y Measured V a r i a b l e s , " Econome t r i c a , V o l . 4 1 , No. 5 (Sep tember , 1 9 7 3 ) , p. 985 . ) The s e n s i t i v i t y of the r e s u l t s to the measurement e r r o r i n X. ' ' 2 ' 1 was examined by r e - e s t i m a t i n g the e i g h t r e g r e s s i o n s w i t h a l l the e s t i m a t e d be tas s e t to one . The r e s u l t was an e s t i m a t e d c o e f f i c i e n t f o r X / 2 " 1 near one and s i m i l a r e m p i r i c a l f i n d i n g s f o r X j ' 3 ' ! and X / 1 ^ . F u r t h e r m o r e , cons t r a i ned ' reg res s i ons ( c o e f f i c i e n t of^^2^ c o n s t r a i n e d to one) were r u n . The r e s u l t . w a s s i m i l a r e m p i r i c a l f i n d i n g s f o r X / 3 " 1 "and^X/ 4 " 1 - - see Appendi x 111. 151 The r e s u l t s f o r the a l l e g e d l y m a n i p u l a t e d s t o c k s a re not e n t i r e l y c o n s i s t e n t w i t h e a r l i e r r e s u l t s . In p a r t i c u l a r , a p o s i t i v e , but not s t a t i s t i c a l l y s i g n i f i c a n t , ave rage week l y abnormal r e t u r n was a c h i e v e d ove r the t r a d i n g s u s p e n s i o n . On the o t h e r hand , the n e g a t i v e abnormal r e t u r n s e x h i b i t e d i n weeks + 2 and +3 are s t a t i s t i c a l l y s i g n i f i c a n t and c o n s i s t e n t w i t h e a r l i e r r e s u l t s . T h i s s u p p o r t s the e a r l i e r c o n c l u s i o n t h a t the market does not r a p i d l y impound u n f a v o u r a b l e new i n f o r m a t i o n about a l l e g e d m a n i p u l a t i o n i n t o s t o c k p r i c e s . The r e s u l t s f o r the u n f a v o u r a b l e i n f o r m a t i o n s u s p e n -s i o n s a re c o n s i s t e n t w i t h e a r l i e r r e s u l t s . N o t o n l y i s t h e r e a s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n ove r the t r a d i n g s u s p e n s i o n but t h e r e a re a l s o s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n s i n weeks +2 and +3 (one and two weeks a f t e r t r a d i n g was r e i n s t a t e d , r e s p e c t i v e l y ) . As no ted e a r l i e r , t h i s s t r o n g l y i n d i c a t e s t h a t (1) r e g u l a t o r s have a c c e s s to s i g n i f i c a n t u n f a v o u r a b l e new i n f o r m a t i o n wh ich i s d i s s e m i n a t e d to the market d u r i n g a t r a d i n g s u s p e n s i o n and (2) the market does not f u l l y and r a p i d l y impound t h i s un -f a v o u r a b l e new i n f o r m a t i o n i n t o s t o c k p r i c e s . The r e s u l t s f o r the f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s are a l s o c o n s i s t e n t w i t h e a r l i e r r e s u l t s . Not o n l y i s t h e r e a s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e abnormal r e t u r n ove r the t r a d i n g s u s p e n s i o n but the n e g a t i v e abnormal r e t u r n s i n weeks +2 and +3 are not s t a t i s t i c a l l y s i g n i f i c a n t . 4 2 As no ted e a r l i e r , t hese r e s u l t s s t r o n g l y i n d i c a t e t h a t (1) r e g u l a t o r s have a c c e s s to s i g n i f i c a n t f a v o u r a b l e new i n f o r m a t i o n wh ich i s d i s s e m i n a t e d to the market d u r i n g a t r a d i n g s u s p e n s i o n and 152 (2) the market does not f u l l y and r a p i d l y impound t h i s un -f a v o u r a b l e new i n f o r m a t i o n i n s t o c k p r i c e s . SUMMARY In t h i s c h a p t e r , the p r e d i c t i o n s o f the NR and SR hypo theses on the e f f e c t i v e n e s s o f t r a d i n g s u s p e n s i o n s were f o r m u l a t e d and e m p i r i c a l l y t e s t e d . More s p e c i f i c a l l y , a num-ber o f s t a t i s t i c a l t e s t s were employed to de te rm ine whether or not a t r a d i n g s u s p e n s i o n conveys any new i n f o r m a t i o n to the market and how r a p i d l y any new i n f o r m a t i o n conveyed to the market i s f u l l y impounded i n s t o c k p r i c e s . In the f o l l o w -i ng c h a p t e r , the major f i n d i n g s and c o n c l u s i o n s o f t h i s s tudy _are p r e s e n t e d and the i m p l i c a t i o n s o f t h e s e f i n d i n g s f o r im -proved s e c u r i t y r e g u l a t i o n and f u t u r e r e s e a r c h a re p r e s e n t e d and a s s e s s e d . 1 53 FOOTNOTES ^ i v e n F i g u r e 1, the f o u r p o s s i b l e market r e a c t i o n s i n the p o s t - s u s p e n s i o n p e r i o d to " f a v o u r a b l e new" or "no new" i n f o r m a t i o n a re e a s i l y d e d u c e d . 2 P u b l i c s o u r c e s c o n s u l t e d i n c l u d e The F i n a n c i a l P o s t , The G lobe and Mai 1 , The N o r t h e r n M i n e r , The M o n t r e a l S t a r , The M o n t r e a l G a z e t t e , The To ron to S t a r , The Vancouver S u n , The Vancouver P r o v i n c e , The Canad ian S tock Exchange D a i l y  R e c o r d , The M o n t r e a l S tock Exchange D a i l y R e c o r d , The To ron to  S tock Exchange D a i l y Record and The Vancouver S tock Exchange  D a i l y B u l l e t i n . P r i v a t e s o u r c e s c o n s u l t e d i n c l u d e members of the C a n a d i a n , M o n t r e a l , To ron to and Vancouver S tock E x c h a n g e s ; members o f the B . C . and Quebec S e c u r i t i e s C o m m i s s i o n s ; and members o f the M o n t r e a l and To ron to R . C . M . P . F raud Squads . 3 E a c h t ype o f t r a d i n g i n t e r r u p t i o n i s d i s c u s s e d i n d e t a i l i n Chap te r 2 . " T h i s r e f l e c t s the lla^teer de l e t i on o f Granby M i n i n g f rom the sample because no t r a d e s o c c u r r e d w i t h i n i t s da ta c o l l e c t i o n p e r i o d . G e n e r a l l y , i n t e r l i s t e d Canad ian s t o c k s t r a d e p r e d o m i n a n t l y on one exchange . T h e r e f o r e , the p r i c e s used f o r m u l t i - e x c h a n g e s u s p e n s i o n s o f the same s e c u r i t y f o r the same t ime p e r i o d were c o l l e c t e d f rom the exchange on wh ich the suspended s t o c k p r e d o m i n a n t l y t r a d e d . 5 I t s h o u l d be noted t h a t i n some c a s e s , the r e g u l a -t o r y body found i t more c o n v e n i e n t to g i v e the p u b l i c a d i f -f e r e n t r e a s o n . T h i s r e l i e v e d the r e g u l a t o r y b o d y . o f the burden o f p r o v i d i n g p roo f f o r i t s a l l e g a t i o n . 6 T h i s c o r r e s p o n d s to a p e r i o d o f a p p r o x i m a t e l y 2 y e a r s b e f o r e and 2 y e a r s a f t e r the t r a d i n g s u s p e n s i o n . 7 F o r exam p le , S c h o l e s e s t i m a t e d the pa rame te rs o f the marke t model u s i n g "100 days o f r e t u r n da ta on each s e -c u r i t y i n the sample around the day o f the s e c o n d a r y but e x c l u d i n g the s i x o b s e r v a t i o n s p r i o r to the seconda ry and seven o b s e r v a t i o n s i n c l u d i n g and subsequen t to the day o f the s e c o n d a r y " . See Myron S . S c h o l e s , "The Marke t f o r S e -c u r i t i e s : S u b s t i t u t i o n v e r s u s P r i c e P r e s s u r e and the E f f e c t s of I n f o r m a t i o n on Share P r i c e s , " The J o u r n a l o f B u s i n e s s , V o l . 45 ( A p r i l , 1 972) , p. 189 . 8 A v a i l a b l e f rom the F i n a n c i a l Resea rch I n s t i t u t e , 635 D o r c h e s t e r W. , M o n t r e a l , Quebec. 9 S e e f o o t n o t e 2 . 1 0 S e e f o o t n o t e 2. 11A week ly d i v i d e n d y i e l d s e r i e s f o r the TSE I n d u s -t r i a l Index was u n a v a i l a b l e . 1 54 1 2 T h i s s e c t i o n has r e l i e d e x t e n s i v e l y on Ray B a l l , " R i s k , Re tu rn and D i s e q u i l i b r i u m : An A p p l i c a t i o n to Changes i n A c c o u n t i n g T e c h n i q u e s , " The J o u r n a l o f F i n a n c e , V o l . 2 7 , No. 2 (May, 1 9 7 2 ) , pp . 3 4 3 - 5 4 . 1 3 A p o r t f o l i o i s e f f i c i e n t i f no o t h e r p o r t f o l i o w i t h the same or h i g h e r e x p e c t e d r e t u r n has a lower s t a n d a r d d e v i -a t i o n of r e t u r n . * ^S,ee W i l l i a m F. S h a r p e , "A, S i m p l i f i e d Model f o r Pgrtfpjio A n a l y s i s ^ " Management ' S c i e n c e , ' ( ' January , 19,6.3), pp/. 2 7 7 - g 3 ; ' .^Capi ta l Asset-Pr ix-e;s~r~A;~?h;|or- .y~qf"Market E q u i -l i b r i u m under^GQn'd ' i t ions q f R i s k ^ " J o u r n a l ' ' o f ' F i n a n c e , 19 l(j!96ft|';'-. P i ' T u ^ S - ^ i ^ a n d : M a r s j a t f 0 B1 um;eT7"-T-h-e--As;sessment of' P g r t f i o l 1,0.. Perf-d>pmance!iV(P,h «D\+di ssertation , "Unirvers i t y o f Ch i ' cago^ 1 T 9 6 8 ) ' ? C ' u ' ' 9 U " -w ° ' y 1 5 E x t e n s i v e t e s t s o f t h i s model by Blume and by Fama e t a l . i n d i c a t e t h a t the a s s u m p t i o n s o f l i n e a r i t y , s t a t i o n -a r i t y , and s e r i a l i ndependence o f the r e s i d u a l s a re not v i o -l a t e d . The e s t i m a t e d r e s i d u a l s , however , appear to be more c l o s e l y a p p r o x i m a t e d by a member of the s t a b l e c l a s s o f d i s -t r i b u t i o n s w i t h a c h a r a c t e r i s t i c exponent o f l e s s than two. However , e x p e r i m e n t a l s a m p l i n g by Fama and R o l l (Eugene Fama and R i c h a r d R o l l , "Some P r o p e r t i e s of Symmetr ic S t a b l e D i s -t r i b u t i o n s , " J o u r n a l o f the Amer i can S t a t i s t i c a l A s s o c i a t i o n , (Sep tember , 1968) )and s i m u l a t i o n s by Fama and Bab iak (Eugene Fama and Harvey B a b i a k , " D i v i d e n d P o l i c y : An E m p i r i c a l A n a l y -s i s , " J o u r n a l o f t he Amer i can S t a t i s t i c a l A s s o c i a t i o n , 63 (December, 1 9 6 8 ) , pp"! 1132-61) and B l a t t b e r g and S a r g e n t ( (Robe r t B l a t t b e r g and Thomas S a r g e n t , " R e g r e s s i o n w i t h Non-G a u s s i a n S t a b l e D i s t u r b a n c e s : Some Samp l i ng R e s u l t s , " E c o n o -m e t r i c a , 39 (May, 1 9 7 1 ) , pp . 501-10) i n d i c a t e t h a t f o r s e c u r i t i e s the mean i s a lmos t as e f f i c i e n t an e s t i m a t o r o f the l o c a t i o n pa ramete r of the d i s t r i b u t i o n as the median or n o n l i n e a r e s t i m a t o r s such as t r u n c a t e d means. T h u s , the use o f the r e g r e s s i o n m o d e l , a g e n e r a l i z a t i o n o f e s t i m a t i o n by means, appears to be a p p r o p r i a t e . 1 6 F . B l a c k , M. J e n s e n and M. S c h o l e s , "The C a p i t a l A s s e t P r i c i n g M o d e l : Some E m p i r i c a l T e s t s , " i n M. J e n s e n ( E d i t o r ) , S t u d i e s i n the Theory of C a p i t a l Ma rke t s (New Y o r k : P r a e g e r , 1 9 7 2 ) ; and E . F . Fama and J . D . M a c B e t h , " R i s k , Re tu rn and E q u i l i b r i u m : Some E m p i r i c a l T e s t s , " J o u r n a l of P o l i t i c a l  Economy, 71 , 1 973 , pp . 6 0 7 - 3 6 . 1 7 T h e methodo logy i n t h i s s tudy i s an a d a p t i o n and r e f i n e m e n t of the methodo logy used by Eugene Fama, Lawrence F i s h e r , M i c h a e l G. J e n s e n and R i c h a r d R o l l i n "The Ad jus tmen t o f S t o c k P r i c e s to New I n f o r m a t i o n , " I n t e r n a t i o n a l Economic  Rev i ew, 10 ( F e b r u a r y , 1 9 6 9 ) , pp . 1 -21 . Fama e t a l . used t h i s methodo logy to a n a l y z e the p r i c e e f f e c t s o f s t o c k s p l i t s . The methodo logy has a l s o been used to a n a l y z e the impac t o f i n s t i t u t i o n a l t r a d i n g . See I n s t i t u t i o n a l I n v e s t o r S tudy R e -p o r t of the S e c u r i t i e s and Exchange C o m m i s s i o n , Volume 4 ( W a s h i n g t o n , D . C : U . S . Government P r i n t i n g O f f i c e , 1971 ) . 1 55 1 8 B . F . K i n g , "Ma rke t and I n d u s t r y F a c t o r s i n S tock P r i c e B e h a v i o r , " J o u r n a l o f B u s i n e s s , V o l . 3 9 , P a r t I I ( J a n u -a r y , 1 9 6 6 ) , pp . 1 3 9 - 9 0 . 1 9 S . L . M e y e r s , "A R e - e x a m i n a t i o n o f Marke t and I n d u s -t r y F a c t o r s i n S tock P r i c e B e h a v i o u r , " J o u r n a l o f F i n a n c e , V o l . 2 8 , No; 3 ( J u n e , 1 9 7 3 ) , pp . 6 9 5 - 7 0 5 . 2 0 0 n e suspended s t o c k had to be e l i m i n a t e d because i t l a c k e d s u f f i c i e n t da ta f o r the e s t i m a t i o n p e r i o d . 2 1 T h e e r r o r term i s not the same as the r e s i d u a l , s i n c e some of the o b s e r v a t i o n s to be p r e d i c t e d a re not i n -c l u d e d i n the e s t i m a t i o n p r o c e d u r e . T h u s , the mean v a l u e s of the e r r o r terms a re u s u a l l y n o n z e r o . 2 2 R e a l i s t i c a l l y , a p o r t f o l i o of suspended s t o c k s c o u l d n o t . b e pu rchased i n r e l a t i v e week w. 2 3 I t s h o u l d be noted t h a t the r e s u l t s do not appear to be ve ry s e n s i t i v e to the number o f o b s e r v a t i o n s d e l e t e d . For e x a m p l e , s i m i l a r r e s u l t s were o b t a i n e d when o n l y the o b s e r v a t i o n s f o r the s u s p e n s i o n p e r i o d were d e l e t e d i n the e s t i m a t i o n of (5) . 2hFor the u n f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s o t h e r than f o r a l l e g e d m a n i p u l a t i o n , the C . A . E . T . r i s e by o n l y 6.7 p e r c e n t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n , f a l l by 1.7 p e r c e n t ove r the s u s p e n s i o n p e r i o d and then f a l l a f u r t h e r 15 .6 p e r c e n t d u r i n g the 39 weeks subsequen t to the r e i n s t a t e m e n t of t r a d i n g . 2 5 F . B l a c k , M. Jensen and M. S c h o l e s , "The C a p i t a l A s s e t P r i c i n g M o d e l , " p. 84 . 2 6 I t s h o u l d be noted t h a t the FFJR and the p o r t f o l i o method g i v e d i f f e r e n t u n s t a n d a r d i z e d e r r o r t e r m s . T h i s r e -s u l t s e s s e n t i a l l y f rom the d i f f e r e n t e r r o r term w e i g h t i n g s used i n each method. 2 7 F o r the u n f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s o t h e r than f o r a l l e g e d m a n i p u l a t i o n , t h e r e i s no s t a t i s t i c a l l y s i g -n i f i c a n t ave rage abnormal r e t u r n i n the p r e - s u s p e n s i o n p e r i o d , a s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n o v e r . t h e t r a d i n g s u s p e n s i o n and a s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n i n the p o s t - s u s p e n s i o n p e r i o d . 2 8 S i n c e R» . was not s u b t r a c t e d f rom e q u a t i o n ( 5 ) , thl..iitifflitia l i p h i s wS^iS1 y}8t U SSlfcctgfl td 61 Iquai to z e r o . 2 9 F o r the u n f a v o u r a b l e i n f o r m a t i o n s u s p e n s i o n s o t h e r than f o r a l l e g e d m a n i p u l a t i o n , the C . A . E . T . f a l l by 33 .9 p e r -cen t d u r i n g the 40 weeks p r i o r to the t r a d i n g s u s p e n s i o n and 156 f a l l by a f u r t h e r 36 .8 p e r c e n t ove r and subsequen t to the t r a d i n g s u s p e n s i o n . 3 0 T h i s i s the r e s u l t e x p e c t e d g i v e n t h a t the ave rage o f the e s t i m a t e d a l p h a s f o r the t o t a l sample and each s u b -sample was n e g a t i v e . 3 1 I t s h o u l d be noted t h a t t h i s i s not a ve ry s a t i s -f a c t o r y p r o c e d u r e f o r d e t e r m i n i n g whether o r not be ta i s non -s t a t i o n a r y . In p a r t i c u l a r , p r e v i o u s l y e x c l u d e d o b s e r v a t i o n s a re now b e i n g used i n the e s t i m a t i o n o f the pa rame te rs o f the SFM. 3 2 A n a l t e r n a t e moving ave rage s e r i e s c o u l d be c o n -s t r u c t e d by u s i n g 50 weeks around the week o f i n t e r e s t . That i s , the a . . and the b i . f o r (8) c o u l d be e s t i m a t e d f rom rdaata Hr \t-Z5) t h r o u g h ' ( t+25) s e x e l udi ng week t . 3 3 M o v i ng ave rage a^ and b^ s e r i e s were a.lso used to " f l S l i c ' a l l t g the e r r o r t e r m s , w i t h and «li h o u T a T p h a - equa l to z%ro\ f o r . a i l lamp l i s : , t h e s e , r 'esul t s , wi l i not Be p r e s e n t e d b e c a u i i t hey §r% c o n l i l t l n t wi tPi t h l f i n d i n g s a l r e a d y p r e -sen ted and d i s c u s s e d . 3 1 f P i e t r o B a l e s t r a and Marc N e r l o v e , " P o o l i n g C r o s s S e c t i o n and Time S e r i e s Data i n the E s t i m a t i o n o f a Dynamic M o d e l : The Demand f o r N a t u r a l G a s , " E c o n o m e t r i c a , V o l . 3 4 , No. 3 ( J u l y , 1 966) , pp . 585-61 2 . 3 5 I am g r a t e f u l to S . T u r n b u l l f o r the computer p a c k -age used to s o l v e the PCTS r e g r e s s i o n s run f o r t h i s t h e s i s . 3 6 A d i s c u s s i o n o f t h i s methodo logy i s g i v e n i n E. Kuh , "The V a l i d i t y . o f C r o s s - S e c t i o n a 1 l y E s t i m a t e d B e h a v i o u r E q u a t i o n s i n Time S e r i e s A p p 1 i c a t i o n s , " E c o n o m e t r i c a , V o l . 27 ( A p r i l , 1 9 5 9 ) , pp . 1 9 7 - 2 1 4 ; and P. B a l e s t r a and M. N e r l o v e , pp . 5 8 5 - 6 1 2 . 3 7 F o r g r e a t e r d e t a i l , see R.W. W h i t e , " P o o l e d C r o s s S e c t i o n and Time S e r i e s R e g r e s s i o n P a c k a g e , " U n p u b l i s h e d p a -p e r , U n i v e r s i t y of B r i t i s h C o l u m b i a , V a n c o u v e r , 1975 . 3 8 T h e prob lem o f m u l t i p l e r e l e a s e s o f new i n f o r m a -t i o n i n p e r i o d s around the s u s p e n s i o n p e r i o d ( i f i t had e x i s t e d ) c o u l d have been hand led by the i n t r o d u c t i o n o f a d -d i t o n a l dummy v a r i a b l e s i n t o the PCTS r e g r e s s i o n m o d e l . 3 9 T h e i n t r o d u c t i o n o f t h i s i n s t r u m e n t a l v a r i a b l e i n t o the model m i n i m i z e s any p rob lems t h a t can o c c u r because of n o n - s t a t i o n a r i t y . 4 , 0 I f a dummy v a r i a b l e had been u s e d , m u l t i c o l i n e a r i t y would have e x i s t e d between t h i s v a r i a b l e and the c o n s t a n t t e r m . 1 57 4 1 T h a t t h i s makes the r e s i d u a l v a r i a n c e h o m o s c e d a s t i c can be shown as f o l l o w s : o 2 ( 1 - ^ j t ) T ( I ^ o J . " 2 T h e ave rage week ly abnormal r e t u r n f o r a two week p e r i o d (weeks + 2 and +3) can be t e s t e d by u s i n g a dummy v a r i a b l e of a l l O 's e x c e p t f o r l ' s f o r weeks +2 and +3. C h a p t e r 4 SUMMARY, MAJOR FINDINGS AND IMPLICATIONS The two b a s i c aims o f s e c u r i t i e s r e g u l a t i o n a re the p r o t e c t i o n of the g e n e r a l p u b l i c ' s i n t e r e s t and the p r o t e c t i o n of the i n d i v i d u a l i n v e s t o r ' s i n t e r e s t . The fo rmer r e l a t e s m a i n l y to the use of r e g u l a t i o n to improve the economic p e r -fo rmance ( e f f i c i e n c y ) of s e c u r i t y m a r k e t s ; w h i l e the l a t t e r r e l a t e s m a i n l y to the use of r e g u l a t i o n to ensu re the e q u i t -a b l e t r e a t m e n t of a l l market p a r t i c i p a n t s . H i s t o r i c a l l y , r e g u l a t o r s have a t t emp ted to a c h i e v e t h e s e two b a s i c aims th rough two r e g u l a t o r y a p p r o a c h e s : " c o n -t r o l of c o n d u c t " r e g u l a t i o n s and " d i s c l o s u r e " r e q u i r e m e n t s . The fo rmer app roach d e a l s w i t h the t ype o f b e h a v i o u r wh ich i s c o n s i d e r e d to be a c c e p t a b l e f o r new and e x i s t i n g p a r t i c i p a n t s i n the s e c u r i t i e s m a r k e t . The l a t t e r app roach i n c l u d e s both g e n e r a l d i s c l o s u r e s t a t u t e s (such as the mandatory f i l i n g of annua l and q u a r t e r l y f i n a n c i a l s t a t e m e n t s ) . wh ich a re d e s i g n e d to e l i c i t the r e g u l a r d i s c l o s u r e of g e n e r a l i n f o r m a t i o n and t i m e l y d i s c l o s u r e p o l i c i e s wh ich a re i n t e n d e d to e l i c i t t he immedia te p u b l i c d i s c l o s u r e of f i r m - s p e c i f i c i n f o r m a t i o n (such as a pend ing t a k e o v e r b i d ) . A c o r p o r a t e v i o l a t i o n of one or more o f t h e s e d i s c l o s u r e p r o v i s i o n s can l e a d to a r e g u l a t o r y a c t i o n (such as a t r a d i n g s u s p e n s i o n ) a g a i n s t the f i r m . For ex amp le , i f a r e g u l a t o r s u s p e c t s t h a t n o n - p u b l i c f i r m - s p e c i f i c i n f o r m a t i o n i s be ing e x p l o i t e d to the m a t e r i a l advan tage of one o r more market p a r t i c i p a n t s , then the r e g u l a t o r may i s s u e a r e g u l a t o r y a c t i o n c o m p e l l i n g the immedia te d i s c l o s u r e of t h a t i n f o r m a t i o n . 1 58 1 59 The major pu rpose of t h i s t h e s i s has been to t e s t em-p i r i c a l l y two a l t e r n a t i v e hypo theses c o n c e r n i n g the e f f i c a c y o f s e c u r i t y r e g u l a t i o n ( i n p a r t i c u l a r t r a d i n g s u s p e n s i o n s ) i n i m p r o v i n g the e f f i c i e n c y of the s t o c k m a r k e t . The n a i v e r e g u -l a t o r (NR) h y p o t h e s i s s t a t e s t h a t an u n r e g u l a t e d market i s e f f i c i e n t . T h e r e f o r e , s e c u r i t y r e g u l a t i o n i s u n n e c e s s a r y and s e c u r i t y r e g u l a t o r s a re n a i v e i n b e l i e v i n g o t h e r w i s e . The a l t e r n a t i v e h y p o t h e s i s , the s o p h i s t i c a t e d r e g u l a -t o r (SR) h y p o t h e s i s , s t a t e s t h a t an u n r e g u l a t e d market i s not e f f i c i e n t . The b e l i e f i s t h a t i n an u n r e g u l a t e d m a r k e t , an " i n s u f f i c i e n t " number of " s o p h i s t i c a t e d " i n v e s t o r s would a c t on a l l a v a i l a b l e i n f o r m a t i o n and would not have an i n c l i n a t i o n to c o n t i n u e h o l d i n g e x p e c t a t i o n s not f u l l y consonan t w i t h new i n f o r m a t i o n . T h e r e f o r e , s e c u r i t y r e g u l a t i o n can be e f f e c t i v e i n making the market a " c l o s e r " a p p r o x i m a t i o n to an e f f i c i e n t o r p e r f e c t m a r k e t . The compet ing h y p o t h e s i s c o u l d o n l y be r e s o l v e d e m p i r i -c a l l y . As a r e s u l t , a sample of 120 suspended s t o c k s was used to t e s t the a l t e r n a t e h y p o t h e s e s . Each suspended s t o c k i n the sample s a t i s f i e d the f o l l o w i n g c r i t e r i a : (1) i t was suspended because o f a f a i l u r e to d i s s e m i n a t e r e q u e s t e d i n f o r m a t i o n ; (2) a t the t ime of s u s p e n s i o n , i t was l i s t e d on the C S E , MSE, TSE a n d / o r V S E ; (3) i t was suspended d u r i n g the p e r i o d o f J a n u a r y 1, 1967 , to December 3 1 , 1973 , i n c l u s i v e ; and (4) i t was l a t e r r e i n s t a t e d f o r t r a d i n g . S i n c e s u s p e n s i o n p r i c e e f f e c t s can va ry by the type o f i n f o r m a t i o n d i s p e r s e d d u r i n g a t r a d i n g s u s p e n s i o n , the a l l e g e d l y m a n i p u l a t e d , the u n f a v o u r a b l e i n f o r -160 ma t i on and the f a v o u r a b l e i n f o r m a t i o n suspended s t o c k s i n . t h e sample were a l s o i d e n t i f i e d and a n a l y z e d . A c c o r d i n g to the s t r o n g form of the e f f i c i e n t marke t h y p o t h e s i s (and the NR h y p o t h e s i s ) , the e f f e c t of t r a d i n g s u s p e n s i o n s s h o u l d be z e r o , s i n c e any i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s would not be a v a i l a b l e to the R e g u l a t o r s . On the o t h e r hand , the SR h y p o t h e s i s p r e d i c t s t h a t i n f o r m a t i o n not " f u l l y r e f l e c t e d " i n c u r r e n t s t o c k p r i c e s may be known to r e g u l a t o r s am-dimay,, when made p u b l i c , be o f s u f f i c i e n t v a l u e to m a t e r i a l l y a f f e c t the marke t p r i c e of the s h a r e s r e g u l a t e d . The suspended s t o c k s were s u b j e c t e d to a number of t e s t s . The f i r s t t e s t , the F a m a - F i s h e r - J e n s e n - R o l 1 t e s t , c o n -s i s t e d s i m p l y of a v i s u a l e x a m i n a t i o n of the ave rage e r r o r terms and the c u m u l a t i v e ave rage e r r o r terms f o r each week r e l a t i v e to (and o v e r ) the t r a d i n g s u s p e n s i o n f o r s i g n i f i c a n t n o n - z e r o b e h a v i o u r . The second t e s t used the p o r t f o l i o method to s t a t i s t i c a l l y t e s t whether or not the week l y ave rage e r r o r terms were s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . The t h i r d t e s t was a FFJR t e s t on the ave rage (and c u m u l a t i v e ave rage ) e r r o r terms f rom the s i n g l e f a c t o r market model when a l l the c i^ ' s a re s e t to z e r o . T h i s t e s t was employed to d e t e r m i n e whether o r not the r e s u l t s were s e n s i t i v e to measurement e r r o r s i n the e s t i m a t e d a l p h a s . The f o u r t h t e s t was a FFJR t e s t on the ave rage (and c u m u l a t i v e a v e r a g e ) e r r o r terms f rom the s i n g l e f a c t o r market model when a l l the t>. 's a re s e t to one . T h i s t e s t was employed to. d e t e r m i n e whether or not the r e s u l t s were s e n s i t i v e to 161 measurement e r r o r s i n the e s t i m a t e d betas; . The f i n a l t e s t was a p o o l e d c r o s s - s e c t i o n t ime s e r i e s (PCTS) r e g r e s s i o n a n a l y s i s . Dummy v a r i a b l e s were i n t r o d u c e d i n t o the model to t e s t f o r the e f f e c t of any new i n f o r m a t i o n d i s p e r s e d d u r i n g a t r a d i n g s u s p e n s i o n . The t ime p e r i o d s examined i n c l u d e d the s u s p e n s i o n p e r i o d and the f i r s t two weeks i n the p o s t - s u s p e n s i o n p e r i o d . MAJOR FINDINGS The major f i n d i n g s of t h i s s tudy can be summar ized as : (1) The s t u d y has i d e n t i f i e d a new group o f marke t p a r t i c i p a n t s who a p p a r e n t l y has m o n o p o l i s t i c a c c e s s to i n f o r -m a t i o n . The f i n d i n g s o f the s t udy c l e a r l y i d e n t i f y r e g u l a t o r s as h a v i n g a c c e s s to s i g n i f i c a n t u n f a v o u r a b l e (and f a v o u r a b l e ) new i n f o r m a t i o n t h a t i s not " f u l l y r e f l e c t e d " i n s t o c k p r i c e s p r i o r to a t r a d i n g s u s p e n s i o n . (2) For the s>£:oc"k<s s t u d i ed , the marke t i s not e f f i c i e n t i n the s e m i - s t r o n g form f o r u n f a v o u r a b l e new p u b l i c i n f o r m a -t i o n . In p a r t i c u l a r , f o r a l l e g e d l y m a n i p u l a t e d and u n f a v o u r -a b l e i n f o r m a t i o n s t o c k s , s t a t i s t i c a l l y s i g n i f i c a n t abnormal n e g a t i v e r e t u r n s o c c u r i n the p o s t - s u s p e n s i o n p e r i o d . (3) The market appears to be e f f i c i e n t i n the s e m i -s t r o n g form f o r f a v o u r a b l e new i n f o r m a t i o n . More s p e c i f i -c a l l y , s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e abnormal r e t u r n s o c c u r o n l y p r i o r and o v e r the s u s p e n s i o n p e r i o d . (4) D e l i b e r a t e l y pu rsued s t r a t e g i e s o f d i s s e m i n a t i n g (and e x p l o i t i n g ) m i s i n f o r m a t i o n a re p r o b a b l y p r o f i t a b l e . T h i s 162 i s s u p p o r t e d by the e x t r e m e l y l a r g e p o s i t i v e abnormal r e t u r n s t h a t o c c u r i n the p r e - s u s p e n s i o n p e r i o d f o r a l l e g e d l y m a n i p -ula- fed' s t ocks . . (5) T e s t s to d e t e r m i n e whether o r not the f i n d i n g s a r e s e n s i t i v e to measurement e r r o r s i n the e s t i m a t e d a l p h a s and the e s t i m a t e d be tas d i d not m a t e r i a l l y a f f e c t the f i n d i n g s o f t h i s s t u d y . IMPLICATIONS FOR SECURITY REGULATION The f i n d i n g s o f t h i s s t udy have a number of i m p o r t a n t i m p l i c a t i o n s f o r s e c u r i t y r e g u l a t i o n i n Canad ian c a p i t a l mar-ke ts . E f f e c t i v e n e s s of R e g u l a t o r y S u r v e i l l a n c e Techn iques The s t a t i s t i c a l l y s i g n i f i c a n t p o s i t i v e abnormal r e t u r n s e x h i b i t e d i n the p r e - s u s p e n s i o n p e r i o d f o r a l l t h r e e subsam-p l e s ( a l l e g e d l y m a n i p u l a t e d , u n f a v o u r a b l e i n f o r m a t i o n and f a v o u r a b l e i n f o r m a t i o n ) a re d i s t r e s s i n g . T h i s s u g g e s t s t h a t the d e t e c t i o n t e c h n i q u e s employed by r e g u l a t o r s to d e t e c t the e x p l o i t a t i o n of monopoly i n f o r m a t i o n a re not e f f e c t i v e . T h i s i s not t o t a l l y u n e x p e c t e d , g i v e n the a p p a r e n t use o f u n s o p h i s -t i c a t e d i n v e s t i g a t o r y t e c h n i q u e s by r e g u l a t o r s . The f o l l o w i n g o b s e r v a t i o n by Manne i s s t i l l o c c a s i o n a l l y v a l i d i n Canada t o d a y : "Even the SEC, wh ich has q u i t e e f f i c i e n t d i s c o v e r y d e v i c e s a t i t s command, s t i l l r e l i e s l a r g e l y on newspaper a c -coun ts o f s p e c i f i c even ts to know where to beg in a s e a r c h " . 1 R e g u l a t o r s s h o u l d t h e r e f o r e s t r i v e to employ more e f f i c i e n t market s u r v e i l l a n c e t e c h n i q u e s . 163 E f f e c t i v e n e s s o f the D i s s e m i n a t i o n P r o c e s s The s t a t i s t i c a l l y s i g n i f i c a n t n e g a t i v e abnormal r e t u r n s e x h i b i t e d i n the p o s t - s u s p e n s i o n p e r i o d f o r a l l e g e d l y man ipu -l a t e d and u n f a v o u r a b l e i n f o r m a t i o n s t o c k s s h o u l d a l s o be of c o n c e r n to r e g u l a t o r s . T h i s s u g g e s t s t h a t the p r o c e d u r e f o r p u b l i c l y d i s s e m i n a t i n g i n f o r m a t i o n d u r i n g the t r a d i n g s u s p e n -s i o n i s not ve ry e f f e c t i v e . A l t e r n a t i v e methods of e n s u r i n g w i d e r , and p r o b a b l y more e q u i t a b l e , p u b l i c d i s s e m i n a t i o n o f new f i r m - s p e c i f i c i n f o r m a t i o n s h o u l d be exam ined . SUGGESTIONS FOR FURTHER RESEARCH The f i n d i n g s of t h i s s tudy s u g g e s t t h a t r e s e a r c h s h o u l d be conduc ted i n a t l e a s t the f o l l o w i n g t h r e e a r e a s . A l t e r n a t i v e R e g u l a t o r y A c t i o n s T r a d i n g s u s p e n s i o n s a re o n l y one o f f o u r r e g u l a t o r y a c t i o n s employed by r e g u l a t o r s to e l i c i t the immedia te p u b l i c d i s c l o s u r e of f i r m - s p e c i f i c i n f o r m a t i o n . The o t h e r r e g u l a t o r y a c t i o n s i n c l u d e d e l a y e d o p e n i n g s , t r a d i n g d e l a y s and t r a d i n g h a l t s . I t would be u s e f u l to e m p i r i c a l l y t e s t whether t h e s e a l t e r n a t e forms o f i n t e r r u p t i n g t r a d i n g to d i s s e m i n a t e i n f o r -ma t ion a re more or l e s s e f f e c t i v e than t r a d i n g s u s p e n s i o n s . Impact of R e g u l a t o r y A c t i o n s on I n v e s t o r E q u i t y R e g u l a t o r s a re expec ted to use r e g u l a t o r y a c t i o n s i n such a manner t h a t no group ( i n p a r t i c u l a r c o r p o r a t e i n s i d e r s ) has advance knowledge about the impend ing use of the r e g u l a t o r y a c t i o n wh ich a l l o w s t h a t group to a c h i e v e a s u p e r i o r market p e r f o r m a n c e . As a r e s u l t , a n e c e s s a r y but not s u f f i c i e n t c o n -d i t i o n f o r the e f f e c t i v e use of t r a d i n g s u s p e n s i o n s i s t h a t 1 64 i n s i d e r s do not p o s s e s s and p r o f i t a b l y e x p l o i t " p r i v a t e " i n f o r -ma t i on about a f u t u r e s u s p e n s i o n . A p r i o r i , i t would be expec ted t h a t i n s i d e r s may earn e x c e s s r e t u r n s because r e g u l a t o r s o f t e n warn the company (and t h e r e f o r e the i n s i d e r s ) b e f o r e i s s u i n g a t r a d i n g s u s p e n s i o n . T h e r e f o r e , whether o r not i n s i d e r s do earn e x c e s s r e t u r n s around t r a d i n g s u s p e n s i o n s s h o u l d be em-p i r i c a l l y t e s t e d . E f f e c t i v e n e s s of Marke t S u r v e i l l a n c e Techn iques As was d i s c u s s e d i n Chap te r 2 , r e g u l a t o r s m o n i t o r the marke t b e h a v i o u r of s e c u r i t i e s by the use of i n f o r m e r s and s i m p l e m e c h a n i c a l me thods , r e f e r r e d to as " s t o c k - w a t c h " p r o -g r a m s , i n o r d e r to f l a g s i t u a t i o n s t h a t r e q u i r e more i n t e n s i v e i n v e s t i g a t i o n and p o s s i b l e r e g u l a t o r y a c t i o n . The e x t r e m e l y l a r g e p o s i t i v e abnormal r e t u r n s t h a t o c c u r i n the p r e - s u s p e n -s i o n p e r i o d f o r a l l e g e d l y m a n i p u l a t e d s t o c k s s u g g e s t t h a t the e f f e c t i v e n e s s o f t hese s u r v e i l l a n c e t e c h n i q u e s s h o u l d be s t u d i e d . 165 FOOTNOTES x S e e H.A. 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" O r g a n i z e d S e c u r i -t i e s . E x c h a n g e s i n C a n a d a , " The J o u r n a l o f F i n a n c e , V o l . XV, (Sep tember , 1 9 6 0 ) , pp . 3 0 7 - 2 4 . Wau ld , Roger N. " P u b l i c I n t e r p r e t a t i o n of F e d e r a l Rese rve D i s c o u n t Rate Changes : E v i d e n c e on the 'Announcement E f -f e c t ' , " E c o n o m e t r i c a , 38 ( M a r c h , 1 9 7 0 ) , pp . 2 3 1 - 5 0 . Wheat, F . M . D i s c l o s u r e to I n v e s t o r s , A R e a p p r a i s a l of A d m i n i -s t r a t i v e P o l i c i e s Under the ' 33 and '34 S e c u r i t i e s A c t s , Repo r t and Recommendat ions to the S e c u r i t i e s and Exchange  Commiss ion f rom the D i s c l o s u r e P o l i c y Commit tee ( M a r c h , 1 9 6 9 ) . W h i t e , R.W. " P o o l e d C r o s s ' S e c t i o n and Time S e r i e s R e g r e s s i o n P a c k a g e , " U n p u b l i s h e d p a p e r , U n i v e r s i t y o f B r i t i s h Co lum-b i a , V a n c o u v e r , 1975. 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"An Economis t Looks a t S e c t i o n 16 of the S e c u r i t i e s Exchange A c t of 1 9 3 4 , " Co lumb ia Law R e v i e w , 68 ( F e b r u a r y , 1 9 6 8 ) , pp . 2 6 0 - 6 9 . 176 Append ix I THE SAMPLE OF STOCKS SUSPENDED BECAUSE OF A FAILURE TO DISSEM-INATE REQUESTED INFORMATION 1. A f r i c a n a M i n i n g Co . L t d . , l i s t e d on the CSE as ' A F M 1 . Suspended on May 13 , 1971 and r e i n s t a t e d on May 14 , 1971 . R e a s o n : No reason g i v e n f o r sudden sha re p r i c e d r o p . C l a s s i f i c a t i o n : F a v o u r a b l e I n f o r m a t i o n . (*) 2 . Be lg ium S t a n d a r d L t d . , l i s t e d on the CSE as 1 BLG 1 . Suspended on A p r i l 2 5 , 1973 and r e i n s t a t e d on Augus t 0 6 , 1 973 . R e a s o n : F o r g e t m a i n t a i n e d the p r i c e , thus c r e a t i n g an a r t i f i c i a l m a r k e t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 3 . Berncam I n t e r n a t i o n a l I n d u s t r i e s L t d . , l i s t e d on the CSE as 1 B C Y 1 . Suspended on A p r i l 2 5 , 1973 and r e i n s t a t e d on August 2 0 , 1 973 . R e a s o n : F o r g e t m a i n t a i n e d the p r i c e , thus c r e a t i n g an a r t i f i c i a l m a r k e t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 4 . B io V i t a I n c . , l i s t e d on the CSE as ' BVT 1 . Suspended on A p r i l 2 5 , 1973 and r e i n s t a t e d on J u l y 0 5 , 1 973 . R e a s o n : F o r g e t m a i n t a i n e d the p r i c e , thus c r e a t i n g an a r t i f i c i a l m a r k e t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 5 . B i s o n P e t r o l e u m & M i n e r a l s L t d . , l i s t e d on the CSE as 1 BSP 1 . Suspended on December 20 , 1972 and r e i n s t a t e d on December 21 , 1 972 . R e a s o n : Pend ing r e l e a s e to be made s h o r t l y ( r e g u l a t o r y p r o b l ems).. C l a s s i f i c a t i o n : U n f a v o u r a b l e I n f o r m a t i o n . 6 . Canad ian G o l d a l e C o r p . L t d . , l i s t e d on the CSE as ' CGD ' . Suspended on September 8 , 1972 and r e i n s t a t e d on Septem-ber 1 2 , 1972. R e a s o n : At r e q u e s t of company, pend ing i n f o r m a t i o n on f a v o u r a b l e change i n a f f a i r s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 7. C a p r i M i n i n g C o r p . L t d . , l i s t e d on the CSE as ' CAI ' . Suspended on O c t o b e r 13 , 1970 and r e i n s t a t e d on O c t o b e r 14 , 1970. Reason : Reques t of company, pend ing announcement f rom company o f i t s a f f a i r s . C l a s s i f i c a t i o n : F-a vi o U^b i?e s " i n f or ma-t i^n" .on. (*) Append ix I ( C o n t ' d ) 177 8 . Carbec Mines L t d . , l i s t e d on the CSE as ' C R C . Suspended on November 17 , 1967 and r e i n s t a t e d on March 1 1 , 1968. Reason : Pend ing f u l l i n v e s t i g a t i o n i n t o company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 9 . Chesbar I ron Powder L t d . , l i s t e d on the CSE as ' C B l 1 . Suspended on December 29 , 1971 and r e i n s t a t e d on A p r i l 2 , 1973. R e a s o n : Company r e q u e s t , pend ing u n f a v o u r a b l e s h a r e -h o l d e r announcement . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 10 . C i n e v i s i o n L t e e , l i s t e d on the CSE as ' C V l ' . Suspended on December 1 3 , 1972 and r e i n s t a t e d on J a n u a r y 5 , 1973. R e a s o n : Company r e q u e s t , pend ing ( f a v o u r a b l e ) i n f o r m a -t i o n . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 1 1 . C i n e v i s i o n L t e e , l i s t e d on the CSE as ' C V l ' . Suspended on A p r i l 2 5 , 1973 and r e i n s t a t e d on August 1 3 , 1 973 . R e a s o n : F o r g e t m a i n t a i n e d the p r i c e , thus c r e a t i n g an a r t i f i c i a l m a r k e t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 12 . C o n s o l i d a t e d Man i t oba Mines L t d . , l i s t e d on the CSE as ' CMAN 1 . Suspended on September 26 , 1967 and r e i n s t a t e d on Septem-ber 2 7 , 1967. R e a s o n : Pend ing c l a s s i f i c a t i o n and s e t t l e m e n t of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 13 . C u v i e r M i n e s , l i s t e d on the CSE as ' C U V ' . Suspended on Oc tobe r 2 , 1973 and r e i n s t a t e d on Oc tobe r 3 , 1973. R e a s o n : Pend ing i n q u i r y i n t o t r a d i n g a s p e c t s o f the s t o c k . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 14 . D e v i l s Elbow M i n e s , l i s t e d on the CSE as ' D E M ' . Suspended on June 2 3 , 1967 and r e i n s t a t e d on June 2 6 , 1 967 . R e a s o n : Pend ing a s t a temen t f rom the company. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 15 . Duvan Copper Co . L t d . , l i s t e d on the CSE as ' D U V ' . Suspended on A p r i l 6 , 1967 and r e i n s t a t e d on J a n u a r y 4 , 1968. R e a s o n : F a i l e d t o i r e p o r t on a d v e r s e change i n f i n a n c i a l a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 178 16 . F a l l i n g e r C o r p o r a t i o n , l i s t e d on the CSE as ' F G R ' . Suspended on A p r i l 2 5 , 1973 and r e i n s t a t e d on December 2 7 , 1973 . R e a s o n : F o r g e t m a i n t a i n e d the p r i c e , thus c r e a t i n g an a r t i f i c i a l m a r k e t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 17 . Gaspe Quebec Mines L t d . , l i s t e d on the CSE as ' G E Q ' . Suspended on November 0 2 , 1972 and r e i n s t a t e d on Novem-ber 1 7 , 1972. R e a s o n : C l a r i f i c a t i o n of company 's r e c e n t l y announced a c q u i s i t i o n of Lennox Paper L t d . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 18. Grenache I n c . , l i s t e d on the CSE as ' GEI ' . Suspended on Oc tobe r 3 1 , 1972 and r e i n s t a t e d on November 3 , 1972. R e a s o n : Pend ing c l a r i f i c a t i o n o f a pu r chase o f f e r by Les L a i t e r i e s L e c T ' e r c c I n c . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 19 . Hambro C o r p . of Canada L t d . , l i s t e d on the CSE as ' H R O ' . Suspended on September 8 , 1972 and r e i n s t a t e d on Septem-ber 12 , 1972. R e a s o n : Company r e q u e s t , pend ing pu rchase o f f e r . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 20 . I s e c Canada L t d . , l i s t e d on the CSE as ' I S E ' . Suspended on J a n u a r y 14 , 1972 and r e i n s t a t e d on Septem-ber 2 4 , 1973 . R e a s o n : Pend ing i n f o r m a t i o n , no p e t i t i o n o f b a n k r u p t c y . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 2 1 . James Bay M i n i n g C o r p . , l i s t e d on the CSE as ' J B M ' . Suspended on November 8 , 1968 and r e i n s t a t e d on November 2 2 , 1968. R e a s o n : I n c o n c l u s i v e i n f o r m a t i o n and rumours d i s s e m i -n a t e d . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 22 . Kod iak P e t r o l e u m s L t d . , l i s t e d on the CSE as 1 K P L ' . Suspended on June 2 2 , 1967 and r e i n s t a t e d on June 26 , 1 967 . R e a s o n : Pend ing i n f o r m a t i o n r e l e a s e ( t a k e n ove r by Manhat tan C o n t . Dev. C o r p . ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 23 . K o n t i k i Lead & Z i n c Mines L t d . , l i s t e d on the CSE as ' KTK 1 . Suspended on F e b r u a r y 2 1 , 1973 and r e i n s t a t e d on May 1 1 , 1 973 . R e a s o n : Company r e q u e s t , pend ing announcement re a f f a i r s C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 24 . Lemieux Copper E x p l o r a t i o n s L t d . , l i s t e d on the CSE as ' L C X ' . Suspended on A p r i l 3 0 , 1968 and r e i n s t a t e d on F e b r u a r y 24 , 1969. R e a s o n : Pend ing c l a r i f i c a t i o n o f company agreement on c l a i m s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 25 . Lemieux Copper E x p l o r a t i o n s L t d . , l i s t e d on the CSE as 'LCX ' . Suspended on May 1 2 , 1 969 and r e i n s t a t e d on J u l y 18 , •. 1 969 . R e a s o n : Company r e q u e s t , pend ing a r e o r g a n i z a t i o n to Lemtex Deve lopments L t d . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 26 . MacDonald Mines L t d . , l i s t e d on the CSE a s ' M M L ' . Suspended on December 26 , 1973 and r e i n s t a t e d on December 27 , 1973. R e a s o n : P r i c e i n c r e a s e w i t h o u t appa ren t r e a s o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*•) 27 . Manix Mines L i m i t e d , l i s t e d on the CSE as ' M A X 1 . Suspended on November 1, 1972 and r e i n s t a t e d on March 2 1 , 1973 . R e a s o n : Pend ing a r e o r g a n i z a t i o n to Z i e b a r t C o r p o r a t i o n . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 28 . Matachewan Canad ian Go ld L t d . , l i s t e d on the CSE as 'MCG 1 . Suspended on November 1 7 , 1967 and r e i n s t a t e d on March 1 1 , 1 968. R e a s o n : Pend ing f u l l i n v e s t i g a t i o n i n t o company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 29 . Matachewan Canad ian Go ld L t d . , l i s t e d on the CSE as 1 MCG' . Suspended on September 18 , 1968 and r e i n s t a t e d on Septem-ber 3 0 , 1968. R e a s o n : Company r e q u e s t , pend ing s ta temen t on merger i n t o T r i t o n E x p l o r a t i o n s L t d . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 30 . New Formaque Mines L t d . , l i s t e d on the CSE as ' N F M 1 . Suspended on September 10 , 1970 and r e i n s t a t e d on F e b r u -a ry 2 , 1971 . R e a s o n : QSC i s s u e d o r d e r 507 , d i s t r i b u t i o n o f e r r oneous i n f o r m a t i o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 3 1 . N o r t h e r n E x p l o r a t i o n L t d . , l i s t e d on the CSE as ' NNX 1 . Suspended on F e b r u a r y 4 , 1969 and r e i n s t a t e d on Novem-ber 17 , 1969. R e a s o n : F a i l e d to p r o v i d e i n f o r m a t i o n on a f f a i r s (change to C o n s o l i d a t e d N o r t h e r n E x p l o r a t i o n L t d . ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 180 32 . P a c i f i c N i c k e l Mines L t d . , l i s t e d on the CSE as ' P N I ' . Suspended on F e b r u a r y 1, 1972 and r e i n s t a t e d on May 1, 1 972 . R e a s o n : Pend ing company announcement , unusua l marke t a c t i v i t y . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 3 3 . Phoen i x Canada O i l C o . L t d . , l i s t e d on the CSE as ' P C O ' . Suspended on March 2 , 1973 and r e i n s t a t e d on March 19 , 1 973 . R e a s o n : Pend ing r e c e i p t of a d d i t i o n a l p a r t i c u l a r s on Ecuador p r o d u c t i o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 34 . Probe Mines L i m i t e d , l i s t e d on the CSE as ' P M X ' . Suspended on O c t o b e r 2 7 , 1972 and r e i n s t a t e d on November 14 , 1972. Reason : Two d i f f e r e n t e n g i n e e r i n g r e p o r t s on c e r t a i n p r o p e r t y o f same da te and a u t h o r e x i s t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 3 5 . P r o f l e x L i m i t e d , l i s t e d on the CSE (and VSE) as ' P F X 1 . Suspended on J a n u a r y 16 , 1973 and r e i n s t a t e d on Septem-ber 4 , 1973 . R e a s o n : Share p r i c e i n c r e a s e s w i t h o u t appa ren t r e a s o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 36 . P ronghorn P e t r o l e u m C o r p . , l i s t e d on the CSE as ' P H P ' . Suspended on J u l y 16 , 1970 and r e i n s t a t e d on J u l y 3 0 , 1970. Reason : Company r e q u e s t , pend ing i n f o r m a t i o n about p r o -posed Jade p r o p e r t y a c q u i s i t i o n s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 37 . Reprox C o r p o r a t i o n , l i s t e d on the CSE as " R P X 1 . Suspended on F e b r u a r y 22 , 1973 and r e i n s t a t e d on May 1 1 , 1 973 . R e a s o n : Pend ing exchange i n v e s t i g a t i o n of t r a d i n g . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 38 . SMA I n c . , l i s t e d on the CSE as ' S M A 1 . Suspended on June 1 6 , 1971 and r e i n s t a t e d on J u l y 19 , 1971 . R e a s o n : Company r e q u e s t , pend ing u n d e r w r i t i n g announce-ment . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 39 . T a l i s m a n Mines L i m i t e d , l i s t e d on the CSE as ' T M L ' . Suspended on September 7 , 1968 and r e i n s t a t e d on March 5 , 1970. R e a s o n : Request o f company, to p e r m i t f i n a n c i n g . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 181 4 0 . T r i t o n E x p l o r a t i o n s L t d . , l i s t e d on the CSE as ' T E L 1 ' Suspended on March 26 , 1971 and r e i n s t a t e d on June 4 , 1971 . Reason : D i s s e m i n a t i o n of f a l s e or u n s u b s t a n t i a t e d i n f o r m a t i o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 4 1 . W h i t e r o c k E s t a t e s Development C o r p . , l i s t e d on the CSE as ' W E D ' . Suspended on November 1 8 , 1971 and r e i n s t a t e d on Novem-ber 18 , 1971 . R e a s o n : Pe r fo rmed i n a v o l a t i l e manner . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 42 . A c r e s L i m i t e d , l i s t e d on the MSE as ' AL D ' . Suspended on June 1 1 , 1971 and r e i n s t a t e d on June 14 , 1971 . R e a s o n : Pend ing d i s s e m i n a t i o n of i n f o r m a t i o n . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 4 3 . Bramada R e s o u r c e s L t d . , l i s t e d on the MSE as ' B M R ' . Suspended on J u l y 1 2 , 1971 and r e i n s t a t e d on J u l y 1 3 , 1971 . R e a s o n : Company r e q u e s t , pend ing announcement on p r o p e r t y n e g o t i a t i o n s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 44 . Canad ian J a v e l i n L t d . , l i s t e d on the MSE as ' C J V ' . Suspended on March 9 , 1972 and r e i n s t a t e d on June 5 , 1 972 . R e a s o n : Pend ing j o i n t announcement by company and New-f o u n d l a n d government . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 4 5 . Canad ian J a v e l i n L t d . , l i s t e d on the MSE (and VSE) as ' C J V ' ( 'CDJ ' ) . Suspended on December 2 0 , 1972 and r e i n s t a t e d on Decem-ber 2 1 , 1972. R e a s o n : Pend ing announcement ( u n f a v o u r a b l e p r o p e r t y news) . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 46 . Canad ian J a v e l i n L t d . , l i s t e d on the MSE (and VSE) as ' C J V ( ' C D J ' ) . Suspended on November 2 8 , 1973 and r e i n s t a t e d on Decem-ber 1 0 , 1973 . R e a s o n : Pend ing announcement (pend ing c l a r i f i c a t i o n of S E C a l l e g a t i o n s ) . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 182 47 . Canad ian R e f r a c t o r i e s L t d . , l i s t e d on the MSE as ' C R F ' . Suspended on J a n u a r y 3 0 , 1970 and r e i n s t a t e d on Novem-ber 2 7 , 1970. R e a s o n : Pend ing company announcement , ama lgamat ion w i t h D r e s s e r I n d u s t r i e s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 4 8 . Co lumb ia C e l l u l o s e C o . L t d . , l i s t e d on the MSE (and VSE) as ' C E L ' . Suspended on March 3 0 , 1973 and r e i n s t a t e d on A p r i l 3 , 1 973 . R e a s o n : Pend ing company announcement , B . C . Government a c q u i r e d 79 p e r c e n t i n t e r e s t . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 4 9 . Cygnus C o r p . L t d . , l i s t e d on the MSE (and VSE) as ' CYG 1 . Suspended on March 1 2 , 1971 and r e i n s t a t e d on March 16 , 1971. R e a s o n : Order o f QSC, l i g h t o f F e d e r a l Government a n -nounced i n t e r e s t i n Home. C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 50 . Home O i l Co . L t d . , l i s t e d on the MSE (and VSE) as ' H G ' . Suspended on March 12 , 1971 and r e i n s t a t e d on March 16 , 1971 . R e a s o n : Orde r o f QSC, l i g h t of F e d e r a l Government a n -nounced i n t e r e s t i n Home. C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 5 1 . N i a g a r a Wi re Weaving Co . L t d . , l i s t e d on the MSE as ' N W ' . Suspended on J a n u a r y 26 , 1973 and r e i n s t a t e d on J a n u a r y 3 0 , 1973 . R e a s o n : Company r e q u e s t , pend ing c o r p o r a t e announcement ( t a k e o v e r by Ivaco I n d u s t r i e s ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 52 . No r thwes t S p o r t s E n t e r p r i s e s L t d . , l i s t e d on the MSE as ' NSE ' . Suspended on June 14 , 1971 and r e i n s t a t e d on June 2 1 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n of a f f a i r s ( c o r p o r a t e p r o b l e m ) . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 53 . S o c i e t e G e n e r a l de F inancement Quebec , l i s t e d on the MSE as 'SGF ' . Suspended on A p r i l 2 7 , 1972 and r e i n s t a t e d on September 2 0 , 1972. R e a s o n : Company r e q u e s t , c a p i t a l s t r u c t u r e c h a n g e s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 183 54. S t a n d a r d S t r u c t u r a l S t e e l L t d . , l i s t e d on the MSE as ,> ' S S L * . Suspended on Oc tobe r 2 6 , 1970 and r e i n s t a t e d on O c t o b e r 2 7 , 1970. R e a s o n : Company r e q u e s t , pend ing announcement (bought by I n t e r n a t i o n a l U t i l i t i e s C o r p . ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 5 5 . A s s o c i a t e d A r c a d i a N i c k e l C o r p . L t d . , l i s t e d on the TSE (and CSE) as ' A I K ' . Suspended on November 7 , 1967 and r e i n s t a t e d on November 14 , 1967. R e a s o n : Pend ing announcement on a s s a y s on p r o p e r t y w i t h K idd Copper M i n e s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 56 . C h a r t e r O i l Company L t d . , l i s t e d on the TSE (and CSE) as ' CHO ' ( ' C H R ' ) . Suspended on September 8 , 1967 and r e i n s t a t e d on F e b r u -ary 22 , 1968. R e a s o n : U n s a t i s f a c t o r y f i l i n g s t a t e m e n t s C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 57 . Con-Shawkey Go ld Mines L i m i t e d , l i s t e d on the TSE as • C S H 1 . Suspended on March 3 0 , 1967 and r e i n s t a t e d on September 5 , 1967. R e a s o n : F a i l e d to a d v i s e exchange of s u b s t a n t i a l and m a t e r i a l changes i n f i n a n c i a l a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 58 . F i r s t N a t i o n a l Uranium Mines L t d . , l i s t e d on the TSE (and VSE) as ' FNU ' . Suspended on F e b r u a r y 18 , 1969 and r e i n s t a t e d on March 17 , 1969. R e a s o n : Unusual c o n d i t i o n s i n s h a r e t r a d i n g . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 59 . G r e a t - W e s t L i f e A s s u r a n c e C o . , l i s t e d on the TSE (and MSEt): as 'GWL ' . Suspended on J a n u a r y 3 1 , 1969 and r e i n s t a t e d on F e b r u -a ry 5 , 1969. R e a s o n : OSC ban a t company r e q u e s t . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 60 . G r e a t West S a d d l e r y Company L t d . , l i s t e d on the TSE as ' G W . Suspended on J u l y 8 , 1968 and r e i n s t a t e d on September 10 , 1968 . Reason : Company r e q u e s t , i n f o r m a t i o n r e l e a s e on the p u r c h a s e o f A q u i l a Computer S e r v i c e s L t d . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 184 6 1 . I . O . S . L t d . , l i s t e d on the TSE (and MSE) as ' IOS ' . Suspended on June 16 , 1970 and r e i n s t a t e d on J u l y 3 , 1 970 . R e a s o n : Pend ing announcement of f u l l p a r t i c u l a r s o f l o a n s to o f f i c e r s , e t c . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 6 2 . K idd Copper Mines L t d . , l i s t e d on the TSE as ' K D C 1 . Suspended on November 7 , 1967 and r e i n s t a t e d on Novem-ber 14 , 1967. R e a s o n : Pend ing announcement on a s s a y s on p r o p e r t y h e l d j o i n t l y w i t h A s s o c i a t e d A r c a d i a . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 6 3 . Meta Uranium Mines L t d . , l i s t e d on the TSE as ' M E T 1 . Suspended on December 1, 1967 and r e i n s t a t e d on F e b r u -ary 1 6 , 1968. R e a s o n : A c t i o n a g a i n s t abnormal t r a d i n g , i r r e g u l a r t r a d i n g p a t t e r n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 64 . Moneta P o r c u p i n e Mines L t d . , l i s t e d on the TSE as ' M E ' . Suspended on F e b r u a r y 6 , 1967 and r e i n s t a t e d on F e b r u -a ry 2 2 , 1968. R e a s o n : F a i l e d to a d v i s e exchange of m a t e r i a l changes i n a f f a i r s o f company. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 6 5 . New D imens ion Resou rces L t d . , l i s t e d on the TSE as ' N D R 1 . Suspended on November 8 , 1972 and r e i n s t a t e d on December 1, 1972. R e a s o n : Pend ing an i n v e s t i g a t i o n i n t o t r a d i n g o f s h a r e s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 66 . Nor th Rock E x p l o r a t i o n s L t d . , l i s t e d on the TSE as ' N R E ' . Suspended on November 6 , 1970 and r e i n s t a t e d on November 17 , 1970. R e a s o n : Pend ing c l a r i f i c a t i o n of m i s l e a d i n g i n f o r m a t i o n g i v e n to the i n v e s t i n g p u b l i c . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 6 7 . P a c i f i c A s b e s t o s L t d . , l i s t e d on the TSE (and VSE) as ' P C A ' . Suspended on June 3 0 , 1972 and r e i n s t a t e d on J u l y 2 1 , 1 972 . R e a s o n : Pend ing e v a l u a t i o n of r e q u e s t e d i n f o r m a t i o n (P laymour C o r p o r a t i o n t r a n s a c t i o n ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 6 8 . Revenue P r o p e r t i e s C o . L t d . , l i s t e d on the TSE as ' R P C ' . Suspended on Oc tobe r 2 9 , 1969 and r e i n s t a t e d on F e b r u -a ry 1 1 , 1 974. Reason : Pend ing i n f o r m a t i o n r e l e a s e , OCS c h a r g e s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) Append ix I ( C o n t ' d ) 185 S c u r r y Rainbow O i l s , l i s t e d on the TSE as ' S C R ' . Suspended on June 2 2 , 1967 and r e i n s t a t e d on June 2 9 , 1 967. R e a s o n : U n t i l an adequate t e c h n i c a l r e p o r t i s a v a i l -a b l e to the p u b l i c ( r e p o r t f a v o u r a b l e ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . W a l t e r M. Lowney Co . L t d . , l i s t e d on the TSE (and CSE) as ' L O W ' . Suspended on May 1 3 , 1968 and r e i n s t a t e d on May 14 , 1968. R e a s o n : Pend ing d i s c l o s u r e of f u l l e r d e t a i l s on an o f -f e r f o r the company 's s h a r e s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Aabro M i n i n g & O i l s L t d . , l i s t e d on the VSE as ' A A B 1 . Suspended on F e b r u a r y 4 , 1970 and r e i n s t a t e d on May 1 1 , 1 970 . R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Ace M i n i n g Company L t d . , l i s t e d on the VSE as ' A C E ' . Suspended on March 5 , 1969 and r e i n s t a t e d on March 2 0 , 1 969 . Reason : Pend ing c l a r i f i ca t>ion of company a f f a i r s and BCSC under S e c t i o n 1 3 7 ( 2 ) ( c ) . C l as s i f i ca t i on : U n f a v o u r a b l e i n f o r m a t i o n . (*) Annmar M i n i n g L i m i t e d , l i s t e d on the VSE as ' A N N 1 . Suspended on O c t o b e r 1 2 , 1971 and r e i n s t a t e d on Novem-ber 10 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . A - l S t e e l & I ron Foundry (Van) L t d . , l i s t e d on the VSE as ' A l ' . Suspended on March 2 2 , 1973 and r e i n s t a t e d on March 2 7 , 1 973 . R e a s o n : Pend ing announcement by the company. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . A t t i l a R e s o u r c e s L t d . , l i s t e d on the VSE as ' A T T ' . Suspended on Oc tobe r 1 0 , 1972 and r e i n s t a t e d on November 1 0 , 1972. R e a s o n : Scheme to m a n i p u l a t e the s h a r e s p r i c e , pend ing i n f o r m a t i o n on company a f f a i r s and p r o p e r t i e s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) B i s o n P e t r o l e u m & M i n e r a l s L t d . , l i s t e d on the VSE as ' B S P ' . Suspended on November 2 8 , 1973 and r e i n s t a t e d on Decem-ber 5 , 1973 . R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 186 77 . Bonus Resou rces L t d . , l i s t e d on the VSE as ' B S R ' . Suspended on November 7 , 1972 and r e i n s t a t e d on November 14 , 1972. R e a s o n : Scheme to m a n i p u l a t e s h a r e s p r i c e , pend ing c o m p l e t i o n p r o p e r t y n e g o t i a t i o n s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 78 . Bonus R e s o u r c e s L t d . , l i s t e d on the VSE as ' B S R ' . Suspended on J u l y 3 , 1973 and r e i n s t a t e d on J u l y 2 3 , 1 973 . R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 79 . Brameda Resou rces L t d . , l i s t e d on the VSE as ' B M R ' . Suspended on March 6 , 1973 and r e i n s t a t e d on March 8 , 1 973 . R e a s o n : Reques t o f company, pend ing f u r t h e r i n f o r m a t i o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 8 0 . Buva l E x e c u t i v e M i n i n g I n d u s t r i e s , l i s t e d on the VSE as 'BVL 1 . Suspended on Oc tobe r 1 2 , 1971 and r e i n s t a t e d on O c t o b e r 18 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n o f the company 's a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 8 1 . C a l i c o S i l v e r Mines L t d . , l i s t e d on the VSE as ' C L O ' . Suspended on June 24 , 1969 and r e i n s t a t e d on J u l y 7 , 1969 R e a s o n : Pend ing c l a r i f i c a t i o n o f company 's a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 8 2 . Canad ian T r i c e n t r a l O i l s L t d . , l i s t e d on the V S E . Suspended on December 1, 1971 and r e i n s t a t e d on December 2 , 1971 . R e a s o n : Pend ing an i n f o r m a t i o n r e l e a s e by the company ( t a k e o v e r o f f i e r ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 8 3 . C a p r i M i n i n g C o r p . L t d . , l i s t e d on the VSE as ' C A I ' . Suspended on O c t o b e r 2 , 1967 and r e i n s t a t e d on O c t o b e r 3 , 1967. R e a s o n : F a i l e d to submi t o r r e c e i v e a c c e p t a n c e o f a s t a t e m e n t of m a t e r i a l f a c t s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 84 . C a p r i M i n i n g C o r p . L t d . , l i s t e d on the VSE as ' C A I ' . Suspended on O c t o b e r 2 1 , 1970 and r e i n s t a t e d on Novem-ber 5 , 1970 . R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 187 8 5 . C a r o l i n Mines L t d . , l i s t e d on the VSE as 1 CLL 1 . Suspended on May 7 , 1971 and r e i n s t a t e d on May 1 7 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n o f a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 86 . C o n s o l i d a t e d Man i t oba Mines L t d . , l i s t e d on the VSE as 'CMAN ' . Suspended on December 1 5 , 1967 and r e i n s t a t e d on August 8 , 1968. R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 87 . Cop-ex M i n i n g C o r p . L t d . , l i s t e d on the VSE as ' C X E ' . Suspended on August 3 , 1972 and r e i n s t a t e d on Augus t 14 , 1 972 . R e a s o n : Pend ing company r e l e a s e o f i n f o r m a t i o n ( r a p i d p r i c e i n c r e a s e ) . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 88 . Copper R idge Mines L t d . , l i s t e d on the VSE as ' C P G ' . Suspended on March 16 , 1972 and r e i n s t a t e d on J u l y 1 2 , 1 972 . R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 8 9 . D i c t a t o r Mines L t d . , l i s t e d on the VSE as 'DTM' . Suspended on J a n u a r y 4 , 1972 and r e i n s t a t e d on F e b r u a r y 2 3 , 1972. R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 90 . D i c t a t o r Mines L t d . , l i s t e d on the VSE as ' D T M ' . Suspended on December 4 , 1972 and r e i n s t a t e d on December 5 , 1972; R e a s o n : BCSC o r d e r , p u r s u a n t to S e c t i o n 77A. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 9 1 . E a g l e I n d u s t r i e s L t d . , l i s t e d on the VSE as 'E IR ' . Suspended on December 2 1 , 1971 and r e i n s t a t e d on Decem-ber 24 , 1971 . R e a s o n : Pend ing announcement ( f a v o u r a b l e ) to s h a r e -h o l d e r s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 92 . E q u a t o r i a l Resou rces L i m i t e d , l i s t e d on the VSE as ' E Q R ' . Suspended on March 2 7 , 1972 and r e i n s t a t e d on March 3 0 , 1 972 . R e a s o n : Pend ing c l a r i f i c a t i o n o f the company 's a f f a i r s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 188 93 . E q u a t o r i a l Resou rces L i m i t e d , l i s t e d on the VSE as ' E Q R ' . Suspended on A p r i l 2 5 , 1972 and r e i n s t a t e d on May 2 , 1 972 . R e a s o n : Reques t of company, i n j u n c t i o n g r a n t e d p r e v e n t -i ng d r i l l i n g on company c l a i m s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 94 . F a i r v i e w C o r p . o f Canada L t d . , l i s t e d on the V S E . Suspended on September 9 , 1973 and r e i n s t a t e d on Oc tobe r 1 1 , 1 973 . R e a s o n : R e l e a s e of i n f o r m a t i o n ( f a v o u r a b l e ) by the com-pany . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 95 . 4 -F Foods L t d . , l i s t e d on the VSE as 1 F F F ' . Suspended on September 1 8 , 1 970 and r e i n s t a t e d on Sep'% tember 19 , 1970. R e a s o n : As a d i s c i p l i n a r y a c t i o n . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 96 . Four Seasons M a n u f a c t u r i n g L t d . , l i s t e d on the VSE as 1 FRN ' . Suspended on Oc tobe r 2 3 , 1972 and r e i n s t a t e d on A p r i l 3 0 , 1973 . R e a s o n : Pend ing c l a r i f i c a t i o n of a f f a i r s . C l a s s i f i c a t i o n : . U n f a v o u r a b l e i n f o r m a t i o n . (*) 97 . Go ld R i v e r Mines & E n t e r p r i s e s L t d . , l i s t e d on the VSE as 1GVM ' . Suspended on November 2 3 , 1973 and r e i n s t a t e d on J a n u a r y 2 8 , 1974. R e a s o n : Company r e q u e s t , pend ing r e l e a s e o f r e c e n t p r o p e r t y deve lopment r e s u l t s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 98 . G r a n i s l e Copper L i m i t e d , l i s t e d on the VSE as ' G I C . Suspended on May 2 9 , 1972 and r e i n s t a t e d on May 3 1 , 1972. R e a s o n : Pend ing f u r t h e r i n f o r m a t i o n on ama lgamat ion w i t h Zapa ta Canada L t d . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 99 . Lucky S t r i k e Mines L t d . , l i s t e d on the VSE as ' L Y S 1 . Suspended on August 7 , 1970 and r e i n s t a t e d on December 3 , 1970. R e a s o n : Pend ing c l a r i f i c a t i o n o f a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 100 . M a v e r i c k Moun ta in Resou rces L t d . , l i s t e d on the VSE as ' MMR ' . Suspended on November 9 , 1970 and r e i n s t a t e d on June 2 8 , 1971 . Reason : Company r e q u e s t , pend ing c l a r i f i c a t i o n of p r o b -lem re p r o p e r t y t i t l e . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 189 1 0 1 . M e l c h e r s D i s t i l l e r s L t d . , l i s t e d on the VSE as ' M E L ' . Suspended on J u l y 2 3 , 1973 and r e i n s t a t e d on J u l y 2 7 , 1 973 . R e a s o n : Pend ing an announcement to be made by the com-pany . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 102. Moun ta in S t a t e s Resou rces L t d . , l i s t e d on the VSE as ' MTN 1 . Suspended on J a n u a r y 3 0 , 1973 and r e i n s t a t e d on F e b r u -a ry 5 , 1 973 . R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 103 . M u r r i t t P h o t o f a x L i m i t e d , l i s t e d on the VSE as ' M A T ' . Suspended on June 26 , 1972 and r e i n s t a t e d on J u l y 2 1 , 1972. R e a s o n : A t company r e q u e s t , pend ing c o u r t h e a r i n g . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 104. N o r t h a i r Mines L t d . , l i s t e d on the VSE as 'NRM 1 . Suspended on A p r i l 10 , 1972 and r e i n s t a t e d on A p r i l 12 , 1 972 . Reason : Pend ing an announcement f rom the company. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 105 . N o r t h l o d e E x p l o r a t i o n s L t d . , l i s t e d on the VSE as ' NTX' . Suspended on F e b r u a r y 6 , 1970 and r e i n s t a t e d on J u l y 1 2 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 106. P i n n a c l e Mines L t d . , l i s t e d on the VSE as ' PNM 1 .. Suspended on F e b r u a r y 1 5 , 1972 and r e i n s t a t e d on A p r i l 17 , 1972. R e a s o n : , Pend ing c l a r i f i c a t i o n o f . t h e a f f a i r s of the company. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 107. P i n n a c l e Mines L t d . , l i s t e d on the VSE as ' P N M ' . Suspended on J a n u a r y 2 3 , 1973 and r e i n s t a t e d on A p r i l 9 , 1973. R e a s o n : Pend ing c l a r i f i c a t i o n of the company 's a c t i v i -t i e s and f i n a n c i a l a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 108. P r i n c e s s V e n t u r e s L t d . , l i s t e d on the VSE as ' P R V . Suspended on F e b r u a r y 8 , 1973 and r e i n s t a t e d on F e b r u -a ry 9 , 1973 . R e a s o n : I n f o r m a t i o n r e q u e s t e d by the Exchange . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . Append ix I ( C o n t ' d ) 190 109 . R a d i a t i o n Development Company L t d . , l i s t e d on the VSE as ' RDN 1 . Suspended on August 2 3 , 1972 and r e i n s t a t e d on August 2 9 , 1972 . R e a s o n : Pend ing an announcement ( f a v o u r a b l e ) wh ich w i l l be made i n the e a r l y p a r t o f nex t week. C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 110 . Reco S i l v e r Mines L t d . , l i s t e d on the VSE as ' R C S ' . Suspended on O c t o b e r 2 3 , 1970 and r e i n s t a t e d on Novem-ber 9 , 1970. R e a s o n : Pend ing f i l i n g o f m a t e r i a l to c o n f i r m or c o r -r e c t i n f o r m a t i o n i n a s h a r e h o l d e r s ' r e p o r t . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 111 . S a b i n a Mines L t d . , l i s t e d on the VSE as ' S A B ' . Suspended on J u l y 22 , 1971 and r e i n s t a t e d on September 7 , 1971 . R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) 112 . S h a s t a Mines & O i l s L t d . , l i s t e d on the VSE as ' S H A 1 . Suspended on May 2 3 , 1969 and r e i n s t a t e d on May 2 8 , 1969. R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 113 . S h a s t a Mines & O i l s L t d . , l i s t e d on the VSE as ' S H A ' . Suspended on F e b r u a r y 1 2 , 1971 and r e i n s t a t e d on May 12 , 1971 . Reason : Pend ing c l a r i f i c a t i o n of a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 114. Sou the rn P a c i f i c P e t r o l e u m L t d . , l i s t e d on Suspended on March 2 3 , 1972 and r e i n s t a t e d 1 972 . Reason : Pend ing i n f o r m a t i o n on f a v o u r a b l e d e v e l o p m e n t s . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 115 . Spa Mines L t d . , l i s t e d on the VSE as ' S P X ' . Suspended on December 20 , 1971 and r e i n s t a t e d on May 1, 1 972 . R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s ( f a v o u r a b l e c l a r i f i c a t i o n ) . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 116 . S p e c u l a t o r s Fund L i m i t e d , l i s t e d on the VSE as ' S P F ' . Suspended on December 16 , 1971 and r e i n s t a t e d on J u l y 7 , 1972. R e a s o n : BCSC o r d e r 77A. C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . the V S E . on May 1 , c o r p o r a t e Append ix I ( C o n t ' d ) 191 117 . T a y l o r ( B r i d g e R i v e r ) Mines L t d . , l i s t e d on the VSE as ' T B ' . Suspended on September 1 3 , 1968 and r e i n s t a t e d on S e p -tember 17 , 1968. R e a s o n : Pend ing c l a r i f i c a t i o n o f company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 118. West Coas t R e s o u r c e s L t d . , l i s t e d on the VSE as ' W S T ' . Suspended on May 17 , 1968 and r e i n s t a t e d on May 2 3 , 1968 R e a s o n : Pend ing c l a r i f i c a t i o n of company a f f a i r s . C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . 119. Whi te Pass & Yukon C o r p ; L t d . , l i s t e d on the VSE as ' W P Y ' . Suspended on May 8 , 1973 and r e i n s t a t e d on May 1 1 , 1973 . R e a s o n : Request of company, pend ing i n f o r m a t i o n d i s s e m -i n a t i o n . C l a s s i f i c a t i o n : F a v o u r a b l e i n f o r m a t i o n . 120 . Woodsreef M i n e r a l s L t d . , l i s t e d on the VSE as ' W D F ' . Suspended on November 2 8 , 1973 and r e i n s t a t e d on Decem-ber 3 , 1973 . R e a s o n : Pend ing a r e l e a s e o f i n f o r m a t i o n by the company C l a s s i f i c a t i o n : U n f a v o u r a b l e i n f o r m a t i o n . (*) deno tes t h a t the suspended s t o c k was a l l e g e d l y man ipu -l a t e d . 192 Append ix II PROBABILITY TESTS ON THE AVERAGE PORTFOLIO ERROR TERMS T h i s append ix w i l l p r e s e n t the p r o c e d u r e f o r the p r o b -a b i l i t y t e s t i n g o f the ave rage p o r t f o l i o e r r o r t e r m s . The p r o c e d u r e i s based on the assump t i on t h a t a h y p o t h e t i c a l '. ave rage i n v e s t o r w i l l b u i l d a p o r t f o l i o by a d o p t i n g a p o l i c y o f buy ing the suspended s t o c k s i n our sample a t a p r e d e t e r m i n e d p e r i o d r e l a t i v e to the s u s p e n s i o n p e r i o d and keep ing t h a t p o r t -f o i l o f o r one p e r i o d (however d e f i n e d ) . The p r o c e d u r e i s imp lemented as f o l l o w s . For e v e r y c a l e n d a r week t , the i n v e s t o r i s assumed to have i n v e s t e d $1 .00 e q u a l l y i n each suspended s t o c k wh ich was suspended (o r r e i n -s t a t e d ) d u r i n g the p e r i o d t - L to t - K , i n c l u s i v e . In o t h e r w o r d s , f o r a suspended s t o c k to be i n c l u d e d i n the p o r t f o l i o formed d u r i n g week t the f o l l o w i n g n e c e s s a r y c o n d i t i o n s must be s a t i s f i e d : t - L < t . < t - K , where t . i s the c a l e n d a r week f o r the s u s p e n s i o n ( r e i n s t a t e -ment) o f s e c u r i t y i , i f K, L < 0 ( K , L > 0 ) , and K, L a re s p e c i f i c i n t e g e r s where K, L |- 0 and K < L. The nex t s t e p i s to c a l c u l a t e the e x c e s s r e t u r n over some h o l d i n g p e r i o d ( i n t h i s case one week) f o r each of the s e c u r i t i e s i n p o r t f o l i o t . For any h o l d i n g p e r i o d o t h e r than ove r a s u s p e n s i o n p e r i o d , t h i s c a l c u l a t i o n i s f a i r l y s t r a i g h t -f o r w a r d . In p a r t i c u l a r , f o r a one week h o l d i n g p e r i o d , the ave rage e x c e s s r e t u r n on the p o r t f o l i o formed i n p e r i o d t i s c a l c u l a t e d by: Append ix II ( C o n t ' d ) 193 6 p , t + l = N t "Jf* § i , t + l ' where §^ + i s the e r r o r term ( e x c e s s r e t u r n ) of s e c u r i t y i d u r i n g the c a l e n d a r p e r i o d ( t + 1 ) , N .^ i s the number o f suspended s e c u r i t i e s i n p o r t f o l i o t , and ++i 1 S t n e ave rage e r r o r term ( e x c e s s r e t u r n ) o f p o r t f o l i o t , d u r i n g week ( t + 1 ) . I f the h o l d i n g p e r i o d o f i n t e r e s t i s a s u s p e n s i o n p e r i o d , then the e x c e s s r e t u r n ove r the s u s p e n s i o n p e r i o d , S j , o f each suspended s e c u r i t y i n p o r t f o l i o t i s g i v e n by e\. . S i n c e the pe r fo rmance o f a l l the p o r t f o l i o s i s be ing 1 , T+ S .j measured on a week ly b a s i s , the e x c e s s r e t u r n o f each s e c u r i t y i n each p o r t f o l i o a t da te o f s u s p e n s i o n must be e x p r e s s e d on a week ly b a s i s as § : . . T h e r e f o r e , f o r a one week h o l d i n g S " . j i , X • S .j p e r i o d f rom date o f s u s p e n s i o n , the ave rage e x c e s s r e t u r n on each p o r t f o l i o i s g i v e n by S = 1 1 a e p , t + l " N t .t} s i e i , t + s 1 • A few examples w i l l he lp to c l a r i f y the above p r o c e d u r e . For e x a m p l e , assume t h a t t i s the week end ing on June 19 , 1970, K = -6 and L = - 6 . In t h i s c a s e , p o r t f o l i o t (where t i s the week end ing June 1 9 , 1970) w i l l i n c l u d e the s t o c k s wh ich were suspended d u r i n g the week o f J u l y 3 1 , 1970 ( t h a t i s , week t + 6 ) . The c a l c u l a t e d ave rage e x c e s s r e t u r n f o r the week (t+1) ( t h a t i s , f o r the week end ing June 26 , 1970) g i v e s the ave rage week ly Append ix II ( C o n t ' d ) 194 e x c e s s r e t u r n earned by an i n v e s t o r who i n v e s t s i n s t o c k s 6 weeks b e f o r e they are suspended and s e l l s them one week hence . I f K = 0 and L = 0 , then d u r i n g the week end ing June 1 9 , 1970 , the i n v e s t o r i n v e s t s i n a p o r t f o l i o composed o f s t o c k s wh ich were j u s t s u s p e n d e d . In t h i s c a s e , p o r t f o l i o t (where t i s the week end ing on June 19 , 1970) i s i n v e s t e d f o r one week ( u n t i l week t+1 o r the week end ing on June 2 6 , 1 9 7 0 ) . (Note t h a t i n r e a l i t y many of the s t o c k s i n t h i s p o r t f o l i o a t week t+1 may s t i l l be under s u s p e n s i o n . ) I f K = +1 and L = +5, then d u r i n g the week end ing June 19 , 1970 , the i n v e s t o r i n v e s t s i n a p o r t f o l i o composed o f s t o c k s wh ich were r e i n s t a t e d d u r i n g the week end ing on May 1 5 , 1970 , to the week end ing on June 1 2 , 1970 , i n c l u s i v e . In t h i s c a s e , p o r t f o l i o t (where t i s the week end ing on June 19 , 1970) i s i n v e s t e d f o r one week ( u n t i l week t+1 or the week end ing on June 26 , 1 9 7 0 ) . P o r t f o l i o t w i l l r e p r e s e n t an i n v e s t m e n t i n r e i n s t a t e d s t o c k s d u r i n g d i f f e r e n t weeks r e l a t i v e to the s u s -p e n s i o n p e r i o d ( i n p a r t i c u l a r , f rom 1 to 5 weeks a f t e r t h e i r r e i n s t a t e m e n t s ) . For e x a m p l e , a r e i n s t a t e d s t o c k whose s u s p e n -s i o n o c c u r r e d d u r i n g the week end ing on May 1 5 , 1970 , w i l l be i n c l u d e d i n p o r t f o l i o t (June 19 , 1970) and i t s e x c e s s return to June 26 , 1970, w i l l be c a l c u l a t e d ( t h a t i s , 5 weeks a f t e r i t s r e i n s t a t e m e n t ) . Ano the r s t o c k whose r e i n s t a t e m e n t o c c u r r e d d u r i n g the week end ing on June 1 2 , 1970 , w i l l a l s o be i n c l u d e d i n p o r t f o l i o t (June 1 9 , 1970) and i t s e x c e s s r e t u r n to June 26 , 1970 , w i l l be c a l c u l a t e d ( t h a t i s , 1 week a f t e r i t s r e i n -s t a t e m e n t ) . 195 Append ix II ( C o n t ' d ) Wh i l e t h i s p o r t f o l i o method p roduces i ndependen t d r a w i n g s , the method does not p roduce the i d e n t i c a l l y d i s ^ ' t r i b u t e d d raw ings wh ich a re r e q u i r e d f o r a t - t e s t . To accom-p l i s h t h i s , each p o r t f o l i o e r r o r t e r m , e p t + 1 , must be s t a n d a r d i z e d by some measure o f v a r i a b i l i t y . In t h i s t h e s i s , the measure o f v a r i a b i l i t y chosen f o r p o r t f o l i o s formed i n the p r e - s u s p e n s i o n p e r i o d was the e s t i m a t e d s t a n d a r d d e v i a t i o n o f the e r r o r terms o f each p o r t f o l i o t d u r i n g the p r e c e e d i n g f i f t y weeks ( t - 4 9 to t ) . * ' O r , ' i n - n o t a t i o n , 50 50 ^ SD t + 1 =U -l-l (e t _ 1 + l - 1 ,E e t _ k + 1 ) 2 > " p ' z 1 49 j = l p ' J 50 k=l P ' The e s t i m a t e d s t a n d a r d d e v i a t i o n s o f the e r r o r t e r m s , SDp t + i ' f ° r the p o r t f o l i o s formed a t da te o f s u s p e n s i o n (K = L = 0 ) , a re g r e a t l y o v e r s t a t e d whenever the p o r t f o l i o s c o n t a i n s t o c k s wh ich were suspended f o r more than one week. Fo r examp l e , c o n s i d e r the s i m p l e case where the p o r t f o l i o formed i n p e r i o d t c o n t a i n s o n l y one s e c u r i t y i . T h e n , f o r a one week h o l d i n g p e r i o d f rom da te of s u s p e n s i o n , the ave rage e r r o r term f o r p o r t f o l i o t i s j t + s and the v a r i a n c e of t h i s ave rage e r r o r term i s a 2 (j_ %. t + s ) —1 o2i%. t + i ) • T h e r e f o r e , the measure o f v a r i a b i l i t y used to s t a n d a r d i z e the p o r t f o l i o e r r o r t e r m , SD { £ . + ) > i s o v e r s t a t e d whenever s-. > 1. Because of the v a r i a b l e l e n g t h of the s u s p e n s i o n p e r i o d f o r each s e c u r i t y i n each p o r t f o l i o t formed i n the p o s t - s u s -p e n s i o n p e r i o d , the e s t i m a t e d s t a n d a r d d e v i a t i o n of the. e r r o r * The,choicei 'o . fL '5.0 weeks i s a r b i t r a r y . 1 96 Append ix II ( C o n t ' d ) terms o f t h e s e p o r t f o l i o s c o u l d not be e s t i m a t e d f rom the p r o c e e d i n g f i f t y weeks . T h e r e f o r e , the measure of v a r i a b i l i t y chosen f o r p o r t f o l i o s formed i n the p o s t - s u s p e n s i o n p e r i o d was the e s t i m a t e d s t a n d a r d d e v i a t i o n o f the e r r o r terms o f each p o r t f o l i o t d u r i n g the subsequen t f i f t y weeks (t+1 to t+50 ) . D i v i d i n g t + - | by SDp t + 1 g i v e s the s t a n d a r d i z e d e r r o r term f o r p o r t f o l i o t , o r *st+i = V t + i 1 S D P , t+ r The r e s u d t , wh ich i s , by i t s e l f , a t - s t a t i s t i c , i s no more than one s t a n d a r d i z e d p o r t f o l i o o f suspended ( r e i n s t a t e d ) s t o c k s f o r each c a l e n d a r week t . The ave rage s t a n d a r d i z e d e r r o r term i s then g i v e n by : where D t i s 1 i f a p o r t f o l i o f o r c a l e n d a r week t was formed or 0 i f a p o r t f o l i o f o r c a l e n d a r week t was not f o r m e d , N i s the number o f c a l e n d a r weeks d u r i n g wh ich p o r t f o l i o s Y w e r e - f o r m e d , t h a t i s , N = E D . , t = X z X , Y a re the weeks end ing on J a n u a r y 6 , 1967 and March 1 3 , 1974 , r e s p e c t i v e l y , and ES|^ ^ i s the ave rage week ly s t a n d a r d i z e d e r r o r term a c r o s s a l l N p o r t f o l i o s . The t - t e s t i s then used to t e s t whether the ave rage week ly s t a n d a r d i z e d e r r o r t e r m s , ifS^ ^ , a re s i g n i f i c a n t l y d i f f e r e n t f rom z e r o . The r e q u i r e d t - s t a t i s t i c i s . g i v e n by Append ix II (Cgnt '.d). 197 where t„ , i s a t - s t a t i s t i c f o r the p o r t f o l i o s formed over a l l t f o r a s p e c i f i c K and L , and Sp i s an e s t i m a t e of the s t a n d a r d d e v i a t i o n o f the e r r o r terms o f t hese p o r t f o l i o s . ( S i n c e the e r r o r terms f o r each p o r t f o l i o t have been s t a n d a r d i z e d a b o v e , the v a l u e o f S i s by c o n s t r u c t i o n equa l to o n e ) . S i n c e each of the N s t a n d a r d i z e d e r r o r terms i s t -d i s t r i b u t e d w i t h f o r t y - n i n e degrees o f f r e e d o m , the t - v a l u e of each p o r t f o l i o has a l s o f o r t y - n i n e degrees of f r e e d o m . For a l l N p o r t f o l i o s , the degrees o f f reedom a re 49 x N. Due to t h i s l a r g e number o f degrees o f f r e e d o m , i t i s a p p r o p r i a t e to use a normal d i s t r i b u t i o n t a b l e when c h e c k i n g the l e v e l o f s i g n i f i c a n c e of the c a l c u l a t e d t - v a l u e s . For each d i f f e r e n t s e t o f K and L v a l u e s , an ave rage week l y s t a n d a r d i z e d p o r t f o l i o e r r o r term and t - s t a t i s t i c can be c a l c u l a t e d . A summary o f some of t hese c a l c u l a t i o n s i s p r e s e n t e d i n the body of Chap te r 3 . Append ix I I I SUMMARY OF THE CONSTRAINED PCTS REGRESSION RUNS ( C o e f f i c i e n t of X / 2 ^ C o n s t r a i n e d to One) x m xr«n . Sample A l l Run Cons t an t Term S u s p e n s i o n P e r i o d Week +2 Week +3 1 ; - C o e f f i c i e n t t - s t a s t a t i s t i c * - 0 . 0 3 4 - 0 . 8 4 3 0 .006 0 .303 -0 .031 - 2 . 3 2 7 2 r. o e C 6 e f f i :o i e n t „ - .; t T s t a t i s t i c - 0 . 0 3 4 -0 .841 0.006 0 .300 - 0 . 0 3 7 - 2 . 8 2 0 Mani pu1ated 1 C o s C o e f f i c i ent t L - t a s t a t i s t i c - 0 . 2 2 2 - 2 . 4 5 8 0 .023 0 .418 - 0 . 0 6 8 - 2 . 743 2 C c i C o e f f * G * e n t t - s t s s t a t i s t i c - 0 . 2 2 2 - 2 . 4 5 9 0 .024 0 .422 - 0 . 0 4 8 - 1 . 9 4 0 U n f a v o u r a b l e i n f o r m a t i on 1 c.r sCoef f i c i e n t t - s t a s t a t i - s t i c 0 .026 0 .446 - 0 . 0 8 5 - 2 . 5 8 0 -0 .041 - 2 . 3 4 8 2 C" ; C o e f f i c i ent t s t s s t a t i s t i c 0 .026 0.449 - 0 . 0 8 5 - 2 . 5 8 6 - 0 . 0 5 4 - 3 . 0 8 2 F a v o u r a b l e i n f o r m a t i on 1 C o e f f i c i ent t - s t a t i s t i c 0 .064 1 .130 0.087 3 .432 - 0 . 0 1 2 - 0 . 6 2 7 2 C o e f f i c i ent t - s t a t i s t i c 0 .064 1 .129 0.087 3 .435 - 0 . 0 0 7 -0 .371 * S i n c e each t - s t a t i s t i c has a l a r g e number of degrees of f reedom (>>100), the o n e - t a i l e d s i g n i f i c a n c e l e v e l s can be taken from a normal p r o b a b i l i t y t a b l e . 

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