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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 . , U n i v e r s i t y of Calgary,  1968  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEC-REE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF COMMERCE AND . BUSINESS ADMINISTRATION  We accept t h i s t h e s i s as conforming to the required standard  THE UNIVERSITY OF BRITISH COLUMBIA J u l y , 1976  @  Lawrence Kryzanowski, 1976  In  presenting  this  an a d v a n c e d d e g r e e the I  Library  further  for  agree  in p a r t i a l  fulfilment  of  at  University  of  Columbia,  the  make  that  it  freely  permission  this  w r i t ten  representatives. thesis  for  It  of  The U n i v e r s i t y  financial  ft  gain  Commerce  of  British  u^x-w^"  for  extensive by  the  Columbia  ^ 6 ^ 1 ° ! ^  shall  not  the  requirements  reference copying of  Head o f  is understood that  2075 W e s b r o o k P l a c e V a n c o u v e r , Canada V 6 T 1W5  Date  for  pe rm i s s i o n .  Department  British  available  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 h i s of  shall  thesis  I  agree  and  be a l l o w e d  that  study.  this  thesis  my D e p a r t m e n t  copying or  for  or  publication  without  my  ABSTRACT W h i l e most regulators  would f i n d  and e q u i t a b l e tion; find point  difficult  derive  improving  the major  specific  and t h e n  the  do s o .  length,  to  on t h e strong  hypotheses  empirically  test  effectiveness  The two  and the  states  that  states  sophisticated  an u n r e g u l a t e d  The c o m p e t i n g  is  because of  information)  a failure  information.  manipulated, were a l s o  According  to  to  hypothimproving  markets. (NR)  market  is  effiwhich  efficient.  had t h e i r disseminate  Three subsamples of  unfavourable  the  to  (SR) h y p o t h e s i s ,  not  has  viewpoints  each  h y p o t h e s e s were e m p i r i c a l l y  temporarily  in  has been  of  view-  markets  suspensions in  regulator  120 C a n a d i a n s t o c k s t h a t  (allegedly  thesis  not  security  naive regulator  a sample o f  firm-specific  of  deficiency  an u n r e g u l a t e d  market  each  security  Canadian stock  that  efficient regula-  of  two c o m p e t i n g  trading  of  of  predictions  hypotheses are the  h y p o t h e s i s , which cient,  this  the  of  form e f f i c i e n c y  the e f f i c a c y  the  an  security  the m e r i t s  Given t h i s  from  security  and e c o n o m i s t s w o u l d  efficiency  purpose of  and  c o n c e i v e of  Although  the  officials  existing  investors  been r e s o l v e d e m p i r i c a l l y .  literature,  esis  in  to  without  brokers, to  government  difficult  have been d e b a t e d a t  regulation not  it  stock market  a number o f it  lawyers,  information  tested  trading  using  suspended  requested the and  120 s t o c k s favourable  i d e n t i f i e d .and a n a l y z e d .  the  strong i i  form of  the  efficient  market  hypothesis  (and  the  of  effect  it  logical  consequence, the  any i n f o r m a t i o n  NR h y p o t h e s i s ) ,  dispersed during  a  suspension  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  reflected"  in current  the  regulators.  dicts  that  "fully  stock  On t h e  the  effect  reflected"  p r i c e s would  other  hand, the  may n o t  in  current  not  trading not  "fully  be a v a i l a b l e  SR h y p o t h e s i s  to  pre-  be z e r o b e c a u s e i n f o r m a t i o n stock  p r i c e s may be known  not  to  regulators. The m a r k e t ' s the  "non-public"  r e s p o n s e to  information  new i n f o r m a t i o n ,  supposedly disseminated  a trading  s u s p e n s i o n , was measured by t h e  ponent  of  a securities'  market  r e s p o n s e was t h e n  such as t h e parameter series  regression The s t u d y  significant the market found  (the  public)  unfavourable  are  of  the  regulators  information during  the market  case f o r  of  this  the  tests,  portfolio  test,  and a p o o l e d c r o s s - s e c t i o n  identified  favourable  findings  of  time  test.  monopolistic  that while  strategies  The s i g n i f i c a n c e  com-  examined by u s i n g a number o f  tests  form f o r  the  return.  during  firm-specific  Fama-Fisher-Jensen-Rol1 test,  sensitivity  s u c h as  is  new p u b l i c  which  efficient  in  information,  i i i  It  such i s not  to  also  semi-strong the  Furthermore,  deliberately  (and e x p l o i t i n g )  profitable.  the  information.  to  disseminated  suspension.  suggest that  disseminating  is  access  a trading  new p u b l i c  study  as h a v i n g  pursued  misinformation  TABLE OF CONTENTS Page LIST OF TABLES  x  LIST OF FIGURES AND EXHIBITS  .  .  .  ,  .  .  xi i  ACKNOWLEDGEMENTS  xiv  Chapter 1.  1  INTRODUCTION THE ECONOMIC FUNCTION MARKET  OF THE  CAPITAL  3  APPROACHES TO SECURITY REGULATION "Control  of  Conduct"  "Disclosure"  Regulations  8  Requirements  OPPOSING VIEWPOINTS SECURITY  8  8  ON THE EFFICACY OF  REGULATION  Naive Regulator Sophisticated  10  Hypothesis  Regulator  10  Hypothesis  . . . .  11  THE EMPIRICAL EVIDENCE ON THE EFFECTIVENESS OF DISCLOSURE REQUIREMENTS . . . . . . . . ORGANIZATION OF THE REMAINDER OF THE  2.  14  THESIS  16  FOOTNOTES  18  CANADIAN REGULATION OF TRADING IN OUTSTANDING LISTED SHARES REVIEW OF THE HISTORICAL DEVELOPMENT OF CANADIAN REGULATION OF TRADING IN SECONDARY MARKETS Historical Conduct"  Development of Regulations  H i s t o r i c a l Development of Requirements i v  "Control  of . .  "Disclosure"  .  24 25 .  25 30  Chapter  Page General  disclosure  Specific  requirements  disclosure  31  requirements  . . . .  PROVINCIAL SECURITIES LEGISLATION IN CANADA The O n t a r i o S e c u r i t i e s A c t , Companies A c t : D i s c l o s u r e f o r Outstanding Shares  31 33  1966 and Requirements  34  The Quebec S e c u r i t i e s A c t and Companies Act: D i s c l o s u r e Requirements f o r Outstanding Shares  34  The B . C . S e c u r i t i e s A c t and Companies Act: D i s c l o s u r e Requirements f o r Outstanding Shares  35  Offences  35  and P e n a l t i e s  FEDERAL SECURITIES LEGISLATION IN CANADA . . . The C a n a d i a n C r i m i n a l Provisions Fraud - a f f e c t i n g  Code:  in  public  relation  Disclosure 36  Fraudulent manipulation transactions Offences  market of  stock  to mines  36 exchange  38  prospectus,  Offences  etc.  and p e n a l t i e s  The Canada C o r p o r a t i o n s  -  "company"  . . .  . . . . . . . . . . . Act:  THE PROVINCIAL SECURITIES COMMISSIONS AND/OR REGULATORY BODIES Securities  Commission  Quebec S e c u r i t i e s C o m m i s s i o n ( C o m m i s s i o n des V a l e u r s M o b i l i & r e s du Quebec) . . . . v  39 40  Disclosure  Requirements f o r Outstanding Shares . . . REGULATORY AGENCIES: STRUCTURE, PROCEDURES AND ACTIONS  Ontario  36  -  presumption False  36  40 41 41 42 43  Chapter  Page B.C.  Regulatory  Regulatory  Actions  Relationship Bodies  Bodies  to  of  .  the  the  44 45  Provincial  Stock  Regulatory  Exchanges  45  THE CANADIAN STOCK EXCHANGES Characteristic  46  Features  47  RelativeSize  47  The T o r o n t o S t o c k Structural  48  organization  Stock L i s t Market  Exchange  Department  Operations  Intelligence Disclosure  Detection Regulatory The M o n t r e a l Disclosure  Regulatory  Department  Regulatory  by-laws 52 58  actions  58  Stock  60  Exchange  provisions:  relevant  by-laws  statements  61  mechanisms  61  actions  61 Exchange  provisions:  and p o l i c y Detection  relevant  51  statements  The V a n c o u v e r S t o c k Disclosure  50  mechanisms  and p o l i c y Detection  49  Department  provisions:  and p o l i c y  48  relevant  statements  mechanisms  62 by-laws 62 63  actions  63  THE R . C . M . P . AND THE MUNICIPAL FRAUD vi SQUADS Legal A c t i o n  63 64  Chapter  Page Enforcement  Problems  64  SUMMARY  65  EXHIBITS 1 to  9  66  FOOTNOTES 3.  86  THE EFFECTIVENESS OF TRADING SUSPENSIONS: A REGULATORY ACTION DESIGNED TO PREVENT THE EXPLOITATION OF MONOPOLY INFORMATION THE DESIRED IMPACT OF TRADING SUSPENSIONS  90 .  THE POSSIBLE IMPACT OF TRADING SUSPENSIONS ON MARKET EFFICIENCY AND THE BEHAVIOUR OF STOCK PRICES HYPOTHESES  ..  .  . 90  ,91  .  95  Hypothesis  1  95  Hypothesis  2  95  THE SAMPLE AND DATA SOURCES  96  "Interrupted"  Stocks  96  S t o c k s Suspended f o r Manipulation  Alleged 103  S u s p e n d e d S t o c k 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 " of the I n f o r m a t i o n Disseminated  103  Data C o l l e c t i o n  108  for  the  Sample  DESCRIPTION OF THE VARIABLES  .  108  ASSESSING THE MARKET'S REACTION TO NEW INFORMATION Equilibrium  .109 in  Disequilibrium  the in  Capital the  Capital  Sources of D i s e q u i l i b r i u m Methods o f M e a s u r i n g M a r k e t Disequilibrium vi i  Market Market  110 .  .  .  .111 112 113  Chapter  Page The s i n g l e The two  factor  factor  market  market  model  113  model  114  THE IMPACT OF TRADING SUSPENSIONS USING THE SINGLE FACTOR MARKET MODEL Potential  Limitations  of  the  115  Single  F a c t o r M a r k e t Model  115  Aggregate  115  disequilibrium  Mean d i s e q u i l i b r i u m stock V a r i a b i l i t y i n Rg  for  a suspended 117 117  t  Estimation  of  C a l c u l a t i o n of Residuals) Procedure for of  the  Error  The E m p i r i c a l  Parameters Error  118  Terms  Estimating  (or  the  118  Magnitude  Terms  .  Results  119 120  The F a m a - F i s h e r - J e n s e n - R o l 1 ( F F J R ) test Probability  120 tests  130  Measurement e r r o r s i n t h e alphas Measurement e r r o r s i n t h e betas N o n - s t a t i o n a r i ty of beta  estimated estimated  THE IMPACT OF TRADING SUSPENSIONS USING A POOLED CROSS-SECTION TIME SERIES REGRESSION MODEL P o o l e d C r o s s - S e c t i o n Time R e g r e s s i o n Models Model  Specification  The E m p i r i c a l  Results vi i i  Series  135 141 143  143 145 146 148  Chapter  4.  Page SUMMARY  152  FOOTNOTES  153  SUMMARY, MAJOR FINDINGS AND IMPLICATIONS MAJOR FINDINGS  . . .  *  IMPLICATIONS FOR SECURITY Effectiveness Techniques  of  Effectiveness  of  161  REGULATION  Regulatory  . . . .  162  Surveillance 162  the  Dissemination  Process SUGGESTIONS  158  163 FOR FURTHER RESEARCH  Alternative  Regulatory Actions  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 ty E f f e c t i v e n e s s of Market S u r v e i l l a n c e Techniques FOOTNOTES  163 163 16 3 164 165  BIBLIOGRAPHY  166  APPENDIXES I.  II. III.  THE SAMPLE OF STOCKS SUSPENDED BECAUSE OF A FAILURE TO DISSEMINATE REQUESTED INFORMATION  176  PROBABILITY TESTS ON THE AVERAGE ERROR TERMS  192  SUMMARY OF THE CONSTRAINED RUNS  i x  PORTFOLIO  PCTS REGRESSION  198  LIST OF TABLES Table I.  II.  III.  IV.  V. VI.  VII.  VIII.  Page 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 t h e C S E , MSE, TSE a n d / b r VSE D u r i n g t h e P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1 9 7 3 , Inclusive : .: ,  97  A C l a s s i f i c a t i o n of Reasons Given 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 of the V a r i o u s Exchanges  99  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 t h e C S E , MSE, TSE a n d / o r VSE f o r w h i c h R e g u l a r F l o o r T r a d i n g was S u s p e n d e d b e c a u s e 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 D u r i n g t h e P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1 9 7 3 , I n c l u s i v e  101  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 t h e C S E , M S E , TSE a n d / o r VSE f o r w h i c h R e g u l a r F l o o r T r a d i n g was Suspended b e c a u s e o f a F a i l u r e to meet Exchange Requirements During the P e r i o d of J a n u a r y 1, 1967 t o D e c e m b e r , 3 1 , 1 9 7 3 , Inclusive. . .  102  Reasons, For T r a d i n g S u s p e n s i o n s , That Indicate Alleged Manipulation  104  .'.  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 Period Regulatory A c t i o n s : Stocks L i s t e d on t h e C S E , M S E , TSE a n d / o r VSE f o r w h i c h R e g u l a r F l o o r T r a d i n g was S u s p e n d e d f o r A l l e g e d M a n i p u l a t i o n During the P e r i o d of J a n u a r y 1, 1967 to December 3 1 , 1 9 7 3 , Inclusive  105  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 S u s p e n d e d S t o c k s by t h e " 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 During a Trading Suspension  106  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 Quarters  116  x  Table IX.  Page 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 t h e 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 - 4 0 to +40 D e l e t e d i n t h e E s t i m a t i o n o f Parameters  121  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 . Observations - 4 0 to +40 D e l e t e d i n t h e E s t i m a t i o n o f Parameters ; .  126  XI.  P r o b a b i l i t y T e s t s on t h e A v e r a g e 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  XII.  P r o b a b i l i t y T e s t s on t h e A v e r a g e P o r t f o l i o E r r o r Terms. Allegedly Manipulated Suspended S t o c k s  132  P r o b a b i l i t y T e s t s on t h e A v e r a g e P o r t f o l i o E r r o r Terms. Unfavourable Information Suspended S t o c k s  134  P r o b a b i l i t y T e s t s on t h e A v e r a g e P o r t f o l i o E r r o r Terms. Favourable Information Suspended S t o c k s  134  Summary o f  149  X.  XIII.  XIV.  XV.  the  PCTS R e g r e s s i o n Runs  xi  LIST OF FIGURES AND EXHIBITS Figure 1.  Page P o s s i b l e market r e a c t i o n s in 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" o r "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  1.  Ontario S e c u r i t i e s Commission's Disclosure Policy  66  2.  Ontario S e c u r i t i e s Commission's P o l i c y f o r A d m i n i s t e r i n g the Timely D i s c l o s u r e Policy  Exhibit  3.  4.  5.  Timely  : .  69  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 Regarding I n d i s c r i m i n a t e Interruptions of Regular F l o o r Trading  70  Toronto Stock Exchange P o l i c y R e g a r d i n g Indiscriminate I n t e r r u p t i o n s of R e g u l a r FloorTrading  73  Montreal Stock Manipulative Methods  75  Exchange Rule D e a l i n g or D e c e p t i v e T r a d i n g  6.  Montreal Timely  7.  M o n t r e a l Stock Exchange P o l i c y R e g a r d i n g Indiscriminate I n t e r r u p t i o n s of R e g u l a r Floor Trading  80  Vancouver Stock Exchange Rules D e a l i n g w i t h M a n i p u l a t i v e o r D e c e p t i v e Methods o f Trading .  82  Vancouver Stock Exchange P o l i c y R e g a r d i n g Indiscriminate I n t e r r u p t i o n s of R e g u l a r Floor Trading  84  8.  9.  10.  S t o c k Exchange R u l e s D e a l i n g Disclosure  with  with  C u m u l a t i v e A v e r a g e E r r o r Terms - - T o t a l Weekly S a m p l e . O b s e r v a t i o n s - 4 0 t o +40 D e l e t e d in E s t i m a t i o n of Parameters . . . . . xi i  77  123  Exhibit 11.  12.  13.  14.  15.  Page C u m u l a t i v e A v e r a g e 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 S u s p e n d e d Stocks. O b s e r v a t i o n s - 4 0 to +40 D e l e t e d in E s t i m a t i o n of Parameters  125  C u m u l a t i v e A v e r a g e 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 S u s p e n d e d Stocks. O b s e r v a t i o n s - 4 0 t o +40 D e l e t e d i n E s t i m a t i o n of Parameters .  128  C u m u l a t i v e A v e r a g e 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 S u s p e n d e d Stocks. O b s e r v a t i o n s - 4 0 t o +40 D e l e t e d i n E s t i m a t i o n of Parameters  129  C u m u l a t i v e A v e r a g e E r r o r Terms - - T o t a l Weekly Sample - - A l l A l p h a s S e t t o Z e r o . Observa-.'. t i o n s - 4 0 t o +40 D e l e t e d i n E s t i m a t i o n o f Parameters C u m u l a t i v e A v e r a g e 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 S u s p e n d e d Stocks. O b s e r v a t i o n s - 4 0 t o +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 S e t to Zero  . 136  137  16.  C u m u l a t i v e A v e r a g e 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 S u s p e n d e d Stocks. O b s e r v a t i o n s - 4 0 t o +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 S e t to Zero .138  17.  C u m u l a t i v e A v e r a g e E r r o r Terms - Sample o f F a v o u r a b l e I n f o r m a t i o n Stocks. O b s e r v a t i o n s - 4 0 t o +40 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 to Zero . . .  Weekly Suspended Deleted in Alphas Set  139  18.  C u m u l a t i v e A v e r a g e E r r o r Terms - - T o t a l Weekly Sample - - A l l B e t a s S e t t o One. Observations - 4 0 t o +40 D e l e t e d i n E s t i m a t i o n o f Parameters 142  19.  50 Week M o v i n g A v e r a g e E s t i m a t e d Weekly Sample  xi i i  Beta - -  Total  144  ACKNOWLEDGEMENTS I  would  providing  like  to  the g e n e r a l  o f my d i s s e r t a t i o n . visor,  Dr.  thank  the  support In  F a c u l t y of  that  his  acumen and a v a i 1 a b i 1 i t y .  White  e n c o u r a g i n g me t o  bers of White,  my d i s s e r t a t i o n Dr.  I  criticism  am t h a n k f u l  who p r o v i d e d t h e collection. Research and  In  to  the  members o f  the  Daily  Sheets  to  all  individuals for  and  institutions  to  thank the  R.C.M.P.  the  data  Financial  F r a u d S q u a d s ; and  Richardson S e c u r i t i e s for  shipping four  the  of  C S E , M S E , TSE  In a d d i t i o n ,  for  R.W.  providing  t h e mammoth j o b  I would l i k e  and T o r o n t o  brokerage  providing  t h e mem-  for  industry.  for  R.W.  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 ;  Sheets to M o n t r e a l  Montreal  Dr.  Dr. M . J . Brennan, Dr.  o f M o n t r e a l ; members o f  the M o n t r e a l  thank  those  particular,  V S E ; members o f  to  sug-  pooled c r o s s - s e c t i o n  J . D . Boyd,  source material  Institute  helpful  and a d v i c e .  members o f  to  committee,  completion to my s u p e r -  I am g r a t e f u l  I am g r a t e f u l  J . D . M a c B e t h and D r .  constructive  I am i n d e b t e d  employ t h e  time s e r i e s r e g r e s s i o n model.  the  encouragement,  gestions, for  facilitated  particular,  M . J . Brennan, for  Commerce f o r  like  boxes o f VSE  f r o m W i n n i p e g and N e s b i t t  access to  p e r i o d of  I would  Thomson o f  t h e C S E , MSE and TSE D a i l y  J a n u a r y 1,  1967, to  December 3 1 ,  1 973. I in  would a l s o l i k e  s e a r c h i n g the  to  thank  D a i l y Sheets of xi v  Pat P f e i f f e r  the  four  for  assistance  exchanges f o r  trad-  ing i n t e r r u p t i o n s ofthis  McDougall f o r  the e x c e l l e n t  typing  thesis. Finally,  fellow  and M a r j  I would l i k e  graduate student,  to  Martin  encouragement.  xv  t h a n k my good f r i e n d Kusy,  for  and  h i s a d v i c e and  Chapter 1 INTRODUCTION T h e r e a r e two b a s i c the  protection  of  the g e n e r a l  tection  of  t i o n of  the general  use o f  the  individual  regulation  ciency)  aims o f  public's  investor's  public's  to  improve  the  markets.  investor's  interest  has been a p t l y  protection  of  other the  table  (fair)  "fair", mined  in  relates  largely  stated  to  the  individual as  investor".  market  treatment  turn,  among a l l  implies  that  market  security  should  "the In  1  satisfy equi-  participants. prices  the  (effi-  by S t i g l e r  avaricious) security  of  pro-  protec-  non-economic c o n s i d e r a t i o n of m a i n t a i n i n g  The word  s h o u l d be  deter-  competitively. Of t h e  two a i m s , t h e  most a t t e n t i o n governments,  because of  security  reason f o r  this  investor's  interest  judgements  about,  (or  (but  and t h e The  The p r o t e c t i o n  words, a wel1-performing  important  interest  economic performance  security  innocent  regulation:  interest.  interest  of  the  securities  fairness).  used t o  2  protect  types of  of  stock  trading  the  legal  has a l w a y s r e c e i v e d orientation  c o m m i s s i o n s and s t o c k  treatment  is  that  of  the  various  exchanges.  protection  of  the  the  The  individual  as an aim i s more s p e c i f i c , e a s i e r to make  and a p p e a l s t o M o r e o v e r , the  individual  t r u e and e q u i t a b l e vention  latter  elementary  primary  investors,  d i s c l o s u r e of  notions  mechanisms like  relevant  full,  and c o n t r o l  activity,  structures  1  equity  traditionally plain,  information,  price manipulation, financial  of  over and  timely, the  pre-  certain  financial  2 practices,  are f r e q u e n t l y  effect  the  for  general  W h i l e most regulators  tion, not  it  viewpoint greater lation  it  difficult  brokers,  difficult  to  detail  in  this  do s o .  length  can be d e t e r m i n e d o n l y  research. w i t h the  To d a t e , role  existing  formance of dian study  of  this  trading)  of  tional  efficiency  standing  equity  of  Unfortunately, specific has n o t Irwin  body o f  regulatory  F r i e n d , in  his  "further  work  is  in regu-  its  empirical dealt  requirements and  re-  the economic  The o n l y  in  5  existant  e x a m i n e d the improving for  both  perCana-  role  the  alloca-  new and  out-  7  the  effectiveness  requirements  been s u b j e c t e d  each  r e s e a r c h has  improving  regulation  to  t h e many o t h e r  empirical  1973 p r e s i d e n t i a l  required  of  d e s i g n e d to  detailed  Finance A s s o c i a t i o n , r e i t e r a t e d that  in  6  the Canadian market  issues.  of  current  accounting data  by Shaw whi-ch b r i e f l y  p l a y e d by C a n a d i a n s e c u r i t y  would  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 -  American s e c u r i t y markets. that  regula-  in a c h i e v i n g  a growing  i n c r e a s e d d i s c l o s u r e of  is  efficient  tests.  regulation  subject  p l a y e d by t h e  efficacy  by e m p i r i c a l  h o w e v e r , most o f  on i n s i d e r  an  be s p e c i f i e d  1  strictions  security  the m e r i t s  change C o m m i s s i o n (SEC) * and s p e c i f i c r e g u l a t o r y ( s u c h as t h e  and  security  (and w i l l  the  security  aims has been t h e  c o n c e i v e of  Although  chapter),  of  to  officials  i n v e s t o r s , and e c o n o m i s t s  can be d e b a t e d a t  The e f f i c a c y basic  3  stock market w i t h o u t  a number o f  find  public.  l a w y e r s , government  would f i n d  and e q u i t a b l e  r e g a r d e d as a l s o h a v i n g a b e n e f i c i a l  this ...  to  protect  :  investors  investigation.  a d d r e s s to  the American  d e f i c i e n c y when he p r o p o s e d explore  the  impact  on  3 market  efficiency  of  Given the proposes  to,  specific  of  firstly,  s e c o n d l y , to  derive  for  the  time  corporate  of  cussed  of  the  will  to  "better"  of  the  regulation predictions  deal with a  important floor  the  in a Canadian  trading  in a stock  disseminate  "non-  information.  The e c o n o m i c f u n c t i o n efficiency  is  regular  in order  security  tests tests  p r a c t i c e which  interruption  a p e r i o d of  public"  empirical  The e m p i r i c a l  regulatory  context:  v a l u e of  8  thesis  s p e c i f i c h y p o t h e s e s from  on t h e  present  each h y p o t h e s i s .  specific  requirements...".  i n a d e q u a c i e s noted above, t h i s  two c o m p e t i n g v i e w p o i n t s and,  regulatory  w i t h which  it  fulfills  stock market  this  function  and  will  the be d i s -  next.  THE ECONOMIC FUNCTION OF THE CAPITAL MARKET The e c o n o m i c f u n c t i o n optimally  allocate  the  limited  s a v i n g s among t h e d i f f e r e n t and t o  tage of  that all  portfolio  individual  and c o u n t r i e s .  capital  supply of  for  shifts  market  a period's  long-term  to  t h o s e u s e r s and uses w i l l i n g  for  terms of  funds  in  To f u l f i l l securities  market  siderations.  That  this  potential  allocative  is,  the  function  p r i c e s of  risk  to  units,  advansectors  pay t h e  funds most  returns.  efficiently,  s o l e l y by e c o n o m i c  the v a r i o u s  9  by  the mutual  risk-adjusted  s h o u l d be i n f l u e n c e d  current  i s one i n w h i c h  are a l l o c a t e d to the  to  allocate  groups of  allocation  is  investments  can be made to  economic u n i t s ,  The o p t i m a l  1 0  the  u s e r s and u s e s ,  provide marketability  ensuring  of  the con-  securities  4 should r e f l e c t In  their  an e f f i c i e n t  ties  e x p e c t e d r e t u r n and r i s k  market,  should r e f l e c t  And s i n c e ,  and o f other  expected r i s k - a d j u s t e d be r i s k  until  A basic allocational market costs  efficiency,  the market  market  a perfectly  results  equal  attract  of  flow  towards  rates risk.  is a c h i e v e d .  of  efficiency  ability  r e t u r n or  market  by d e f i n i t i o n  economically  large  enough f o r  ruling to  price,  information  vant  no b u y e r o r  (2)  his  about  the  kerage f e e s , t r a n s f e r c u r r e d when s e c u r i t i e s or c a p i t a l  or at  least  a perfect  a large  s e l l e r or  traders  c h a r a c t e r i s t i c s of  sonal  (1)  to  capital  transac-  securities  and c o s t l e s s  and a b o u t  alternative  investments,  taxes or o t h e r  transaction  s o l d or  all (3)  imposition  of which w i l l  access  no  relebro-  c o s t s are  issued,  is  the  the  (4)  g a i n t a x e s on g a i n s o r d i v i d e n d s a r e  no t a x e s t h e  market  have an i m p a c t on  price  are bought,  ap-  competitive  number o f  i s s u e r of  have e q u a l  ruling  under  efficient.  for  transactions  all  effi-  behind t h i s  sound b e c a u s e a p e r f e c t l y  such t h a t  the  financing  theoretically  tors  of  is  by c o m p a r i n g a c -  The r a t i o n a l e  The n e c e s s a r y c o n d i t i o n s  to  1 1  The a l l o c a t i o n a l  1 2  high  w h i c h w o u l d be e x p e c t e d  market.  may be s u m m a r i z e d as f o l l o w s :  these  promising  proach i s is  firm's  (presumed  firms  a p p r a i s i n g market  with results  securi-  the  investors  can be a s s e s s e d ex p o s t  competitive  a firm's  associated with  which measures the  equivalent of  of  being e q u a l , r e l a t i v e l y  equilibrium  approach f o r  on i n v e s t m e n t s  c i e n c y of tual  market  to m a i n t a i n  the r i s k s  things  will  price  best estimates  returns  averse), capital  such r e t u r n s  current  investor's  expected p r o f i t a b i l i t y profits.  the  characteristics.  no  inper-  incurred,  change e c o -  5 nomic d e c i s i o n s , ket  exists,  (5)  and (6)  free  entry  and e x i t  shares are  to  the  homogeneous  (by  capital risk  mar-  class)  and i nf i n i t i ve 1 y d i vi si b 1 e. Some o f  these c o n d i t i o n s  mated i n  the  text.  For i n s t a n c e ,  1 3  stock market,  particularly  although  a variety  class  a r e homogeneous c o m m o d i t i e s .  a given  and,  risk  therefore,  market pants  influence  it  short-run  vestors  sell  do n o t  is  in a long-run  the  market  securities  of  con-  is  substitute  for  same p r i c e .  In  relatively  difficult  for  made  each  Ceteris paribus,  number o f  usually  hand, t r a n s a c t i o n  have e q u a l  risk one  any  share  other  addition, small  the  partici-  any i n d i v i d u a l  to  for  the  not  and s e a r c h c o s t s  negligible.  imperfections  e x i s t e n c e of  in  Furthermore,  and c o s t l e s s a c c e s s  These m a r k e t  to  all  relevant  suggest that  a perfect  in-  market  the  Uto-  are  not  precisely. However,  competitive efficient  in  even i f  market terms  prices  are s a i d to  formation. * 1 1  type  of  of  the of  always  Furthermore,  capital  information be e f f i c i e n t  the  above c o n d i t i o n s  a r e not m e t ,  most common f o r m u l a t i o n  to  at  a large  other  pian c o n d i t i o n s  the  a perfect  are o b v i o u s l y  information.  met  is  the  approxi-  prices.  On t h e the  must  c o n s i s t s of so t h a t  securities,  class  be w e l l  a securities  up o f  of  of  appear to  market  capital  hypothesis  "fully  reflect"  a c c o r d i n g to  efficiency  subset considered. in  markets  efficient-market the  for  a  perfectly  can s t i l l  hypothesis. is all  this  the  The  one i n  t h e weak f o r m when t h e  which  known m a r k e t formulation,  h y p o t h e s i z e d depends A capital  be  market  information  inthe  upon  is  said  subset  6 includes  only  that  information  e x a m i n a t i o n of  past  capital  is  market  f o r m when t h e able  security  s a i d to  in  the  embodies a l l  information  D e p e n d i n g upon the  said  to  to  returns.  distribution, waik.  then  efficient  in  publicly  If  this  is  such t h a t  to  subset insiders.  a s s u m e d , any new subset  and c a n n o t  stock  of  price  to  stock  changes a r e  some u n s p e c i f i e d to  is  be used  rapid adjustment  and c o n f o r m to  avail-  said  p o s s e s s e d by  information  rapidly  is  information  stock p r i c e s are conforming  necessary conditions  terms  stringent  of  than  These c o n d i t i o n s to  semi-strong  market  efficiency  relevant  prices  1 6  that  A  1 5  return  a random  1 7  The t h r e e  less  market  the  new i n f o r m a t i o n  independent over time  series.  the  a capital  including  in  in  f o r m when t h e  type of  be r e f l e c t e d  make a b n o r m a l prices  strong  that enters  (return)  subset includes a l l  And f i n a l l y ,  be e f f i c i e n t  information  price  be e f f i c i e n t  information  information.  w h i c h can be g l e a n e d f r o m an  a "sufficient"  the  required  (1)  investors,  are  " r e a s o n a b l e " , and (3) i n  ing  the  stock  price  ority  or  of  inferiority  of  a perfect is  readily  be are  market. available  (2) t r a n s a c t i o n  information  costs  agreement c o n c e r n on s t o c k  be no e v i d e n c e o f  any s i g n f i c a n t  to  hypothesis  the absence of  current  changes, there  for  information  number o f  implication  a market  efficient-market  those  are:  for  prices  consistent  participant  in  superi-  the  market. The s a t i s f a c t i o n cannot  be d e f i n i t i v e l y  empirical  of  these less  stringent  determined d i r e c t l y .  e v i d e n c e on e f f i c i e n c y  implies  that  conditions  However,  and  the  the n e c e s s a r y  7 conditions fact,  most o f  behaviour not  are reasonably d e s c r i p t i v e of  is  strong)  the  empirical  efficiency.  by B e a v e r , Watts the  corporate  effects  price  of  of  stock  splits,  announcements of on the  2 8  changes, the  the  price effects  of 3 1  of the  variations  on t h e  by M a n d e l k e r on t h e  of  the e f f i c i e n t - m a r k e t  of market  participants  profitability. specialists cess  to  who seem t o  nopoly p r o f i t s .  3 t f  of  2 7  by  content on t h e  price  study  announcements of and K a p l a n - R o l l  2 9  of  of  trading, firms  on  3 0  and t h e  strong  several  has i n d i c a t e d  that  study  form groups trading that  monopolistic  orders  to  to  3 3  above a v e r a g e  use t h e i r  the  Investor  merging.  identifies enjoy  mar-  announcements  Institutional  concerning u n f i l l e d Scholes  study  and O s b o r n e have i n d i c a t e d  on t h e NYSE a p p a r e n t l y  information  the  e v i d e n c e on t h e  hypothesis  Neiderhoffer  published  c h a n g e s , the  effects  SEC's  effects  The a v a i l a b l e e m p i r i c a l  of  by W a u d  rate  institutional  price  announcements,  in accounting techniques,  on t h e p r i c e  impact of  Ball-  Fama-Fisher-Jensen-  study  by A r c h i b a l d  studies  and  2 2  informational  effects  on t h e NYSE and AMEX, t h e 3 2  the  discount  price  studies  by Van H o m e  Study  effects by  secondary o f f e r i n g s , of  earnings  study  effects  semi-strong  Beaver-Dukes  annual  (but  i n c l u d e s the  the  effects  on t h e p r i c e  gin  list  effects  2 1  2 1  by L a r g a y - W e s t  study  Ball,  2 0  accounting data,  2 6  large  price  hypothesis  price  1 8  e v i d e n c e on t h e  by B e n s t o n * on t h e p r i c e  on t h e  2 5  Scholes of  Bal1-Brown,  1 9  on t h e  2 3  studies  Roll  efficient-market  In  stock  c o n s i s t e n t w i t h t h e weak and s e m i - s t r o n g forms of market  the  markets.  evidence suggests that  The a v a i l a b l e e m p i r i c a l form o f  actual  ac-  g e n e r a t e mo-  corporate  offi-  8 cers,  directors  nopolistic company.  access  to  insider  Other s t u d i e s  3 5  erhoffer,  and p r i n c i p a l  Rogoff  3 8  gest that  3 9  insiders  to g e n e r a t e  s h a r e h o l d e r s s o m e t i m e s have mocorporate  by D r i s c o l l ,  and J a f f e * 1  provide  0  of  are to  security  among a l l  market  attempted  to  tory  improve  economic performance  the  participants.  "control  "Control  of  c o n s i d e r e d to in  provisions,  the  the  aims o f  equitable  Historically,  security (efficiency)  (fair)  treatment  regulators  aims t h r o u g h two  conduct"  regulations  deal w i t h the  s e c u r i t i e s market.  to  enter  those already of market  have  regula-  and  "dis-  in  "Disclosure"  The r e g u l a t i o n s  securities  the  (1)  participants  the  industry,  securities  position  behaviour  new and e x i s t i n g  dealing with:  the  a sound f i n a n c i a l  securities  type of  be a c c e p t a b l e f o r  amongst o t h e r s ,  protection  nance o f in  the  those w i s h i n g  conduct of  of  basic  Conduct" Regulations  These r e g u l a t i o n s  of  two  and t o m a i n t a i n  requirements.  ticipants  information  the  closure"  which i s  sug-  REGULATION  a c h i e v e t h e s e two b a s i c  approaches:  evidence that  monopoly  their  Lorie-Neid-  3 7  previously,  markets  about  returns.  APPROACHES TO SECURITY  regulation  Glass,  3 6  p o s s e s s and e x p l o i t  "excess"  As s t a t e d  information  par-  include suitability  (2)  industry,  the  and  by e n s u r i n g t h e  by t h o s e p r o v i d i n g  (3)  mainteservices  industry.  Requirements  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  acts  is  the  concept  9 of  "disclosure".  change A c t to  is  In  fact,  the  United States S e c u r i t i e s Ex-  described in  its  title  as a " d i s c l o s u r e s t a t u t e " .  similar. Toronto  and i s  usually  referred  The C a n a d i a n s i t u a t i o n  F o r e x a m p l e , John K i m b e r , f o r m e r Stock Exchange, stated  in  1967  is  very  P r e s i d e n t of  the  that:  . . . With the p a s s i n g of the O n t a r i o S e c u r i t i e s A c t , 1 9 6 6 , 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 r a began w i t h r e s p e c t t o t h e p r o t e c t i o n o f t h e i n v e s t o r , p a r t i c u l a r l y in the area of c o r p o r a t e d i s c l o s u r e . * 1  U n d e r l y i n g the ties  acts  data  is  is  the  belief  necessary for  market.  d i s c l o s u r e requirements that  a fair  to  provide  investors  e n a b l e them to  general  ing of  annual  d e s i g n e d to  and q u a r t e r l y  elicit  the  intended  to  elicit  specific  information  violation  may r e s u l t against  material  firm.  immediate  the  decisions. * 1  public  action  For e x a m p l e , i f  advantage of  ( s u c h as a t r a d i n g a regulator  information  is  may i s s u e a r e g u l a t o r y that  are  are firm-  bid).  these d i s c l o s u r e  fil-  informa-;.  d i s c l o s u r e of  A cor-  provisions suspension)  suspects  that  being e x p l o i t e d  to  participants,  then  one o r more m a r k e t  d i s c l o s u r e of  which  general  ( s u c h as a p e n d i n g t a k e o v e r  2  include,  ( s u c h as t h e m a n d a t o r y statements)  and  information  d i s c l o s u r e p o l i c i e s which  one o r more o f  dis-  manipulation  by r e g u l a t o r s  d i s c l o s u r e of  immediate  firm-specific  the r e g u l a t o r  utilized  financial  regular  in a regulatory  the  non-public  of  financial  own r a t i o n a l  disclosure statutes  tion and, secondly, timely  porate  their  provisions  capital  1969 Wheat R e p o r t v i e w e d  prevent  at  financial  operating  and s p e c u l a t o r s w i t h enough  arrive  Disclosure first,  (1)  most s e c u r i -  d i s c l o s u r e of  and e f f i c i e n t l y  For example, the SEC's  c l o s u r e as n e c e s s a r y to (2)  required  of  1  action  information.  compelling  the  the  10 In  terms of  the e f f i c i e n t - m a r k e t  t o r y a c t i o n s a r e i n t e n d e d to of  information  in  t h e s e m i s s t r o n g form but  effective,  so t h a t  therefore,  on i n f o r m a t i o n rent stock  that  e l i m i n a t e monopoly  the market w i l l also in  not  the  these r e g u l a t o r y  is  not  model, these r e g u l a -  already  exploitation  only  strong  be  efficient  form.  To be  a c t i o n s must be b a s e d  "fully  reflected"  in  cur-  prices.  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 of  empirical  e v i d e n c e on t h e e f f e c t i v e n e s s o f  ments,  is  it  important  on th e e f f i c a c y o f  to  d i s c u s s the  security  the  available  disclosure  two c o m p e t i n g  require-  viewpoints  regulation.  Naive Regulator Hypothesis A t one e x t r e m e , a number o f economists * 1  3  propose t h a t  s h o u l d be m i n i m i z e d . is  a b l e to  satisfy  efficiency, number o f  of  three  investors  security  conditions  an u n r e g u l a t e d necessary for  i n an u n r e g u l a t e d m a r k e t ,  and w o u l d have no i n c l i n a t i o n  expectations  not  security  fully  and  regulation  a  to  market market  "sufficient"  s o p h i s t i c a t e d i n v e s t o r s w o u l d a c t on a l l  information  fore,  role  They b e l i e v e t h a t  the  so t h a t  the  brokers,  available  continue  holding  c o n s o n a n t w i t h new i n f o r m a t i o n .  p r i c e s would f u l l y  adjust  rapidly  There-  as new  infor-  m a t i o n became a v a i l a b l e and t h e r e w o u l d be no c o n s i s t e n t superior in  the  or  inferior  p e r f o r m a n c e by any s i g n i f i c a n t  participant  market. If  an u n r e g u l a t e d m a r k e t meets t h e  criteria  of  strong  11 form market  efficiency,  s a r y and s e c u r i t y Furthermore, but  then  regulators  existing  by l e n g t h e n i n g  the  mation  r e l e a s e to  and i t s  misallocate fectively  in  new i n f o r m a t i o n , time  lag  that  insider that  not  short  run.  the m a r k e t  the  recently  Stock  point  Exchange i n  may not  be t h e  to  this  At the number o f  case  of  5  in  of  the  of  their  future is  the  inforactually  The  in  may  case  could  unregulated  un-  London  However,  because the  if  regulations.  viewpoint  position.  ef-  fore-  regulations  present  this Labour  considering restrictions  this  viewpoint  (henceforth  other  on  be r e f e r r e d  in  the  three  as  NR) h y p o t h e s i s .  extreme,  the  security  regulators  and e c o n o m i s t s ' *  regulation  6  propose  s h o u l d be m a i n t a i n e d  conditions  necessary for  an u n r e g u l a t e d m a r k e t ,  "sophisticated"  to  Hypothesis  investors  security  will  They b e l i e v e t h a t an u n r e g u l a t e d m a r k e t  satisfy  so t h a t  of  Such may be t h e  success  thesis,  brokers,  creased. to  1  the  support  naive regulator  role  trading. *  naive regulator  Sophisticated Regulator  the  increase secrecy  inefficiencies  existing  re-  trading. In  the  ineffective  and t h e y may  the  Government i n G r e a t B r i t a i n insider  be  has d e v e l o p e d a d e p e n d e n c e on e x i s t i n g  Proponents of til  just  otherwise.  production  operational  imply  unneces-  t h e y may s l o w t r a d i n g  the m a r k e t , ^  g o i n g a n a l y s i s does n o t  is  believing  may not  between t h e  areas l i k e  be n e c e s s a r y i n  in  t h e y may a c t u a l l y  r e s o u r c e s due t o  policing  regulation  are naive  regulations  t h e y may be d e t r i m e n t a l  sponses to  security  is  market  an " i n s u f f i c i e n t "  i n v e s t o r s would a c t  on a l l  available  and a that or not  inable  efficiency, number  of  informa-  1 2 t i o n and w o u l d not expectations  not  such w a s . t h e  case,  just  fully  security  If then  continue  holding  p r i c e s w o u l d not  inferior  performance  If  always f u l l y  became a v a i l a b l e and t h e r e  s u p e r i o r or  cant market  to  c o n s o n a n t w i t h new i n f o r m a t i o n .  as new i n f o r m a t i o n  consistent  ket  have an i n c l i n a t i o n  ad-  w o u l d be  by some  signifi-  participants. an u n r e g u l a t e d  security  regulation  s e c u r i t y market can be e f f e c t i v e  a " c l o s e r " approximation  to  is  not  efficient,  i n making the  an e f f i c i e n t  mar-  or p e r f e c t  mar-  ket. The e f f e c t by u n s o p h i s t i c a t e d 1841 i n  on s e c u r i t y  i n v e s t o r s was f i r s t  Charles Mackay's Extraordinary  t h e Madness o f viewpoint  Crowds. * 1  believed  Since  7  has been r e i t e r a t e d  merous books and i n that  the market  Furthermore,  vestors  participated  buy o r  occurred. this  sell,  long r u n ,  in  prices  The e f f e c t  publication,  a large  t h e same  studied  in  For example,  nu-  Keynes * 1  s e c u r i t i e s was d e p e n d e n t number o f  ignorant  inves-  by a t t e m p t i n g to  act is  before  the m a s s - p s y c h o l o g y  no i n h e r e n t  b e h a v i o u r and the reflect  on s e c u r i t y  of  disseminating  is  reason f r e q u e n t l y  contradiction thesis  that,  economic v a l u e s . * 1  p r i c e s of  going effect  between  in  the  9  deliberately  (and e x p l o i t i n g )  in-  second-  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  strategies another  of  as  P o p u l a r D e l u s i o n s and  articles.  the market  so as t o  investor  stock  p r o p o s e d as e a r l y  and e x h a u s t i v e l y  pricing  However, t h e r e  form of  a market.dominated  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  g u e s s when t h e mass o f to  that  hundreds of  upon t h e mass p s y c h o l o g y o f tors.  p r i c e s of  pursued  misinformation  a d v a n c e d by p r o p o n e n t s  of  5 0  secur-  1 3 i ty  regulation.  lative study.  activity  The e f f e c t on s t o c k  of  prices  individual is  i n s t a n c e s of  manipu-  documented i n a r e c e n t  5 1  The l e g a l  literature  have c o n c l u d e d t h a t m a r k e t by e x t e n s i v e r e m e d i a l bodies. trading  shares of  replete  w i t h case s t u d i e s  imperfections  action  For example, the of  is  by g o v e r n m e n t  New Y o r k S t a t e  Levitz  can o n l y  Furniture  and  that  be removed  regulatory  inquiry  into  the  Corporation concluded:  The f i n d i n g s o f t h i s i n q u i r y d e m o n s t r a t e t h e 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 t o any e n f o r c e m e n t p r o c e d u r e s w h i c h may be d e t e r m i n e d t o be n e c e s s a r y by a p p r o priate agencies. . . . I t i s hoped t h a t s u c h a g e n c i e s w i l l thoroughly 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 inquiry, and move s p e e d i l y t o 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  Another recent Select changes port  example i s  contained  Committee's report in  that  on s e c u r i t y  country.  presented in  the  i n an A u s t r a l i a n S e n a t e trading  A c c o r d i n g to  Financial  and s t o c k  an a c c o u n t of  the  exre-  Post:  It 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 of 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 i n g t h e m i n e r a l boom. R e a d i n g 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 n c o m p e t e n c e and n e g l e c t , and e x t e n d e d i n t o some o f t h e most r e s p e c t e d b r o k i n g h o u s e s i n t h e 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 g o v e r n m e n t c o n t r o l s h o u l d be i m p o s e d on t h e securities business. 5 3  In the  this  thesis,  this  sophisticated regulator  viewpoint (henceforth  will  be r e f e r r e d  SR) h y p o t h e s i s .  to as  14 THE EMPIRICAL EVIDENCE ON THE EFFECTIVENESS OF DISCLOSURE REQUIREMENTS The o n l y e m p i r i c a l ness o f  the  number o f  investigations  d i s c l o s u r e requirements  studies  on f i n a n c i a l  of  into  securities  B e n s t o n * has e x a m i n e d e m p i r i c a l l y  counting  d i s c l o s u r e requirements  5 1  leading firms'  1934 on t h e  financial  plished  fairness  by a s t a t i s t i c a l  Benston concluded t h a t  of  study  the  have no m e a s u r a b l e p o s i t i v e NYSE.  as t h e  Furthermore,  SEC's  In  the e f f e c t  "there  appears to  the  of  fraudulent  of  or  data  ...",  5 5  rebuttal  to  supportive  movements. of  securities  require  "...  the  of  on  insofar  the  that  legislation There-  5 6  t h e NR h y p o t h e s i s .  B e n s t o n ' s c o n c l u s i o n s , A . A . Sommer,  a SEC C o m m i s s i o n e r , a r g u e s  Act  traded  Benston concluded basis for  the  p u b l i c a t i o n •.  was needed o r d e s i r a b l e " .  is  con-  between  price  s i n c e he b e l i e v e s t h a t  it  Benston's study  relationship  on the  about  T h i s was a c c o m -  d i s c l o s u r e requirements effect  ac-  mis-,  expectations  d a t a and s t o c k  have been l i t t l e  and no e v i d e n c e t h a t  In  of  his  U.S. S e c u r i t i e s Ex-  the m a r k e t .  disclosure regulations  of u s e l e s s a n d u n t i m e l y  Jr.,  the  on i n v e s t o r s '  published accounting statement  fore,  laws a r e a  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 '  f i d e n c e and on t h e  the  in  publication  statements,  effective-  disclosure statutes.  studies,  change A c t o f  the  that:  A major weakness i n P r o f e s s o r B e n t o n ' s approach i s t h a t he a p p l i e s v e r y n a r r o w f i n d i n g s to t h e e n t i r e d i s c l o s u r e system . . . . His 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 t h e New Y o r k S t o c k E x c h a n g e ; t o 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 t h e many r e q u i r e d r e p o r t s , t h e a n n u a l r e p o r t on Form 10-K. He d i s r e g a r d s , among o t h e r t h i n g s , t h e 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 o f m a t e r i a l e v e n t s . 5 7  1 5 In the  a later  securities  ings  market  data f o r  firms  in  study,  Collins  with respect  to  market  related  movements  and  'partial  disclosure'  in  security  firms.  the market  to  segment r e v e n u e and p r o f i t  the  non-public  closure  firms.  replicated of  the  However,  for  1970, C o l l i n s '  has n o t  tiveness the in  study  Collins  'non-disclo-  efficient  finding  to  for  with  1 968-  respect  data of  non-dis-  c o u l d not  i s only weakly  be  supportive  SR h y p o t h e s i s . To d a t e ,  tions  since this  model  His r e s u l t s  1969 s u g g e s t t h a t  earn-  by many  prices,  for  of  segment  market  returns  was n o t  efficiency  made p u b l i c  U s i n g the  c a l c u l a t e d average monthly abnormal sure'  the  non-public  1 9 6 7 - 1 9 6 9 w h i c h was f i r s t  1970 SEC 10-K r e p o r t s .  eliminate  tested  5 8  of  the  been e x a m i n e d .  one t y p e  interruption order  effectiveness  to  of  of  specific  regular  "better"  This  of  specific  thesis  examines the  regulatory  floor  disseminate  trading  regulatory  action,  for  effec-  namely  a period  firm-specific  ac-  of  corporate  time in-  formation . According  to  hypothesis  and i t s  the  of  effect  vestors  a large  logical  not  be a v a i l a b l e  would  rise  regulate.  or  for  actions  fall  in  other  predict  the  efficient  the  in  information,  the market hand, the that  current  regulators.  of  it  Since is  of  the  sophisticated  information  not  since  stock  prices  so many  unlikely  sufficient  price  market  NR h y p o t h e s i s ,  w o u l d be z e r o ,  reflected"  have i n f o r m a t i o n  On the  p o t h e s i s would  to  form of  c o n s e q u e n c e , the  "fully  are competing  regulators  strong  such r e g u l a t o r y  any i n f o r m a t i o n would not  the  value shares  that to  cause  they  regulator  "fully  in-  hy-  reflected"  1 6 in  current  stock  p r i c e s may be known t o  when made p u b l i c , or  fall  in  pirical sions will  the  be o f  market  sufficient  price  investigation  of  the  (and a l s o a d i r e c t be u n d e r t a k e n  in  of  regulators  value  the  to  of  Chapter  3.  cause a l a r g e  shares r e g u l a t e d .  effectiveness  test  and may,  the  of  An em-  trading  competing  rise  suspen-  hypotheses)  ORGANIZATION OF THE REMAINDER OF THE THESIS In  the  next  and e n f o r c e m e n t of  corporate  tive  in  agencies  procedures  Canadian r e g u l a t o r y  for  listed  securities  d i s c l o s u r e are p r e s e n t e d .  nature  regulation.  chapter,  this,  and e n f o r c e m e n t  the  of  existing  procedures  in  for  agencies  the  The c h a p t e r  and b e g i n s w i t h a h i s t o r y  Following  law,  is  Canadian  descrip-  security  regulatory  listed  area  statutes,  securities  are  described. In of  the  specific  ular  chapter,  regulatory  floor  trading  disseminate is  third  action,  for  This  is  effectiveness.of  namely t h e  a period  firm-specific  examined.  the  of  type  interruption  time in order  "non-public"  also a direct  one  corporate  empirical  to  of  reg-  "better"  information,  test  of  t h e SR  and NR h y p o t h e s e s . The t h i r d the  possible effects  c i e n c y and t h e scenarios. is  chapter  suspensions  of  this,  determine  information  o r g a n i z e d as f o l l o w s .  trading  behaviour  Following  e x a m i n e d to  "private")  of  is  the  First,  s u s p e n s i o n s on m a r k e t  stock  prices  a sample o f  is  depicted  in  four  120 s u s p e n d e d s t o c k s  average e f f e c t  of  s u p p o s e d l y made p u b l i c  on p o s t - s u s p e n s i o n p e r i o d  effi-  price  new  (previously,  during  behaviour  trading (as  re-  17 fleeted  in  the  And f i n a l l y ,  error  terms  empirical  SR h y p o t h e s e s a r e  after  tests  abstracting  of  the  predictions  other  types of  trading  incomplete.  Furthermore,  selected  study  for  nical)  interruptions  and n o t  the  (2)  at  to  time of  (VSE);  ary  1967 t o  1,  later  assessed. in  in  implications  it  very  total) (1)  Montreal  it  requested  t o meet l i s t i n g  was s u s p e n d e d d u r i n g  for  was  (techlisted  Stock Exchange  the  p e r i o d of  and/or  the  regulatory  promote  results  the  of  results  of  this  was  mechanisms ( o r  markets. this  study  proposals for  improved e f f i c i e n c y  Canadian c a p i t a l of  it  Janu-  trading.  fourth chapter,  to  discussed.  criteria:  suspension, it  T h i s a s s e s s m e n t may l e a d t o  the  be  in  December 3 1 , 1 9 7 3 , i n c l u s i v e ; and (4)  the  in order  equity  are  (3)  legislation  all)  for  S t o c k E x c h a n g e (TSE) a n d / o r V a n c o u v e r S t o c k E x -  reinstated In  to  (120  disseminate  a failure  on t h e C a n a d i a n S t o c k E x c h a n g e ( C S E ) ,  change  was f o u n d  following  a failure  because of  requirements;  (MSE), Toronto  t h e NR and  because data  each suspended s t o c k  satisfied  was s u s p e n d e d b e c a u s e o f information  of  market).  presented.  O n l y s u s p e n d e d s t o c k s were s t u d i e d the  f r o m the  study  a change  no change  and/or  further  at  investor  Following t h i s , for  are  the  research  18  FOOTNOTES  curities p. 1 2 0 .  George J . Stigler, M a r k e t s , " J o u r n a l of  " P u b l i c R e g u l a t i o n of the B u s i n e s s , V o l . 37 ( A p r i l ,  Se1964),  I r w i n F r i e n d , "The SEC and t h e E c o n o m i c P e r f o r m a n c e 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 t h e 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 : A m e r i c a n 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. 1 8 6 . 2  3  Irwin  Friend,  p.  186.  "•The r o l e p l a y e d by t h e U n i t e d S t a t e s S e c u r i t i e s and Exchange C o m m i s s i o n (SEC) i n i m p r o v i n g t h e e c o n o m i c p e r f o r m a n c e o f A m e r i c a n s e c u r i t y m a r k e t s f o r b o t h 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 t h e s u b j e c t o f t h e 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 , p p . 1 1 7 - 4 2 ; I r w i n F r i e n d and Edward S . Herman, p p . 3 8 2 - 4 0 5 ; I r w i n 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 ) , p p . 1 0 6 - 1 0 ; S i d n e y R o b b i n s and W a l t e r W e r n e r , " 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 of B u s i n e s s ( O c t o b e r , 1 9 6 4 ) , p p . 4 0 6 - 1 3 ; and I r w i n F r i e n d , "The E c o n o m i c Impact o f S e c u r i t i e s R e g u l a t i o n , " Conference of 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 ) . 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 t o c k M a r k e t : An E v a l u a t i o n o f t h e S e c u r i t i e s Exchange A c t o f 1 9 3 4 , " The A m e r i c a n E c o n o m i c R e v i e w ( M a r c h , 1 9 7 3 ) , p. 1 3 2 . 5  S e e H s i u - K w a n g Wu, " C o r p o r a t e I n s i d e r T r a d i n g Profita b i l i t y , and S t o c k 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 E c o n o m i s t L o o k s a t S e c t i o n 16 o f t h e S e c u r i t i e s Exchange A c t o f 1 9 3 4 , " C o l u m b i a Law R e v i e w , 68 ( F e b r u a r y , 1 9 6 8 ) , p p . 2 6 0 - 6 9 ; Henry G. M a n n e , I n s i d e r T r a d i n g and t h e S t o c k M a r k e 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 c h a n g e s 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 E c o n o m i c s and Management S c i e n c e , V o l . 5 , No. 1 ( S p r i n g , 1974), pp. 9 3 - 1 2 1 . 6  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 M a r k e t f o r New E q u i t y I s s u e s , " C a n a d i a n J o u r n a l o f E c o n o m i c s , ( N o v e m b e r , 1 9 6 9 ) , p p . 5 4 6 - 6 6 ; and "The P e r f o r m a n c e o f P r i m a r y Stock O f f e r i n g s : A Canadian C o m p a r i s o n , " T h e / J o u r n a l of F i n a n c e , XXVI ( D e c e m b e r , 1 9 7 1 ) , p p . 1 1 0 1 - 1 1 1 3 . 7  I r w i n F r i e n d , "Methodology in F i n a n c e , " P r e s i d e n t i a l A d d r e s s , American F i n a n c e A s s o c i a t i o n Annual M e e t i n g s , T o r o n t o , C a n a d a , December 2 8 , 1 9 7 2 . 8  19 W i t h r e g a r d to t h e a l l o c a t i o n o f r i s k , A r r o w s t a t e s t h a t the c a p i t a l m a r k e t 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 s u r a n c e m a r k e t i n w h i c h b u s i n e s s and f i n a n c i a l r i s k a r e p a r c e l e d o u t and t r a d e d among m a r k e t p a r t i c i p a n t s . See K . J . A r r o w , "The R o l e o f S e c u r i t i e s i n t h e O p t i m a l A l l o c a t i o n o f R i s k - B e a r i n g , " R e v i e w o f E c o n o m i c S t u d i e s , V o l . 31 ( 1 9 6 3 / 1964) , p p . 9 1 - 9 6 ; and " I n s u r a n c e , R i s k and R e s o u r c e 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 of the Theory of R i s k - B e a r i n g ( H e l s i n k i : Yrjo J a h n s s o n i n s a a t o , 1963). 9  R . G o l d s m i t h , The F l o w o f 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 B u r e a u o f E c o n o m i c R e s e a r c h , 1965) , p. 2 8 . 1 0  Haim folio Analysis pp. 9-10. l x  L e v y and M a r s h a l l S a r n a t , I n v e s t m e n t and P o r t ( 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 ) ,  A second b a s i c approach f o r a p p r a i s i n g market effic 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 , which measures the relative cost of 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 m e a s u r e s a r e , of c o u r s e , interrelated. 1 2  1 3  Efficiency  See William (New Y o r k :  J . B a u m o l , The S t o c k M a r k e t and E c o n o m i c Fordham U n i v e r s i t y P r e s s , 1 965) .  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 m a r k e t s 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 R e v i e w o f T h e o r y and E m p i r i c a l W o r k , " The J o u r n a l o f F i n a n c e , XXV (May, 1 9 7 0 ) , p p . 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 J o h n A . McQuown, "The E f f i c i e n t M a r k e 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 , (September/October, 1972), pp. 71-84. 1 4  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 H a r r y V. R o b e r t s , " S t o c k M a r k e 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 S u g 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 ) , p p . 1 - 1 0 . 1 5  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 t h e 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 , " R e v i e w o f E c o n o m i c s and S t a t i s t i c s , ( A u g u s t , 1 9 7 1 ) , p p . 2 2 5 - 3 6 . 1 6  S e e P a u l H. C o o t n e r ( e d . ) , The Random C h a r a c t e r o f S t o c k M a r k e t P r i c e s ( C a m b r i d g e , M a s s . ~. 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 t o c k M a r k e t P r i c e s , " ; and Eugene Fama and M a r s h a l l B l u m e , " F i l t e r R u l e s and S t o c k M a r k e 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 ) , p p . 2 2 6 - 4 1 . 1 7  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 always " f u l l y r e f l e c t " a l l p u b l i c market information. ( S e e , f o r e x a 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 R e v i e w o f T h e o r y and E m p i r i c a l W o r k , " J o u r n a l o f F i n a n c e , XXV (May, 1 9 7 0 ) , p p . 3 8 3 - 4 1 7 . ) They do n o t , h o w e v e r , support 1 8  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 high degree of a l l o c a t i o n a l or o p e r a t i o n a l e f f i c i e n c y . (See, for example, I r w i n F r i e n d , "The E c o n o m i c C o n s e q u e n c e s o f t h e S t o c k M a r k e t , " W o r k i n g P a p e r No. 5 - 7 1 , Rodney L. W h i t e 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 E c o n o m i c C o n s e q u e n c e s o f t h e S t o c k M a r k e t , " The A m e r i c a n E c o n o m i c 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 of 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 of small companies. ( S e e , f o r e x a m p l e , 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 t h e New I s s u e s M a r k e 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 (September, 1 9 7 0 ) , pp. 3 0 9 - 2 2 . ) 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 C o n t e n t o f E a r n ings Announcements," E m p i r i c a l Research in A c c o u n t i n g : S e l e c t ed S t u d i e s , 1 9 6 8 , S u p p l e m e n t t o Volume 7 o f t h e 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 . 1 9  R a y B a l l and P h i l i p B r o w n , "An E m p i r i c a l E v a l u a t i o n o f A c c o u n t i n g Income N u m b e r s , " 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 0  R a y B a l l , " R i s k , R e t u r n 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 t o 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 n a n c e , V o l . 2 7 , No. 2 ( M a y , 1 9 7 2 ) , p p . 3 4 3 - 5 4 . 2 1  W . H . B e a v e r and R. D u k e s , " I n t e r p e r i o d t a x a l l o c a t i o n and t h e 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 ) , p p . 3 2 0 - 3 2 . 2 2  Ray of Accounting pp. 6 6 3 - 8 1 . 2 3  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 I n c o m e , " 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 ) ,  *George J . Benston, " P u b l i s h e d Corporate Accounting Data and S t o c k P r i c e s , " E m p i r i c a l R e s e a r c h 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, Supplement to V o l . 5, J o u r n a l of A c c o u n t i n g R e s e a r c h , p p . 1 - 5 4 ; "The E f f e c t i v e n e s s and E f f e c t s o f t h e 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 . ) , E c o n o m i c P o l i c y and t h e 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 t h e SEC s A c c o u n t i n g D i s c i o s u r e 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 ) , p p . 5 1 5 3 2 ; and " R e q u i r e d D i s c l o s u r e and t h e S t o c k M a r k e t " . 2l  E u g e n e Fama, L a w r e n c e F i s h e r , M i c h a e l J e n s e n and R i c h a r d R o l l , "The A d j u s t m e n t o f S t o c k P r i c e s t o New I n f o r m a tion .'. 2 5  1  M y r o n S . S c h o l e s , "A T e s t o f t h e C o m p e t i t i v e H y p o t h esis: The M a r k e t f o r New I s s u e s and S e c o n d a r y 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 , Graduate School of 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 M a r k e t f o r S e c u r i t i e s " . 2 6  21 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 R e s e r v e D i s c o u n t Rate C h a n g e s : E v i d e n c e on t h e AnnouncemeotlEff 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 7  1  J a m e s A . L a r g a y and R i c h a r d R. W e s t , " M a r g i n Changes and S t o c k 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 , 1973), pp. 328-39. 2 8  T . Ross A r c h i b a l d , " S t o c k M a r k e t R e a c t i o n t o 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 . No. 1 ( J a n u a r y , 1 9 7 2 ) , p p . 2 2 - 3 0 . 2 9  the XLVII,  R o b e r t K a p l a n 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 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 , " o f B u s i n e s s , 45 ( A p r i l , 1 9 7 2 ) , p p . 2 2 5 - 5 7 . 3 0  t i o n of Journal  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 ( S e p t e m b e r , 1 9 7 0 ) , p p . 7 8 3 94. See a l s o R o b e r t W. F u r s t , "Does L i s t i n g on t h e B i g B o a r d R e a l l y I n c r e a s e M a r k e 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 ) , p p . 12-16 and 2 4 ; and "Does L i s t i n g I n c r e a s e t h e M a r k e 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 1  S e e I n s t i t u t i o n a l I n v e s t o r Study Report 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 , 1 9 7 1 ) . 3 2  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 Merging F i r m s , " J o u r n a l of 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 3  * 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 M a k i n g and R e v e r s a l on t h e S t o c k E x c h a n g e , " J o u r n a l o f t h e A m e r i c a n S t a t i s t i c a l A s s o c i a t i o n , 61 ( D e c e m b e r , 1 9 6 6 ) , p p . 897-916. 3 1  3 5  Myron  S c h o l e s , "The M a r k e t  for  Securities".  T . E . D r i s c o l l , "Some A s p e c t s o f C o r p o r a t e I n s i d e r S t o c k 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 E x c h a n g e 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 of 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 , 1963). 3 6  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 t o c k 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 7  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 ) , p p . 3 5 - 5 1 . 3 8  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 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 s i t y , 1964). 3 9  Insider Univer-  22 J . F . J a f f e , "Special Information, Security Regulat 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 c h a n g e s 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 E c o n o m i c s and Management S c i e n c e , V o l . 5 , No. 1 ("Spring ' 7 4 ) , p p . 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 ) , p p . 4 1 0 - 2 8 . l t 0  "John Financial  da,"  R. K i m b e r , "New S t o c k M a r k e t M a t u r i t y i n C a n a 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. 1 7 3 .  * F . M . Wheat R e p o r t , D i s c l o s u r e t o I n v e s t o r s , A R e a p 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 t h e ' 3 3 and ' 3 4 S e c u r i t i e s A c t s , R e p o r t and Recommendations t o t h e S e c u r i t i e s and E x c h a n g e C o m m i s s i o n f r o m the D i s c l o s u r e P o l i c y C o m m i t t e e , ( M a r c h , 1 9 6 9 ) , p. 1 0 . l  2  "* George J . S t i g l e r , Markets". 3  ties  "Public Regulation  of  the  Securi-  ' ' " S e e H. D e m s e t z , " 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 t o c k M a r k e t , " i n Henry A . Manne ( e d . ) , E c o n o m i c P o l i c y and t h e 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 : A m e r i c a n 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 . H . Manne, I n s i d e r T r a d i n g F r e e P r e s s , 1 966) , p . 88 . k 5  York:  and t h e  Stock Market  (New  " * I r w i n F r i e n d and Edward S . H e r m a n , "The SEC T h r o u g h D a r k l y , " J o u r n a l of B u s i n e s s , ( O c t o b e r , 1 9 6 4 ) , pp. 3826  a Glass 405.  C h a r l e s Mackay, E x t r a o r d i n a r y Madness o f C r o w d s , 1 8 4 1 . l f 7  the  Popular Delusions  and  J o h n Maynard K e y n e s , The G e n e r a l T h e o r y o f E m p l o y m e n t , I n t e r e s t and Money (New Y o r k : H a r c o u r t , B r a c e and C o . , 1936), pp. 150-58. 1 , 8  t  * H a i m L e v y and M a r s h a l l 9  Sarnat,  p.  11.  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 t o 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 fraudulent. 5 0  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 M a r k e t s and t h e C a n a d i a n 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 , C o n 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 1  5 2  Journal,  Financial  P e t e r B a r r e t t , "The day t h e y t o o k t h e Down U n d e r , " The F i n a n c i a l P o s t , O c t o b e r 5 3  trades  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 , " ( M a r c h / A p r i l , 1 9 7 4 ) , p. 2 8 .  Analysts  l i d off security 1 2 , 1 9 7 4 , p. C - 8 .  23 * G e o r g e 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 t h e S t o c k M a r k e t , " p p . 1 3 2 - 5 5 ; and "The E f f e c t i v e n e s s o f t h e 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 . 51  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 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 , 5 5  5 6  counting  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 D i s c l o s u r e R e q u i r e m e n t s , " p. 1 5 3 .  A . A . Sommer, J r . , (May, 1 9 7 4 ) , p. 1. 5 7  utive,  of the S e c u r i t i e s (May, 1 9 7 4 ) , p. 8 .  "The O t h e r  Side,"  of  the  SEC's  Financial  Ac-  Exec-  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 Market E f f i c i e n c y , " J o u r n a l of F i n a n c i a l Economics, 2 ( 1 9 7 5 ) , pp. 125-64. 5 8  Chapter 2 CANADIAN REGULATION OF TRADING OUTSTANDING LISTED SHARES The f i r s t  extensive  study  Canada was J . P e t e r W i l l i a m s o n ' s Canada  w h i c h was p u b l i s h e d  1  S u p p l e m e n t to lished dian  in  1966.  studies  protection Attorney  Securities Other  include  of  the  in  securities  Securities  1 960.  Regulation  recent,  two  of  but  regulation  Regulation  in Canada  in O n t a r i o ,  the  in  Report of  C o m m i s s i o n on t h e  the  Committee of  Problems of  to  as t h e  the O n t a r i o  C o m m i t t e e on t h e  Securities  ferred  Bouchard  to  as t h e  In review of t i o n of  this the  chapter,  historical  trading  nally, the in  regulatory preventing,  tions  of  the  we s h a l l ,  first,  development  re-  Study re-  of  the  an  updated  Canadian r e g u l a -  shares; secondly, describe statutes  outstanding  a g e n c i e s and t h e  security  the  (commonly  present  e n a c t e d to  listed  role  the  24  outstanding  listed  of  agencies  a n d , when n e c e s s a r y , p u n i s h i n g  laws f o r  ffi-  structure  p l a y e d by t h e s e  the  ensure  s h a r e s ; and  a comprehensive d i s c u s s i o n of  detecting  6  Investors  (commonly  5  1972 R e p o r t o f in Quebec  i n On-  Report).  and p r o v i n c i a l  disclosure for  provide  Industry  in outstanding  Canadian f e d e r a l corporate  and t h e  the  Securities  D i s c l o s u r e Raised for  Bray Report)  the  1965 R e p o r t o f  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 ferred  his  Cana-  1965 on  G e n e r a l ' s C o m 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  t a r i o , ** t h e  by  w h i c h was p u b -  2  less comprehensive, 3  in  in .  T h i s was f o l l o w e d  a r t i c l e s by B a i l l i e  investor  IN  viola-  shares.  25 REVIEW OF THE HISTORICAL DEVELOPMENT OF CANADIAN REGULATION OF TRADING IN SECONDARY MARKETS 7  Historically, tially ondary  Canadian s e c u r i t y  become more i n v o l v e d markets  regulations  through  the  utilization  t h e SR v i e w p o i n t  regulation  will  Historical  Development of  Prior  British  be e x a m i n e d  to  shareholders.  w h i c h empowered t h e  in  the  1 9 0 1 , the  when n e c e s s a r y " i n Prior  1907.  to  to the  In  of  conduct"  evolutionary of  security  Conduct" Regulations dealing with  the  of  a similar  sequence: in  British  interests  of  Columbia  Northwest  of  for  by t h e  its  pro-  Terri-  1902, Manitoba  justice".  activities  broker-dealer  non-members.  in-  of  inspection  1900, the in  to  one-fifth  in in-  inspections  8  industry  personnel  a s t o c k e x c h a n g e were r e g u l a t e d .  undertaken  a s s o c i a t i o n s to  There  regulate  the  The r e g u l a t i o n  o f members was e s -  self-governing  stock exchanges.  of  the  rudimentary  fort  in  the  following  given  of  government  include authorization  1912, only  no bond o r  British  1912, Manitoba broadened the  An i n d i c a t i o n is  of  F e d e r a l government  who were members o f  of  following  1 8 9 7 , Nova S c o t i a  spection provisions  sentially  This  efficacy  application  Canadian adoption  1905 and Quebec i n  activities  Canadian sec-  "control  1912, Canadian r e g u l a t i o n s  occurred in  and O n t a r i o  existed  essen-  c o n d u c t o f c o m p a n i e s were e s s e n t i a l 1 y b a s e d on a 1855  statute  in  on t h e  "Control  1  tories  of  of  have  next.  s p e c t a company s a f f a i r s on t h e  vision  the o p e r 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 .  movement t o w a r d s  c o n t r o l of  in  regulators  nature quote:  of  this  regulatory  ef-  26 The a p p l i c a t i o n o f M r ; . A m e s 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 t h e R u l e p l a c e d upon i t by t h e C h a i r m a n , i t was d e c i d e d t h a t M r . 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 h a v i n g 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 t o h i s a p p l i c a t i o n . While, ulation  of  in  general,  trading  if  t i o n of  trading  was t h e  1935 D o m i n i o n A c t w h i c h  directors'  quested  further  progress  in outstanding  transactions  by a s h a r e h o l d e r  such s e c u r i t i e s  by  came i n  (2)  in  the  concern  by t h e  lative  act  While  for  Commission  (OSC) t h e  standing  In n i z e d the  of  new i s s u e s , i t  Exchange. 1947 t h e  standard  Act  for  regula-  exception  disclosure when  speculation  re-  in  to the  Act of  securities  Ontario in  the  basically  regulate  act.  Royal  dealt  power  greater  Ontario  to  It  1 1  new s p e c u -  with  trading  which  Commission  s a l e of  a l s o gave t h e  OSC t h e  1945,  be-  of  Securities  listed  out-  c l o s e the  To-  Ontario  on t h e  B r o k e r - D e a l e r s Act  Association stock  in  an a t t e m p t  business.  and i n t e r n a l  strictly  in  legally  recog-  to  impose  By i n v o k i n g  regulation  contravention  it of  was the  a measthought  Securi-  c o u l d be r e m o v e d . In  early  1 0  1 2  self-government  t h a t many a b u s e s not ties  power  Broker-^Dealers'  an e t h i c a l ure  the  s h a r e s by g i v i n g  ronto Stock  the  securities  prohibited  modern  activity  disclosure  provided  Securities  on M i n i n g w i t h f r a u d u l e n t issues.  1  p o s t - S e c o n d W o r l d War p e r i o d  Canada's f i r s t  t h e wake o f  (1)  reg-  1 930 s ,  A noteable  i n a company's  and  the  had been made i n  shares.  important Ontario  has been c a l l e d  end o f  the  directors.  Developments gan w i t h t h e  had been made i n  new i s s u e s by t h e  little,  of  any,  in  progress  9  1957,  the  other  Canadian exchanges  withdrew  27 their  recognition  g i v e n were t h a t the  public  ities.  the  the  and (2)  Apparently,  tary-manager no d a i l y  bid/ask  The R o y a l  did  not  i n f o r m the  staffing  of  securities bids, ties  the  problems  facilities  regulatory  involved  in Canada,  failure  to  and t h e  listing  difficulties  and t h e  actions  securities  of  detail  regulation  in  ber.  1 5  covered, proxies  among o t h e r and p r o x y  and  trans-  1 1  conduct.  primary  the  inefficiency  distri-  inadequate of  having  of  the  the  of  urgency f o r  for  stock exchanges activity.  summer o f  Windfall  securi-  need  Lim-  1 9 6 5 , the  B r i t i s h M o r t g a g e and T r u s t of  ten  takeover  Acceptance Corporation  during  the  1964  controlling  of m a n i p u l a t i v e  fi-  Company,  O i l s and M i n e s  Lim-  a quick  of  review  Ontario. Ontario  a committee  The r e s u l t i n g  in  in allowing  rules  1964 i n c r e a s e d the  through  about  c l o s e l y the a c t i v i t i e s  the o f f i c e r s  The P r o v i n c e o f in  operations  public  the T S E , *  Atlantic  affiliates)  nancial  during  a secre-  u n d e s i r a b l e aspects of  and d e l i s t i n g  of  in  exchange f a c i l -  from r e g i s t e r i n g them, the  inadequate p o l i c i n g  (and i t s  ited  the  regulate  The c o l l a p s e o f ited  of  b o d i e s , the  s a l e s m e n as d i s t i n c t  stricter  act  C o m m i s s i o n on B a n k i n g and F i n a n c e i n  the  acts  to  quotations.  These i n c l u d e d t h e a b u s e s i n v o l v e d through  have p r o p e r  e x c h a n g e had no f l o o r  i s s u e d to  d i s c u s s e d a number o f  bution  failed  The r e a s o n s  o r d e r s were e x e c u t e d t h r o u g h  because the  s h e e t s were or  Edmonton S t o c k E x c h a n g e .  Edmonton E x c h a n g e (1)  interest  1 3  actions  of  report, things,  examined s e c u r i t i e s  legislation  t h a t was headed by M r . J . R . K i m referred insider  solicitation,  to  as t h e  trading,  primary  Kimber  takeover  distribution  report, bids,  through  28 the  Toronto  Stock Exchange, the O n t a r i o  and c o n s t i t u t i o n a l need to  discontinue  t i o n on t h e of  its  problems the  in  securities  practice  of  e x c h a n g e , the A t t o r n e y  strongest  language  S e c u r i t i e s Commission, regulation.  allowing  On t h e  primary  distribu-  G e n e r a l ' s Committee  in  some  stated:  I n h e r e n t i n the e x i s t i n g system are the d a n g e r s , among o t h e r s , o f m a r k e t m a n i p u l a t i o n , f a l s e r u m o u r s , 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 a d v a n t a g e s 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 . Coupled with t h i s i s a v i r t u a l l y c o m p l e t e l a c k o f knowledge by t h e p u b 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 place . . . . 1 6  The c o n s e q u e n c e o f the  Ontario  S e c u r i t i e s A c t of  A c t was an a t t e m p t t o still  generally  stringent  The p o r t i o n s  of  administration  legislate  of  the  headed t h e tion  in  Ontario.  t i o n of ports bution  satisfied  scandal,  Attorney  by m i n i n g  The m a j o r  includedrrul.es  for  reaching  and  Canada.  remainder  of  the  the  of  and  the  recommendations  Commission, which  and t h o s e o f  Act  practice  conduct  take-over  of  investi-  bids,  non-implementa-  primary  facilities  provisions "fairer"  who  Legisla-  K e l l y and K i m b e r  allowing  the  of  Mr. John K i m b e r ,  e x c e p t i o n was t h e  companies through  The c o n t r o l  is  G e n e r a l ' s C o m m i t t e e on S e c u r i t i e s  discontinue  the  The a c t  organization  a r e c o m m e n d a t i o n made by b o t h t h e  to  of  1967.  K e l l y ' s Royal  Windfall  was  S e c u r i t i e s C o m m i s s i o n became  on J a n u a r y 3 1 , 1 9 6 7 , and t h e  Justice Arthur  1 7  law e v e r e n a c t e d i n  the O n t a r i o  The A c t g e n e r a l l y  gated  an " e t h i c " .  be t h e most f a r  securities  on May 1,  investigation  The i n t r o d u c t i o n  the A c t d e a l i n g w i t h t h e  became e f f e c t i v e  Mr.  intensive  1966.  c o n s i d e r e d to  p i e c e of  effective  this  embodied proxy  of in  re-  distrithe TSE. the  Act  procedures  29 and e x t e n s i v e p r o v i s i o n s Act's  extensive provisions  unique f o r  British  passage of  the A c t ,  ada  in  One o f reforms  floor  tougher  insider  their  an i m p r o v e d  insider  trading  was not  even r e q u i r e d  own c o m p a n y ' s  concurrent  by t h e T S E .  effects  for  were  Before  the  an o f f e n s e  to  report  in  Can-  their  stock. of  t h e A c t was a number  on n o n - r e g i s t e r e d  requirements  The  1 8  trading  T h e s e i n c l u d e d new r u l e s  restrictions  listing  trading.  Commonwealth j u r i s d i c t i o n s .  the  trading,  insider  governing  and i n s i d e r s were not  transactions  of  governing  mining.and  suspension/delisting policy.  governing  floor  oil  Or,  traders,  c o m p a n i e s and  in  t h e words  of  James B a i l ! i e : . . . t h e c o n t r o l s a p p l i e d u n d e r t h e TSE r u l e s t o a c t i v i t i e s o f l i s t e d c o m p a n i e s and t o p r o f e s s i o n a l t r a d i n g a r e f a r more r i g o r o u s t h a n t h e e q u i v a l e n t c o n t r o l s o f t h e SEC and o f t h e s t o c k e x c h a n g e s i n t h e United S t a t e s . 1 9  Another  concurrent  effect  model  for  other  P r o v i n c i a l g o v e r n m e n t s and O t t a w a .  British  subsequent s e c u r i t i e s  was t h a t  legislation  undertaken  by  the  In  1967, A l b e r t a ,  C o l u m b i a and S a s k a t c h e w a n 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 w h i c h were p a t t e r n e d lowed w i t h a new A c t tories  t h e A c t became a  introduced  in  their  on t h e O n t a r i o A c t .  1968.  Manitoba  The Yukon and N o r t h w e s t  S e c u r i t y Ordinances in  folTerri-  1970 and 1 9 7 1 ,  respectively. The f e d e r a l  government,  Canada C o r p o r a t i o n s A c t ties  law up t o O n t a r i o ' s  on O c t o b e r 7 ,  i n an e f f o r t level.  1 9 7 0 , and a l l  120A w h i c h r e l a t e s  to  through  Bill  to  Bill bring  C - 4 , amended federal  securi-  C-4 r e c e i v e d R o y a l  its  provisions  (except  financial  statements  of  other  the  Assent  section business)  30 was p r o c l a i m e d trol  of  conduct  insider  Act,  effective  amendments  Canada has n e v e r had a N a t i o n a l  administration.  for  involved  in  to  the  1974.  Securities Securities  known as "CANSEC"  in  Provincial/Federal  securities  was n o t  to  bids.  the O n t a r i o  t h e Government o f  there  con-  legislation  Ontario  and  approved  unanimous  provincial  sup-  Bill  The S e c u r i t i e s  plan. Ontario  The c o n t r o l  75 a r e d e s i g n e d to  trading.  representatives acceptance of  of  the  conduct  trading  Bill of  introduced  strengthen  ing with s e c u r i t i e s insider  plan  a co-operative  While  principle,  and t a k e o v e r  Chairman of  ensure uniform  2 0  Recently, Act,  former  prepared a t e n t a t i v e  scheme i n o r d e r  port  solicitations  its  law w i t h r e s p e c t  Although  The p l a n  plan  the  general,  proxy  Commission,  the  tightened  In  trading,  Henry L a n g f o r d ,  1968.  March 3 1 , 1 9 7 1 .  provisions  fraud  in  the  75:  embodied i n  prevention area of  provisions  takeover  75 has been e x t e n s i v e l y  the o t h e r  provinces  bids  Bill dealand  discussed with  i n an e f f o r t  to  new a c t  as a u n i f o r m  provincial  Development of  "Disclosure"  Requirements  obtain  securities  act. Historical In  the  was made i n closure  the  p r e - s e c o n d W o r l d War p e r i o d , development  requirements  c e p t i o n was t h e  for  of  either  outstanding  little  general shares.  1935 D o m i n i o n A c t w h i c h d i d  or  progress  specific  A noteable improve  the  disex-  annual  report d i s c l o s u r e requirements  for  federally  panies.  the  p o s t - s e c o n d W o r l d War p e r i o d ,  a great  On t h e deal  disclosure  of  other  hand, in  progress  requirements  has been made i n for  outstanding  the  incorporated  development  shares.  com-  of  31 General  disclosure requirements.  The 1964 R o y a l Com-  m i s s i o n on B a n k i n g 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 t h e adequate nature quent  events,  of  s u c h as t h e  and t h e f i n a n c i a l highlighted tailed  Canadian d i s c l o s u r e requirements.  difficulties  Kimber c o m m i t t e e .  Securities  Act of  Ontario  securities  The r e g u l a t i o n s  directors'  fees)  In  the  effort  bring  In  of  government,  federal  the  securities  The m a j o r  Specific  motion revised  provide  shares of  two  underwriting  i n an level. to  "Merger  for  a more  In  1956, the  listed  to  connec-  of  market  heavy  As a r e s u l t , deal w i t h  Toronto  industrials  shares'  s h a r p l y as t h e r e s u l t  regulations  complete  circulars.  was d i s s e m i n a t e d i n  by U n i t e d S t a t e s b r o k e r a g e f i r m s . its  special  In e a c h i n s t a n c e , t h e  had r i s e n and f a l l e n  C-4,  t h e O n t a r i o S e c u r i t i e s Commis-  and d i r e c t o r ' s  information  tion with underwritings. price  the  disclosure requirements.  because i n s u f f i c i e n t  Bill  law up t o O n t a r i o ' s  amendments were t o  Exchange suspended the  trading.  S e c u r i t i e s A c t was amended  sion.  bids  and  disclosure provisions  recommendations of  take-over  insider  through  Act  standards  publication  1971, the O n t a r i o  in  the  and d e t a i l e d  w h i c h was u n d e r t a k e n f o r  Stock  embodied i n  sales figures  Study"  disclosure  Ontario  statements,  law w i t h r e s p e c t t o  s e v e r a l of  the  disclosure  the  committee  half-year  1970, the f e d e r a l  tightened  by  Kimber  d i s c l o s u r e were embodied i n  1966.  ( s u c h as o b l i g a t o r y  the  Trust, a de-  legislation  i n more c o m p r e h e n s i v e f i n a n c i a l  to  Acceptance  B r i t i s h M o r t g a g e and  The r e c o m m e n d a t i o n s o f  dealing with general  adopt  of  Atlantic  Subse-  t h e s e 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  examination of  resulted  1965 c o l l a p s e o f  in-  the  pro-  the TSE manner  32 i n w h i c h new i s s u e s o f the  facilities  of  listed  c o m p a n i e s were m a r k e t e d  the e x c h a n g e .  2 1  In J a n u a r y , 1 9 5 8 , the TSE i n t r o d u c e d ment". tain  Listed firms  the a p p r o v a l  of  were r e q u i r e d  to  file  the e x c h a n g e ' s f i l i n g  committee  change i n a c o m p a n y ' s a f f a i r s "  One r e s u l t  this  14 l i s t e d  stocks  Bill contains  requirement  in  stateand o b before  could take  was an u n p o p u l a r  place.  suspension of  1958.  7 5 , w h i c h was i n t r o d u c e d  a number o f  a "filing  a statement  any " m a t e r i a l of  through  provisions  and t i m e l y  disclosure for  provisions  are d e s i g n e d :  in Ontario  d e s i g n e d to  the m a r k e t .  t o e s t a b l i s h a more c o h e r e n t system f o r the purpose o f ,  2 3  In  during  elicit  adequate  particular,  continuous  1975,  these  disclosure  (i) p r o v i d i n g e q u a 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 t h e a f f a i r s o f an i s s u e r , a n d , c o n s e q u e n t l y ,  of  (ii) 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 t h e c i r c u m s t a n c e s i n w h i c h 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 , in accordance 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 recomm e n d a t i o n s o f The R e p o r t o f t h e C o m m i t t e e o f t h e 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 on t h e P r o b l e m s 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 ; and to expand t h e 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 t o , 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 knowl e d g e 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 s u e 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 , t o make t h e i n f o r m i n g o f a n o t h e r p e r s o n o r 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 i m p l e m e n t t h e recommend a t i o n o f C h a p t e r 22 o f The R e p o r t on M e r g e r s , A m a l g a m a t i o n s and C e r t a i n R e l a t e d M a t t e r s by t h e S e l e c t Comm i t t e e on Company L a w . * 21  From t h e above m a t e r i a l , years  Canadian s e c u r i t i e s  it  regulation  upon " d i s c l o s u r e " and " c o n t r o l  of  is  evident  that  over  has e s s e n t i a l l y  conduct"  provisions  the  relied to  reg-  2 2  33 ulate  trading  in outstanding  been a p p l i e d  by (1)  ment  legislation,  through  through  the  Dealer's  by-laws  of  of  through  these w i l l  (2)  the  the  stock  Canada,  regulatory  the m u n i c i p a l  These p r o v i s i o n s  ten p r o v i n c e s  A s s o c i a t i o n of  commissions and/or  the  shares.  fraud  and t h e  securities  federal  (3)  the  actions  and (4)  securities  the  legal  itself  Investment  provincial  squads through  govern-  industry  e x c h a n g e s and t h e  have  R.C.M.P.  actions.  Each  be d i s c u s s e d b e l o w .  PROVINCIAL SECURITIES LEGISLATION IN CANADA In ada  is  general  incorporated  each p r o v i n c e . BNA A c t ,  fraud  This  securities  diction. eral  most o f in  the  the  results  from the  regulation  Code w h i c h  and f r a u d u l e n t  Act which  regulates  with  have p a r a l l e l are  into  the  i n c e s oif;  Ontario,  discussed  below.  in C a n - ,  the  that,  under  provincial  sections  securities the  in  in  the juris-  the  the  of  Fed-  areas  of  D o m i n i o n Companies companies.  Columbia, A l b e r t a , Saskatchewan,  similar  objectives  securities  provisions. while  the  by u t i l i z i n g  guage. The d i s c l o s u r e r e q u i r e m e n t s corporated  (1)  under  d i s c l o s u r e and (2)  provinces  identical  are  deal  British  M a n i t o b a and O n t a r i o  achieves  falls  fact  Federally incorporated  The A c t s o f  the M a r i t i m e  legislation  S e c u r i t i e s and Companies A c t s  The two e x c e p t i o n s  Criminal  securities  for  The A c t s  Quebec A c t  different  outstanding  and c o m p a n i e s a c t s  Quebec and B r i t i s h  of  Columbia are  lan-  shares  in-  of  prov-  the  briefly  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 : sure Requirements for 'Outstanding' Shares While format for either  P a r t XII  regular  A c t on t h e  Both A c t s deal similarity  of  of  financial timely  disclosure,  liability  provisions  A c t and S e c t i o n 113 o f  Securities  disclosure  w i t h the the  the  the  Act deals with there  is  of m a t e r i a l  of  77 o f  Securities Act),  the  little  in  information.  insiders.  (Section  Disclo-  Due t o  the  the  Corporations  only  the  latter  provisionispresentednext: S e c . 1 1 3 . L i a b i l i t y o f I n s i d e r s . - (1) E v e r y i n s i d e r of a c o r p o r a t i o n or a s s o c i a t e or a f f i l i a t e of 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 t h e c a p i t a l s e c u r i t i e s o f t h e 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 for h i s own b e n e f i t o r a d v a n t a g e t h a t , i f g e n e r a l l y known, m i g h t 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 m a t e r i a l l y the v a l u e o f s u c h s e c u r i t i e s , i s l i a b l e to c o m p e n s a t e any p e r s o n o r company f o r any d i r e c t l o s s s u f f e r e d by s u c h p e r s o n o r company as a r e s u l t o f s u c h t r a n s a c t i o n , s u n l e s s s u c h i n f o r m a t i o n was known o r o u g h t r e a s o n a b l y t o have been known t o s u c h p e r s o n o r company a t t h e t i m e o f s u c h 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 t h e 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 a d v a n t a g e r e n c e i v e d o r r e c e i v a b l e by s u c h i n s i d e r , a s s o c i a t e o r a f f i l i a t e , as t h e c a s e may b e , as a r e s u l t o f s u c h t r a n s action. The Quebec S e c u r i t i e s A c t and Companies A c t : quirements f o r Outstanding Shares The Quebec A c t s , the  format  for  (see S e c t i o n s of  the  ity  of  visions they  (and c o n t e n t s 96 t o  112 o f  Regulations);  sure of  are  material insiders. (Section not  like  (2)  of)  the  Due to  presented  here.  Ontario,  general  deal  and (3)  the  the  in  Securities  do n o t  information;  151 o f  those  D i s c l o s u r e Re-  financial  deal  with  disclosure  A c t and D i v i s i o n  w i t h the do d e a l  similarity  (1)  of  S e c u r i t i e s Act)  timely  to  disclo-  w i t h the  the  insider those  IV  in  liabilproOntario,  35 The B . C . S e c u r i t i e s A c t and Companies A c t : ments f o r O u t s t a n d i n g S h a r e s The B . C . A c t s , l i k e deal  w i t h the  closure  do d e a l the  timely  the  liability  the O n t a r i o  the  and Q u e b e c ,  general  Securities Act);  of  (2)  Due t o  152 o f  S e c u r i t i e s Act)  and Quebec p r o v i s i o n s ,  the  dis-  do n o t  deal  and  the  (3)  similarity  Companies A c t  amongst they  (1)  financial  information;  insiders.  provisions (Sections  and S e c t i o n 111 o f to  of  of)  d i s c l o s u r e of m a t e r i a l  w i t h the insider  in Ontario  (and c o n t e n t s  (see P a r t XII  w i t h the  of  format  those  Disclosure Require-  are  themselves not  and  presented  here. Offences  and P e n a l t i e s Offences  generally  under  the  S e c u r i t i e s and/or  c a t e g o r i z e d as f r a u d u l e n t  the A c t ( s ) .  In  particular,  a c t s and o f f e n c e s  or m i s l e a d i n g  statement  p o r t or o t h e r  document  is  lation)  is  guilty  of  an o f f e n c e .  company who c o n t r a v e n e s with a d i r e c t i v e In ular of  general, all  punitive  an o f f e n c e  solicitation,  measures  an A c t  Furthermore,  an A c t  to  is  of  an  S e c u r i t i e s Acts prescribe  (or  actions)  trading  for  a summary  bids,  (or  observe or  guilty  proxies  and f i n a n c i a l  reregu-  any p e r s o n  the  dealing with take-over insider  under  an A c t o r f a i l s  i s s u e d under  knowingly  i n any a p p l i c a t i o n ,  required  are  against  any p e r s o n o r company who  makes a f a l s e  that  Companies A c t s  or  comply offence. partic-  conviction and  disclosure  proxy require-  ments. At p r e s e n t , tion against formation  for  in  insiders  B . C . , the  only  who i m p r o p e r l y  financial  gain  is  possible punitive exploit  a suit  for  confidential  damages i n a  acincivil  36 action. ties ing  A recently  Act, of  both.  however,  up t o  introduced  proposes p e n a l t i e s  one y e a r  offences  makes t h e  the  courts,  punitive  "offences"  fences. Therefore, i f  they  in prison  to  for  the  B.C.  Securi-  such i n s i d e r  or a f i n e  of  up t o  trad-  $2,000,  or  2 5  The f o r m o f  the  amendment  the  they would  measures employed f o r  very  provincial probably  e n c r o a c h on a f i e l d  of  similar  to  provisions  criminal  of-  were t e s t e d  be d e c l a r e d i n v a l i d  federal  such  in  because  jurisdiction.  FEDERAL SECURITIES LEGISLATION IN CANADA The C a n a d i a n C r i m i n a l The f o u r securities  in  Code:  s e c t i o n s of  the areas of  are presented  Criminal  the  fraud  Criminal  2 6  Code d e a l i n g  and f r a u d u l e n t  with  disclosure  below.  Fraud - a f f e c t i n g the  Disclosure Provisions  Code i s as  public  market.  S e c t i o n 338(2)  of  follows:  3 3 8 . (2) E v e r y one who, by d e c e i t , f a l s e h o o d o r o t h e r f r a u d u l e n t m e a n s , w h e t h e r o r 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 t h e 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 of s t o c k s , s h a r e s , merchandise 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 t o 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 t o i m p r i s o n m e n t f o r t e n y e a r s . 1 9 5 3 - 5 4 , c.51, s.323. Fraudulent S e c t i o n 340 o f  the  manipulation Criminal  of  Code i s  stock as  exchange  transactions.  follows:  3 4 0 . E v e r y one who, t h r o u g h t h e f a c i l i t y o f a s t o c k e x c h a n g e , curb 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 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 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 of 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 v o l v e s no change i n t h e thereof,  in the s e c u r i t y t h a t b e n e f i c i a l ownership  (b) e n t e r s an o r d e r f o r t h e p u r c h a s e 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 t h e same s i z e a t s u b s t a n t i a l l y the same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r t h e s a l e o f t h e s e c u r i t y has been o r w i l l be e n t e r e d by o r f o r t h e same o r d i f f e r e n t p e r s o n s , o r ( c ) e n t e r s an o r d e r f o r t h e s a l e o f t h e 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 t h e same s i z e a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r the p u r c h a s e o f t h e s e c u r i t y has been o r w i l l be e n t e r e d by o r f o r t h e same o r d i f f e r e n t p e r s o n s , i s g u i l t y of imprisonment  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 t o for f i v e y e a r s . 1953-54, c . 5 1 , s.325.  The meaning o f Re J . H . ( 1 9 1 2 )  the w o r d ,  on p.  2 7  135 as  "securi ty",'was  discussed in  follows:  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 c o m p a n i e s (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 s e n s e (THAYER v . WATHEM ( 1 8 9 7 ) , 44 S.W. Repr. 906, 909). From t h e  reference  the word,  "security",  Two c a s e s Code a r e R. v . curities  to  R. v .  stock exchange, i t intended  decided without  A c t , and R. v .  In  2 8  PEIPGRASS  LAMPARD,  Court  held that  ered  s e p a r a t e l y to  to  r e f e r e n c e to  it  apparent  that  the  Criminal  under t h e O n t a r i o S e -  ( 1 959),  2 9  a prosecution  un-  Act. 30  acquittals  verdicts  by t h e  t h e e v i d e n c e on e a c h c o u n t determine  was i n c o r r e c t  trial  judge  were i m p o s e d on 29 c o u n t s .  whether  there  a f a l s e or m i s l e a d i n g appearance of  i n g and t h a t  is  include shares.  a prosecution  Securities  s e t a s i d e and g u i l t y  charge.  is  DALLEY,  der the A l b e r t a  create  the  to  The C o u r t a l s o h e l d t h a t  were The  s h o u l d be c o n s i d was an i n t e n t active  consider a l l  public  29 t r a d e s  the absence of  proof  to trad-  as one of a  38 motive  is  not  the  same as p r o o f  Furthermore,  the  of  intent,  any o t h e r  Court  held that  the  o n l y ferreseen but i n t e n d e d create  a false  trading. the  of  m i s l e a d i n g appearance of purpose  i s merely  own i n t e r e s t ,  to  it  trade  is  not  involved  with the  either  accused in  pose o f  the  cilities  of  section the  354 o f  the  in  Criminal  354.  (1)  the  to  active  prevent  relation Code i s  for  law  Crown p r o v e  3 1  a false and i f  in  committed. (b)  that  alone.  create  price  would  ground  or the  the a c c u s e d ' s  3 2  of  that  this  sec-  the  cross-  involved  conspiracy,  s i n c e the  pur-  fraudulent  misuse of  the  profit.  fa-  3 3  to mines - p r e s u m p t i o n . as  not  public  persons or persons  a fraudulent is  evidence  transaction  under p a r a ,  fictitious  stock market  Offences  been  motive.  have  interest",  the market  has not  necessary that  to  public  To e s t a b l i s h an o f f e n c e  to  r e v e r s e d on t h e  an " i n t e n t  stabilize  an o f f e n c e  be t a k e n  been on a g r o u n d o f  active  any  the a b s e n c e o f  appearance of  The d e c i s i o n was l a t e r had n o t  absence of  t h a t each t r a d i n g  The s e c t i o n r e q u i r e s  tion  in  a c c u s e d must  and m i s l e a d i n g  Crown a p p e a l  the  Section  follows:  E v e r y one who  (a) adds a n y t h i n g o r removes a n y t h i n g f r o m an e x i s t i n g mine, mining 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 t o a f f e c t t h e 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 o r i s t o be made w i t h r e s p e c t t o t h e m i n e , m i n i n g c l a i m or o i l w e l 1 , or (b) adds a n y t h i n g t o , removes a n y t h i n g f r o m o r t a m p e r s w i t h a s a m p l e o r m a t e r i a l t h a t has been t a k e n o r i s b e i n g o r i s a b o u t t o be t a k e n f r o m an e x i s t i n g o r 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 o r o i l w e l l f o r the purpose of being a s s a y e d , t e s t e d o r 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 of the a s s a y , t e s t or v a l u a t i o n ,  39 i s g u i l t y of imprisonment  an i n d i c t a b l e o f f e n c e f o r ten y e a r s .  (2) F o r t h e p u r p o s e s subsection (1), evidence that  of  and i s  liable  proceedings  to  under  (a) s o m e t h i n g has been added t o o r removed f r o m a n y t h i n g t o w h i c h s u b s e c t i o n (1) a p p l i e s , o r (b) a n y t h i n g t o w h i c h been t a m p e r e d w i t h ,  subsection  (1)  applies  has  i s , i n t h e a b s e n c e o f any e v i d e n c e to t h e 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 t h e 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 . 1953-54, c . 5 1 , s.339; 1968-69, c.38, s . 9 2 . False prospectus, the  Criminal  Code i s  3 5 8 . (1) E v e r y a prospectus, or o r a l , t h a t t i c u l a r , with  as  etc.  -  "company".  Section  358  of  follows:  one who m a k e s , c i r c u l a t e s o r p u b l i s h e s statement or a c c o u n t , whether w r i t t e n he knows i s f a l s e i n a m a t e r i a l parintent  (a) t o i n d u c e p e r s o n s , w h e t h e r a s c e r t a i n e d o r n o t , to become s h a r e h o l d e r s o r p a r t n e r s i n a company, (b) t o d e c e i v e o r d e f r a u d t h e 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) anything of  to to  i n d u c e any p e r s o n t o a company, o r  (d) t o e n t e r a company,  i s g u i l t y of imprisonment  into  entrust  any s e c u r i t y  an i n d i c t a b l e o f f e n c e f o r ten y e a r s .  for  or  advance  the  benefit  and i s  liable  to  (2) In t h i s s e c t i o n , " c o m p a n y " means a s y n d i c a t e , body c o r p o r a t e o r company, w h e t h e r e x i s t i n g o r p r o p o s e d to be c r e a t e d . 1953-54, c . 5 1 , s.343. Where t h e ular  defence  was a m i s t a k e n  particular" an h o n e s t  belief  t h e j u r y must o n e . ** 3  is  that  the  "false  as t o  the  correctness  determine  whether  material  this  of  particthat  belief  was  40 The Supreme C o u r t o f QUEEN  held that  3 5  s.358(l)(c)  that making, c i r c u l a t i n g not  Canada i n  separate offences  or  COX and PATON v THE  creates only publishing  and a r e not  a false  void  for  Court also held that  the  pretence"  but  some f a l s e m a t e r i a l  statement  of  merely  ever c a r r y i n g In  R. v .  COLUCCI  results  sults  in  liability  ment o f deems t o  or  (2)  (1)  misrepresentation  those  in  for  than of  s u c h as  a material  of  the  the  the  of  omis-  or  in  above  offender.  liability  one o r more o f a security  statutory  proThis  that the  fraud  re-  stat"  act  or  reg-  (commit-  a S e c u r i t y Act d e c l a r e s  Act:  D i s c l o s u r e Requirements  Canadian C o r p o r a t i o n s on J u l y  trading  and t a k e - o v e r  t h e amended O n t a r i o  s h a r e h o l d e r s must insider  to  stock  options  bids  or  granted  the  for for  The A c t ' s  Outsecdis-  solicita-  are very  (directors  on a l l  except  and p r o x y  Securities Act,  insiders  be i n f o r m e d  Act,  31, 1971.  dealing with proxies  With regard  all  "false  fraudulent).  provisions  insider  (1)  liability  are c o n t a i n e d  1 2 0 A , became e f f e c t i v e  tion,  The  a  particular  A violation  a violation  that  The p r e s e n t  closure  require  are  fraudulent.  one o r more a c t s w h i c h be  duplicity.  was h e l d t h a t  i s more s e r i o u s  The Canada C o r p o r a t i o n s s t a n d i n g Shares  tion  it  criminal  formalities  ulation  prospectus  a c c u s e d had no i n t e n t i o n  and p e n a l t i e s .  from e i t h e r  utory,  3 6  a statement  Offences  criminal  the  and  out.  s i o n may r e n d e r  visions  s e c t i o n does not  purposes which  one o f f e n c e  similar  to  1966.  and o f f i c e r s ) ,  details  all  concerning  or e x e r c i s e d d u r i n g  the  41 previous during mit  y e a r and (2)  the  previous  an i n i t i a l  shares  to  the  insider  year.  report  and s u b s e q u e n t  all  reports Federal  borrowings  Insiders  on t h e i r  are a l s o r e q u i r e d  share  interest  on any s u b s e q u e n t Department  from the  of  in  company to  sub-  a company  transactions  Consumer and  in  such  Corporate  Affa i rs. With (for  regard  to  example, mergers  ment must  describe  to  shareholders  the  enable  the  proposed c o r p o r a t e  information  circulars  shareholder  approval  and a l t e r a t i o n  of  proposed a c t i o n to  arrive  act. is  at  of  corporate  share c a p i t a l ) , in  sufficient  manage-  detail  a reasoned judgement  (The f o r m a t and n a t u r e  provided  acts  in  the  of  on  all  such  Act.)  REGULATORY AGENCIES: STRUCTURE, PROCEDURES AND ACTIONS The r e g u l a t o r y provisions  of  agencies for  Canadian s e c u r i t i e s  applying  and e n f o r c i n g  legislation  will  the  be d i s c u s s e d  next.  THE PROVINCIAL SECURITIES COMMISSIONS AND/OR REGULATORY BODIES In tered is  Canada,  each p r o v i n c e ' s  by a body d e s i g n a t e d  in  Securities  the A c t .  a l s o charged w i t h the r e s p o n s i b i l i t y  vision  of  any E x c h a n g e ( s )  that  Act  is  adminis-  The d e s i g n a t e d of  the  are d o m i c i l e d  general  within  the  body superprov-  ince.. In Ontario  five  provinces  and Q u e b e c ) , t h e  (Alberta, Securities  Saskatchewan, Manitoba, Act  is  administered  by a  42 Securities Act  is  Commission.  administered  Brokers.  In  British  by t h e  Office  in  man ( t h e  latter  C o u n c i l who d e s i g n a t e s appointment  number o f members on t h e 3'in-Quebec-;.'4r,in  While the  designated  has been made i n a t t a i n i n g  of  securities bodies of  issue their  For example,  Ontario  legislation.  the  Quebec).  n o t more  uniform  The  than  prov-  statements,  some p r o -  legislation  and a d -  b o d i e s of  have r e s u l t e d the  the  all  in  official  Newfoundland  National in  all  regulatory  and Nova  Scotia,  P o l i c y Statements which participating  a  similar  govern  provinces.  S e c u r i t i e s Commission Securities  C o m m i s s i o n (OSC) c o n s i s t s o f a  t i m e C h a i r m a n and V i c e - C h a i r m a n and n o t more t h a n  part time commissioners. sible  four  have i s s u e d (and a r e i s s u i n g )  Furthermore,  administration  bodies of  designated  p r o v i n c e s , except  The O n t a r i o full  to  C o l u m b i a and S a s k a t c h e w a n ,  own p o l i c y  and O n t a r i o  i s s u i n g a s e r i e s of  securities  apply  Uniform Act P o l i c i e s which  all  Lieutenant-  a C h a i r m a n and V i c e - C h a i r -  regulatory  gress  provinces  by t h e  of  Ontario.  continue  ministration.  to  British  Securities  Superintendent  d e s i g n a t e d body i s  inces  are  the  does not  Alberta,  5 i n M a n i t o b a and 7 i n  series  of  C o m m i s s i o n members a r e a p p o i n t e d  Governor  western  C o l u m b i a , the  for  The C o m m i s s i o n i s  Policy Statements,  investigations  directly  six  respond  carried  out  under  the A c t and a p p e a l s . The D i r e c t o r trative  officer,  Act except sisted  in  for  of  carries  the  C o m m i s s i o n , as t h e  out  investigations  his administrative  the  provisions  or a p p e a l s . duties  of  chief the  adminis-  Securities  The D i r e c t o r  by a Deputy D i r e c t o r  is of  as-  43 Registration. The OSC r e q u i r e s timely  reporting  disclosure policy  Policies  2 - 1 2 and 3 - 2 3  firms  (see E x h i b i t s  set out  posed c h a n g e s w h i c h must  basis prior  OSC b e l i e v e s "better" might sis  that  monitor  indicate  of  to  public  that  insiders  Uniform  changes or  "non-public"  material  investing  It  for  e n a b l e the unusual  tippees  activity  are trading  information.  s e r v i c i n g and p r o c e s s i n g o f of  a full  for  are d i r e c t l y carried  out  responsible for under  3 7  officer,  or c a n c e l l a t i o n activities  of  of  Mobilieres  situated  in  for  the  full  time c o m m i s s i o n e r s .  term of  in Council".  ten y e a r s  or  The C o m m i s s i o n e r s  P o l i c y Statements,  investigations  t h e A c t and a p p e a l s .  The D i r e c t o r trative  ba-  The C o m m i s s i o n c o n s i s t s  a fixed  by t h e L i e u t e n a n t - G o v e r n o r  which  on t h e  i n Quebec C i t y  documents.  t i m e C h a i r m a n and two o t h e r  These members a r e a p p o i n t e d less  an o f f i c e  The  OSC t o  C o m m i s s i o n ( C o m m i s s i o n des V a l e u r s  also maintains  the  public.  The Quebec S e c u r i t i e s C o m m i s s i o n (QSC) i s Montreal.  pro-  t h e OSC on a c o n f i d e n -  will  market or  of  the  such i n f o r m a t i o n  Quebec S e c u r i t i e s du Quebec)  1* and 2 ) .  its  be d i s c l o s e d and d i s c u s s e d w i t h  d i s c l o s u r e to  the  comply w i t h  the m a t e r i a l  Chairman, V i c e - C h a i r m a n or D i r e c t o r tial  to  is  of  t h e C o m m i s s i o n , as t h e  responsible for  registrations  brokers,  investment  the  and t h e counsel  chief  granting,  adminis-  suspension  s u p e r v i s i o n of and s e c u r i t i e s  the sales-  men . The C o m m i s s i o n f o l l o w s *A11 e x h i b i t s chapter.  for  this  chapter  a hierarchial  appeal  are presented at  the  procedure. end o f  the  44 First,  a d e c i s i o n of  mission within ond  thirty  a d e c i s i o n of  vincial  Court  letter the  if  within  the d i r e c t o r  the  thirty  Provincial  Court  days f r o m t h e  the  ilar B.C.  the  uniform  Regulatory  the  C o m m i s s i o n was n o t i f i e d days o f is  its  final  decision.  and c a n n o t  reporting  disclosure policy to  date of  the  policy  1974)  dent  of  and F i n a n c i a l  into  The d e c i s i o n  to  3),.  comply w i t h The p o l i c y  t h a t was p r e s e n t e d  two  for  separate  bodies:  of  Broker's  The members a r e d i r e c t l y  ments and i n v e s t i g a t i o n s of  responsible vision  of  Office  for  the  responsible  carried  B r o k e r s , as t h e  the  securities  chief  p r o c e s s i n g of  activities  of  out  other  the  is  sim-  Ontario.  (October  under  is  composed o f  three  for  Policy  the A c t .  registrations  brokers,  investment  other  mem-  State-  The S u p e r -  officer,  is  and t h e  super-  counsel  and  salesmen. S e r v i c e s Commission i s  a C h a i r m a n , V i c e - C h a i r m a n and not more t h a n 5  members.  an i n d e p e n d e n t in  its  new C o r p o r a t e  administrative  The C o r p o r a t e and F i n a n c i a l composed o f  of  S e r v i c e s Commission.  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 t h a n  intendent  " .  a Superinten-  (SB) w i t h r e d u c e d powers and t h e  The S u p e r i n t e n d e n t  bers.  Pro-  Bodies  reorganized Brokers  the  by r e g i s t e r e d  The B . C . S e c u r i t i e s C o m m i s s i o n was r e c e n t l y 1,  Sec-  be a p p e a l e d .  firms  (see E x h i b i t  Com-  decision.  C o m m i s s i o n can be a p p e a l e d t o  The QSC r e q u i r e s timely  can be a p p e a l e d t o  entire  The C o m m i s s i o n was o r g a n i z e d t o appellate corporate  The SB r e q u i r e s  body f o r  all  and f i n a n c i a l reporting  function  administrative  as  decisions  area.  firms  to  comply w i t h the  1  45 uniform  timely  Regulatory  disclosure policy  presented  earlier.  Actions  The A c t s o f  all  the  p r o v i n c e s , except Saskatchewan,  Q u e b e c , New B r u n s w i c k and P r i n c e Edward I s l a n d , provision to  giving  the d e s i g n a t e d r e g u l a t o r y  i s s u e a c e a s e and d e s i s t o r d e r  ular  security  when i t  (These r e g u l a t o r y  is  in  actions  In  for  interest.  expires  in  dence i s period,  t i m e or made  A stock  to to  partic-  do s o . as C T O s 1  however,  used  in  be i s s u e d w i t h o u t  body c o n s i d e r s t h e to  be p r e j u d i c i a l  d a y s , can be i s s u e d .  temporary  of  are,  CTO c a n n o t  regulatory  provided  Relationship Exchanges  interest  in a  such c i r c u m s t a n c e s , a temporary  fifteen  the  p e r i o d of  Such o r d e r s  such a h e a r i n g  In  not  trading  authority  S a s k a t c h e w a n and Q u e b e c .  a h e a r i n g u n l e s s the  lic  halt  the p u b l i c  g e n e r a l , a permanent  time r e q u i r e d  body t h e  a r e commonly r e f e r r e d  or c e a s e ' t r a d i n g o r d e r s . ) the p r o v i n c e s o f  to  contain a  the  to  If  of  to  pub-  the  order,  which  satisfactory  the Commission w i t h i n  order  length  evi-  the f i f t e e n  day  a further  .•'  can be e x t e n d e d f o r  permanent.  Provincial  R e g u l a t o r y B o d i e s to  exchange cannot o p e r a t e  in  the  the  Stock  provinces  of  British  Columbia, A l b e r t a , Saskatchewan, Manitoba, Ontario  Quebec,  unless i t  has been r e c o g n i z e d i n w r i t i n g  nated p r o v i n c i a l  regulatory  p o l i c y statement  on A p r i l  When n e c e s s a r y f o r designated provincial determination (1)  or  body.  5,  by t h e  or  desig-  For example, the O S Q i s s u e d a  1971, which r e c o g n i z e d the TSE.  the  protection  of  the p u b l i c ,  body can i s s u e any d i r e c t i v e ,  the  order,  ruling:  on t h e manner i n w h i c h a s t o c k e x c h a n g e i n  the  prov4  46 ince carries (2)  on any b y - l a w ,  cedure of (3) the  on b u s i n e s s ,  the  stock  exchange.  ruling  the  and/or  posted for  of  authority  to  any " r e p o r t s  d e c i s i o n made under  members o r t h e  a by-law,  rule  VSE) o r any undue d e l a y or  d e c i s i o n to  s u c h an a p p e a l  i s s u e any  firms  or  For  are  the  the  example,  of  TSE. the  market  binding  the  i s s u a n c e of  or r e g u l a t i o n  on t h e  was f o l l o w e d  company's d i r e c t o r s activity  that  Canadian stock stitutions. to  such as t h e  the  their  provisions  of  own b e n e f i t .  importance  regulatory  the  unusual  of  the  results  TSE.  Sarimco  s u s p e n s i o n by  trading  activity stock  3 9  0  private  could govern t h e i r charters,  Practically, security  the  actions.  stimulate  EXCHANGES'*  their  the  OSC a g a i n s t  was d e s i g n e d to  they  order  b o d i e s and  exchanges are e s s e n t i a l l y  Technically,  for  rep-  exchange.  their  was a c c e p t e d by t h e  of  The  by a s u b s e q u e n t t r a d i n g  THE CANADIAN STOCK  rules,  from  i n making such a d i r e c - " \  a CTO by t h e  The OSC c o n t e n t i o n  according  directive  companies  OSC (QSC o r S B ) .  e x c h a n g e s have c o - o r d i n a t e d  Mines L t d .  pro-  on  any d i r e c t i v e ,  More r e c e n t l y , t h e d e s i g n a t e d r e g u l a t o r y stock  trading  and i n f o r m a t i o n  p e r s o n o r company can a p p e a l  rule  or  such e x c h a n g e " .  TSE (MSE o r  of  nature -  Any  tive,  listed  QSC has t h e  exchange, . i ts  resented at  regulation  8  on t h e  any s t o c k  or  3  instruction,  e x c h a n g e s , and  on any s e c u r i t y  Furthermore, or  ruling,  affairs,  by-laws  however,  industry  in? ~.  and factors  within  the  47 economy and p u b l i c bution, forced  information the  designed  disclosure  exchanges to  to  provisions tive  concern over  protect  the  of  the  Canada and t h e  Characteristic  investing  provinces  least  exchanges  is  Debt  speculative  natural  fourth feature  the  is  to  become t h e  stocks  is  equity  Association  Ontario.  the  is  traded  that  and  of  such a s ,  the  over-the-  which  the  are  trading  on some o f  companies to  degree of  Canadian  recently,  traded  of  of  than  securities,  facilities  liquidity  that  controlled  provision  resource  features  is  warrants  are  the  extensive  reduce the  Canadian stock  fact,  located  allows  conduct  pri-  exchange.  stock  The  interlistings.  each C a n a d i a n  market.  Size Prior  In  to  which  feature  through  ally  legisla-  Dealers'  feature  shares, rights,  mary d i s t r i b u t i o n  Relative  provisions  exchanges are  American exchanges, are  The t h i r d  to  the  The s e c o n d f e a t u r e  securities,  E u r o p e a n and N o r t h  tends  have  some c a s e s , t h e s e  characteristic  The f i r s t  confined  common and p r e f e r r e d  This  In  distri-  e x c h a n g e s by t h e  less externally  the American exchanges.  listed  public.  Investment  four  exchanges.  exchanges are f a r  counter.  trading,  regulatory  in which  as t h e  primary  Features  Canadian stock  options.  of  B r o k e r - D e a l e r ' s A s s o c i a t i o n of  There are at  on t h e  various  have been imposed on t h e  bodies  stock  nature  and i n s i d e r  accept  and by s u c h i n s t i t u t i o n s of  the  the  1 900's,  exchange. largest,  the  MSE w a s . c l e a r l y  Since that broadest  time,  MSE.  dominate  TSE has  and d e e p e s t m a r k e t  by 1 9 4 8 , even t h e TSE volume o f  had e x c e e d e d t h a t on t h e  the  the  trading  in  The MSE, a p a r t  in  graduCanada.  industrial from a  48 temporary  resurgence  of  tinued  decline  terms  to  activity.  in  The T o r o n t o  in  relative  Stock  1852 by a g r o u p  establishing  tered  formed.  ard  of  the  Ontario  w i t h the  supervision  of  the  companies.  two  ber  (or  nor  This  ning  In  the  partnership purpose  of  securities.  those  of  the  1 8 7 8 , an a c t  At char-  of  the  the TSE. the  Exchange.  Toronto  Mining  and  E x c h a n g e s were  In  the  1908,  Letters  name  the  Patent  Stand-  i n On-  E x c h a n g e merged  TSE has been under  Stock Exchange i s  and d u r i n g  shareholder,  Department,  his  the  organization.  following  departments:  Examiner's  of  governed  the  general  by a B o a r d  t h e TSE P r e s i d e n t ,  A public  partner,  can he be engaged i n  the  trading  increased  as a  S t a n d a r d S t o c k and M i n i n g  Board c o n s i s t s  Structural up o f  con-  t h e OSC.  nomination  member  were  Exchange o b t a i n e d  and 10 member g o v e r n o r s . his  has  its  e x c h a n g e s merged u n d e r  S i n c e 1967 t h e  The T o r o n t o  of  industrial  traded  S t o c k and M i n i n g  1934,  TSE.  Governors.  in  S t a n d a r d S t o c k and M i n i n g  S t o c k and M i n i n g In  has  businessmen f o r  incorporated  1899, these  Standard  tario.  lic  Toronto  securities  and t h e  In  s i z e of  recently,  1896 and 1 8 9 7 , r e s p e c t i v e l y ,  Industrial  the  relative  1950's,  S t o c k E x c h a n g e was formed  banks and t r a d i n g  In  late  size.  a Canadian market  most o f  P r o v i n c e of  of  the  the  Exchange  The T o r o n t o  first,  of  in  The V S E , f r o m 1955 u n t i l  substantially  in  position  governor,  term of  office,  director  at  two  time  cannot  be a  of  Department,  a mem-  business.  The T S E ' . i s e s s e n t i a l l y Computer  pub-  the  or o f f i c e r )  securities  of  S y s t e m s and  R e s e a r c h and  made-  Plan-  Market  49 Development Department, tions ter  D e p a r t m e n t and I n t e l l i g e n c e  three  relevant 1.  Stock L i s t  departments to  this  Stock L i s t  three  Department, Department.  Market OperaOnly the  d e a l w i t h d i s c l o s u r e and a r e  lat-  therefore  study.  D e p a r t m e n t .**  main f u n c t i o n s :  the  The S t o c k L i s t  1  listing  of  Department  has  s h a r e s on t h e E x h a n g e ;  the a d m i n i s t r a t i o n  of  the  Exchange's f i l i n g  requirements;  the a d m i n i s t r a t i o n  of  the  Exchange's listing-maintenance  and pol-  icy. The f i r s t  major  function  d l e company a p p l i c a t i o n s  for  amount o f  required  information  is  the  Exchange's Stock L i s t  t i o n of  the  required  information.  ment s u b m i t s the  final  gineers,  Since a  staff  (This  to  of  the Stock L i s t  listing  E x c h a n g e member H o u s e s . ) requirements,  is  com-  preparalisted  the  Depart-  Committee  for  composed o f m i n i n g  en-  If  otherwise  han-  prospective  requirement,  is  to  listed  o v e r s e e s the  When t h e  committee  is  substantial  prospective  information  documentation  decision.  of  Department  a c c o u n t a n t s and a n a l y s t s who a r e s e l e c t e d f r o m  personnel the  the  the  the  listing.  panies,  company has s a t i s f i e d  of  the  the  company meets  acceptable for  listing,  and a g r e e s t o meet t h e  Exchange's d i s c l o s u r e requirements  shareholder  p r o v i s i o n s , the Stock L i s t  protective  may recommend t o the  s h a r e s of  the  Board of  t h e company be p o s t e d f o r  The D e p a r t m e n t tional that  shares of  relate  to  Governors of  stock  Exchange t h a t  listing  of  c o m p a n i e s and s u b s t i t u t i o n a l  splits,  The s e c o n d m a j o r  Committee  trading.  a l s o d e a l s w i t h the  listed  the  and  addilistings  m e r g e r s and name c h a n g e s .  function  of  the  Department  is  to  ad-  50 minister terial  the  Exchange's By-laws concerning  Facts"  Facts  and " F i l i n g S t a t e m e n t s " .  are r e q u i r e d  w i t h the  "statements  Statements of  sire  to  undertake  ties  of  the E x c h a n g e . "  a primary  distribution  function  minister  the  resources firm  through  cilitate  such a d m i n i s t r a t i o n ,  of  the  on e a c h company.  quired  to  porate  d e v e l o p m e n t s s u c h as new s h a r e i s s u e s ,  the  prior  If  the  of  ilar  listing-maintenance  lic  that  of  regarding at  the  is it  1971, the  the  cor-  management  a failure or  (2)  to  and  (1)  financial  for  during  condition  within  and  the  Although  same t i m e  that  by b u y i n g  delista sim-  listings. regulation  to ensure t h a t  not w i t h h e l d  persons p r i v y from or  the  pro-  of  E x c h a n g e ' s m a n d a t e , t h e TSE  has a r e s p o n s i b i l i t y company i s  has f o l l o w e d  industrial  main-  undertake  been s a t i s f i e d  Department  policy  not w i t h i n  a listed  are p r o f i t e e r i n g  re-  concerning  or development a c t i v i t y  Market Operations Department.  considers  infor-  t h e company c o n c e r n e d , t h e s h a r e s a r e  Since A p r i l  trading  for  E x c h a n g e has not  ed.  insider  To f a -  has s u s p e n d e d m i n i n g  requirements  s u s p e n s i o n as t o  gramme o f work  ad-  options.  exploratory  year.  to  companies are  Exchange i n f o r m a t i o n  necessary f i n a n c i a l  a year a f t e r  tion  listed  1965, the Department  any s i g n i f i c a n t  2.  All  companies from the T r a d i n g L i s t  tain  the  the  is  Department m a i n t a i n s  files  oil  de-  facili^  policies.  mation  Changes and s t o c k  the  the Department  Exchange's l i s t i n g - m a i n t e n a n c e  to  both  2  The t h i r d m a j o r  Since  Material  by The S e c u r i t i e s A c t and a r e f i l e d  E x c h a n g e and t h e OSC.when n a t u r a l  report  of Ma-  to  selling  such to  from  informathe  pub-  information  an unknowing  pub-  51 lie.  For t h i s  closure  r e a s o n , t h e TSE m a i n t a i n s  Policy"  (discussed in  the  next  a strict  section)  "Timely  for  its  Dis-  listed  companies. The m a r k e t formed  in  1965.  disclosure toring  tion  is  that  record for  for  the  ensure that  any u n u s u a l  i nformation .  full  and  reconstructing  The c o m p u t e r  security.  The c o m p u t e r  w e e k l y and m o n t h l y  listed  s t o c k s , w h i c h a r e e x a m i n e d and i n t e r p r e t e d  by t h e  personnel.  Additional  "stock-watchers"  If will  unusual  inordinate analysis  sources of  journals,  activity  change i n  is  s u s p e c t e d , the  all Surused  published  e n q u i r e whether  the  company i s the  its:securities.  may a l s o be i n i t i a t e d  to  pinpoint  of  the  company c o n c e r n e d  of  Exchange w i l l  on  by t h e  research reports  development which would e x p l a i n  pattern  produces  information  price  the m a r k e t  and f u l l  information  trad-  "informers".'*'*  be c o n t a c t e d t o  any c o r p o r a t e  the  and  is ca-  a r e t h e Dow J o n e s n e w s s e r v i c e , ' v a r i o u s  n e w s p a p e r s and f i n a n c i a l by member f i r m s  trading  also  the func-  c o m p l e t e and a c c u r a t e  daily,  veillance  on  This ."stock-watch"  3  the  runs of  moni-  which  persons are t r a d i n g k  was  timely  p r i c e movement  Exchange's computer.  any l i s t e d  department  i s made by c o n t i n u a l l y  some p e r s o n o r  a i d e d by t h e quickly  to  information  "non-public"  pable of ing  attempts  activity  could i n d i c a t e of  It  of market  market  basis  s u r v e i l l a n c e s e c t i o n of  the  stock  disclosure.  (Regulatory  action  of  sudden o r A  trading  p o s s i b l e causes of  in q u e s t i o n .  issue a regulatory  aware  If to  actions will  necessary,  ensure  prompt  be d i s c u s s e d  be 1ow. ) 3.  Intelligence  Department.  This department  a s s i s t s the E x -  52 change and the entering the  or  u s i n g the  Department  pects)  that  industry  preventing  investment  informs  either  in  the  industry.  industry  when i t  s t o l e n or c o u n t e r f e i t  circulation  or a f r a u d u l e n t  through  facilities  of  the T S E .  The d e p a r t m e n t  is  a s s i s t e d in  tacts. York,  the  These i n c l u d e the  R.C.M.P.,  F e d e r a t i o n of  Stock  Disclosure statements. the  criminal  scheme i s  In  elements  from  particular,  knows  (or  securities  sus-  are  in  being perpetuated  in  this  effort  by i t s  or  con-  t h e S e c u r i t i e s V a l i d a t i o n S y s t e m i n New  the  F B I , and members o f  the  International  Exchanges. provisions:  relevant  b y - l a w s and  policy  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  is  following: Sec. 11.26. M a n i p u l a t i v e o r D e c e p t i v e Method o f T r a d i n g . - ( 1 ) No member o r a p p r o v e d p e r s o n s h a l l \ : u s e o r k n o w i n g l y p a r t i c i p a t e i n t h e use o f any m a n i p u l a t i v e o r 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 t h e p u r c h a s e o r s a l e o f any s e c u r i t y w h i c h c r e a t e s o r may c r e a t e a f a l s e o r m i s l e a d i n g a p p e a r a n c e 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 t h e s a i d s e c u r i t y . (2) W i t h o u t i n any way l i m i t i n g t h e g e n e r a l i t y o f t h e f o r e g o i n g t h e 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 o r d e c e p t i v e methods o f t r a d i n g : (a) m a k i n g a f i c t i t i o u s t r a d e o r g i v i n g o r an o r d e r w h i c h ' i n v o l v e s no change i n t h e o w n e r s h i p of such a s e c u r i t y ;  accepting beneficial  (b) 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 p u r c h a s e o f s u c h a s e c u r i t y w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r t h e s a l e o f any s u c h s e c u r i t y , has been o r w i l l be e n t e r e d by o r f o r t h e same o r d i f f e r e n t p e r s o n s and w i t h t h e 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 of a c t i v e p u b l i c t r a d i n g in a : s e c u r i t y or w i t h r e s p e c t to the market p r i c e o f a security; ( 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 t h e s a l e o f s u c h a s e c u r i t y w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y  53 t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r t h e p u r c h a s e o f s u c h s e c u r i t y , has been o r w i l l be e n t e r e d by o r f o r t h e same o r d i f f e r e n t p e r s o n s and w i t h t h e 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 of a c t i v e p u b l i c t r a d i n g in a s e c u r i t y or w i t h r e s p e c t to the market p r i c e of a securi ty; (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 t o p u r c h a s e any s e c u r i t y at 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 t o 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 lower 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 ing 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 purpose of unduly or imp 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 e curity; (e) e f f e c t i n g , a l o n e o r w i t h one o r 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 t h e p u r p o s e s of i n d u c i n g the purchase or s a l e of such s e c u r i t y , which c r e a t e s a c t u a l or apparent 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 security. (3) tion, a ity for bilizing section  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 member may p u r c h a s e o r o f f e r t o p u r c h a s e a s e c u r e h i m s e l f or f o r a customer f o r the purpose of s t a 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 11.11.  The TSE has i s s u e d two p o l i c y with corporate  disclosure.  Both of  statements  which  these are presented  deal below:  Sec. 1.01. 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 t h e E x c h a n g e and t h e management o f s u c h company must d i s c l o s e p r o m p t l y a c h a n g e i n t h e a f f a i r s o f t h e company w h i c h m i g h 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 t h e v a l ue o f t h e l i s t e d s e c u r i t i e s . The E x c h a n g e 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 p o s e s 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 t o t h e g e n e r a l r u l e a r e r e quired. G e n e r a l l y , i n d e c i d i n g w h e t h e r t h e 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 of the s e c u r i t i e s , the e f f e c t o f t h e change on the m a r k e t p r i c e o f t h e s e c u r i t i e s i s the best 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 t h e announcement o f t h e change w o u l d r e s u l t i n a sudden change i n t h e p r i c e o f t h e 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 t h e 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 t h e v a l u e o f t h e 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 w h i c h p r o v i d e s f o r w i d e d i s s e m i n a t i o n o f t h e news. The recommended p r o c e d u r e : i s t h a t t h e announcement be made to t h o s e s e r v i c e s w h i c h d i s s e m i n a t e f i n a n c i a l news o v e r a b r o a d a r e a and i n t h e main p o p u l a t i o n c e n t r e s . The E x c h a n g e s h o u l d be a d v i s e d o f t h e 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 n o r 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. It 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 n o t be a b l e t o c o n t a i n a l l t h e d e t a i l t h a t w o u l d be i n c l u d e d i n a p r o s p e c t u s o r 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 t o i n d i c a t e t h e n a t u r e o f t h e change and t o 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 investment 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 t h e occasion c a l l s for it. Proper timing is important. The p o l i c y r e q u i r e s t h a t news i s t o 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 i m portant corporate development. 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 emb a r r a s s i n g to management and damaging t o t h e r e p u t a t i o n o f t h e s e c u r i t i e s m a r k e t s i n c e t h e p u b l i c may assume t h a t someone had a c c e s s t o 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 important. T h e r e a r e 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 t o r e s o l v e ; s u c h a s , t h e d u t y t o keep i t s s h a r e h o l d e r s i n f o r m e d and i t s d u t y t o t h e company t o 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 t h e w e l f a r e o f t h e company not t o make d i s c l o s u r e t h e n i t f o l l o w s t h e i n f o r m a t i o n s h o u l d be k e p t c o n f i d e n t i a l by t h o s e p e r s o n s who f o r c o r p o r a t e r e a s o n s a r e r e q u i r e d to know t h e i n f o r m a t i o n . A l l c o m p a n i e s 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 h o s e who have c o n f i d e n t i a l information from t r a d i n g pending 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 t o be k e p t 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 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 securities. Unusual market a c t i v i t y i n terms of p r i c e o r volume i s t h e b e s t i n d i c a t i o n o f w h e t h e r c o n f i d e n t i a l i t y has n o t 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 E x c h a n g e 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 t o 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 t h e company, however t h e E x c h a n g e o f f e r s t h e 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 t o a i d management i n r e s o l v i n g d i f f i c u l t questions. I t i s hoped t h a t l i s t e d c o m p a n i e s w i l l a n t i c i p a t e t h e p o s s i b i l i t y o f u n u s u a l m a r k e t 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 Department of Market S u r v e i l l a n c e of a pending c o r p o r a t e development.  55 In a d d i t i o n t o b e i n g a v a i l a b l e t o a s s i s t management, t h e D e p a r t m e n t m a i n t a i n s a s t o c k w a t c h i n g p r o g r a m and e n q u i r e s i n t o unusual market a c t i v i t i e s in the s e c u r i t i e s of l i s t e d companies. The D e p a r t m e n t 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 t o 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 w h i c h has n o t been r e l e a s e d t o t h e public. I f a s i g n i f i c a n t change has t a k e n p l a c e and has not been d i s c l o s e d , t h e company w i l l be r e q u e s t e d t o make a statement f o r t h w i t h . On some o c c a s i o n s u n u s u a l m a r k e t a c t i v i t y i s c a u s e d by t h e e x i s t e n c e o f r u m o u r s . W h 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 t o be aware o f , and comment o n , a l l r u m o u r s , a c l a r i f y i n g s t a t e m e n t i s e x p e c t e d when t h e m a r k e t 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 b e i n g i n f l u e n c e d by r u m o u r . 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 o r d e n i a l by a c o r p o r ate r e l e a s e . The E x c h a n g e may h a l t o r s u s p e n d t r a d i n g i n t h e 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 pending the making of a c o r p o r a t e announcement and t o a l l o w f o r t h e d i s s e m i n a t i o n of 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 t h e E x c h a n g e 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 s u s p e n d e d when a company e i t h e r w i l l n o t o r c a n n o t make a c l a r i f y i n g s t a t e ment and t h e m a r k e t 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 t o some t r a d e r s but n o t t o t h e 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 t o be a c r i t i c i s m o f management. In some i n s t a n c e s c o m p a n i e s have r e q u e s t e d t h i s a c t i o n when t h e y a r e u n a b l e t o make f u l l d i s c l o s u r e and u n u s u a 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 t h e T i m e l y D i s c l o s u r e o f t h e E x c h a n g e i s t h e b e l i e f t h a t t h e p u b l i c s h o u l d have t h e o p p o r t u n i t y t o 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 t o buy o r " 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 p u b ! i c dec i de t o 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 u d g e m e n t , hut i f t h e p r i n c i p l e s h e r e i n a r e o b s e r v e d , a t l e a s t t h e y w i l l be i n a p o s i t i o n t o make a r e a s o n e d d e c i s i o n . T h i s . g u i d e s h o u l d be r e a d i n c o n j u n c t i o n w i t h t h e S t a t e m e n t o f t h e 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 on t h e i c y of T i m e l y D i s c l o s u r e . October  4,  pol-  1968.  Sec. 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 comp a n i e s p r e s e n t l y o r s u b s e q u e n t l y l i s t e d on t h e E x c h a n g e t h a t a r e n o t s u b j e c t t o 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 t o E 1 9 - 0 9 must g i v e n o t i c e to the Exchange o f each proposed m a t e r i a l change i n the b u s i ness o r a f f a i r s o f t h e c o m p a n y . )  56 The q u a r t e r l y s t a t e m e n 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 or gross 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 items of income o r e x p e n s e , n e t p r o f i t o r l o s s . The s t a t e m e n 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 t h e c o m p a r a b l e p e r i o d i n the p r e v i o u s y e a r . Quarterly (1)  statements  may:  c o v e r each q u a r t e r  individually;  or  (2) c o v e r c u m u l a t i v e l y , t h e e l a p s e d q u a r t e r s o f t h e 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 . m o n t h s , and t h a t f o r t h e s e c o n d q u a r t e r c o v e r i n g s i x m o n t h s , 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 nine months; or (3) c o v e r t h e l a t e s t t w e l v e - m o n t h p e r i o d w i t h t h e 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 in three-month 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 t h e 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 t h e a n n u a l f i n a n c i a l statements. A n n u a l s t a t e m e n t s under E x c h a n g e 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 t h e a n n u a l m e e t i n g and a n n u a l m e e t i n g s must be h e l d w i t h i n s i x months o f t h e end o f t h e f i s c a l y e a r o f t h e company. Nonetheless, it is recommended 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 t h e r e s u l t s o f t h e f u l l y e a r be r e l e a s e d i n a d v a n c e o f t h e a n n u a l 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 a p p e a r s t h a t t h e a n n u a l r e p o r t w i l l be r e l e a s e d a t a b o u t t h e same t i m e 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 next f i s c a l y e a r are 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 statements 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 t h e O n t a r i o S e c u r i t e s A c t , 1 9 6 6 , S e c t i o n 1 2 9 , 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 requirement i n r e s p e c t t o t h e s e c o n d q u a r t e r o f e a c h 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 c o m p a n i e s i n m a k i n g 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 . Whene v e r c h a n g e s i n p r o c e d u r e s a r e made, t h e s e s h o u l d be n o t e d i n t h e 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 t o what e f f e c t , if a n y , t h i s has had upon n e t 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 n o t 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 t o 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 is desirable. D e l i v e r y o f t h e q u a r t e r l y s t a t e m e n t to t h e E x c h a n g e and t o t h e p r e s s w i l l be r e g a r d e d by t h e E x c h a n g e as a d e q u a t e 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 e a c h 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 of  the  period  to which  it  applies.  Exemptions 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 n g 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 are c o n d i t i o n s p e c u l i a r t o t h e t y p e o f company i t s e l f , w h i c h w o u l d 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 t o be exempted s h o u l d a p p l y f o r an e x e m p t i o n 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 d e t e r m i n g w h e t h e r q u a r t e r l y s t a t e m e n t s w o u l d be 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 w i l l take i n t o a c c o u n t w h e t h e r t h e company has r e c e i v e d an e x e m p t i o n f r o m 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 ) ; w h e t h e r t h e main c o m p e t i t o r s o f t h e a p p l i c a n t do o r do not make s i m i l a r d i s c l o s u r e ; w h e t h e r t h e r e l e v a n t information i s a l r e a d y a v a i l a b l e t o t h e p u b l i c i n some o t h e r m a n n e r ; whether there are a c c o u n t i n g problems in 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 r e p a r e or other s i m i l a r s i t u a t i o n s . In a c a s e where t h e E x c h a n g e 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 r e i m p r a c t i c a b l e or m i s l e a d i n g , t h e E x c h a n g e i n g r a n t i n g an e x e m p t i o n may r e q u i r e t h e a g r e e m e n t 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 t h e r e q u i r e d f i n a n c i a l d a t a ; or p u b l i s h the data i n a d i f f e r e n t f o r m ; or adopt a p a r t i c u l a r c y c l e of r e p o r t i n g ; or (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 a s t i p u l a t e d p e r i o d of t i m e ; or  practice  within  (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 which w i l l s e r v e to i n d i c a t e the t r e n d of the company's b u s i n e s s . December 9 ,  1968.  The a b o v e TSE (and a l s o t h e OSC) t i m e l y icy  c o n t a i n s a r e l e a s e mechanism by w h i c h c o m p a n i e s w h i c h  perience public sure at the  a material  that  policy  a period  if  are enabled to  they  t i m e w o u l d be i n j u r i o u s  then or  required.  trading  change o r e v e n t  disclosure for  are t r a d i n g is  disclosure  during  states the  It  that  if  to  period  the  that  company.  that  immediate  insiders will  that material  discloHowever, insiders  disclosure  refrain  information  ex-  withhold  s t o c k movements s u g g e s t  news has l e a k e d , t h e n  contemplates  the  determine  pol-  is  from with-  58 h e l d from  the  market."  5  D e t e c t i o n Mechanisms A number o f  detection  mechanisms a r e a v a i l a b l e  a r e used by t h e TSE (and a l l include  (1)  brokerage  surveillance  industry  dures,  direct  ability  for  (2)  the  by t h e  actions  informers  as " s t o c k - w a t c h " more i n t e n s i v e  of  ficult  (1)  ket  price  and (2) for  programs,  of  shares  transactions  their  firms  reporting  behaviour  flag  (or  of  of  the  proceaccount-  securities  situations  and  by  referred  the to  require  and p o s s i b l e p u n i t i v e  action.  market  participants  detection  of  the  and  an e x t r e m e l y  task  complicated  the  is  further  exploitation  these  of  legal to  the market" * 1  6  or  difbe-  1  effects  of  market  activities  stabilize  to  of  "non-public"  a share  consummated i n o r d e r  indi-  exploitation  misinformation)  example, during  by " m a k i n g  in  that  Two o f  (for  These  members and c l i e n t s ;  consummated m e r e l y  the  other  mar-  distribution);  provide  "running  liquidity the  box"."  7  Actions regulatory  TSE (and a l s o o f  discriminate privileges  to  makes t h e  activities.  a security  the  of  may be c a m o u f l a g e d by t h e m a r k e t  The p r i m a r y of  stringent  number o f  effects  transactions  Regulatory  both  The r e g u l a t o r y  market  are  activities  house a c c o u n t s and f i r m  investigation  cause the market  legal  of  information  task.  information  use o f  and  Canadian exchanges).  and s i m p l e m e c h a n i c a l m e t h o d s ,  transactions  "non-public"  the  the market  The t r e m e n d o u s vidual  over  s u p e r v i s i o n of  surveillance  use o f  other  to  of  (or  the  selective)  designated  actions  used by t h e  MSE and VSE) a r e m o r a l interruption  individuals  or  of  the  officials suasion,  regular  brokerage  firms,  trading in-  59 discriminate trading  (or  general)  and f i n e s  levied  interruptions against  of  all  individuals  regular  or  floor  brokerage  houses. The a u t h o r i t y Section  10.03 of  to  interrupt  t h e TSE b y - l a w s  trading  which  is  derived  r e a d s as  from  follows:  Sec. 10.03. I n t e r r u p t i n g T r a d i n g . - Any two o f t h e C h a i r m a n and t h e V i c e - C h a i r m a n o f t h e F l o o r P r o c e d u r e C o m m i t t e e 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 G o v e r n o r s s h a l l have a u t h o r i t y t o i n t e r r u p t o r 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 i m e 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 . Section  10.03 g i v e s  punitive  power,  no r i g h t  to  the  officials  s i n c e the  appeal.  of  affected  the exchange  party  (or  considerable  company)  enjoys  F o r e x a m p l e , S e c t i o n 1 0 . 0 5 on " D e c i s i o n s  and a p p e a l s " , s t a t e s  that:  . . . Any d e c i s i o n made by t h e F l o o r P r o c e d u r e Committ e e , except d e c i s i o n s regarding 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 o p e n i n g s of 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 t o t h e B o a r d . . . That floor  trading  deflating  the  discriminate  interruption  of  the  p r i v i 1 e g e o f a b r o k e r can be h i g h l y  alleged manipulation  f o l 1 owi ng q u o t e :  is  portrayed  regular  ",  effective  in  vividly  in  the  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 s u s p e n d e d l a s t M o n d a y . . . . When t h e p r o f e s s i o n a l b i d b e h i n d s u c h s t o c k s as K a l l i o I r o n M i n e s , F l i n t Rock M i n e s , N o r t h Rock M i n e s and B o r d e r C h e m i c a l s u d d e n l y d i s a p p e a r e d 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 b e h i n d t h e s e 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 . 0 5 b i d and $ 2 . 1 5 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 . 1 0 t o $ 1 . 1 5 and on Monday i t was q u o t e d 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 . North Rock was s e l l i n g a t $ 1 . 1 5 l a s t F r i d a y and on Monday f e l l t o 90 c e n t s on a volume o f 5 , 0 0 0 s h a r e s . . . by T h u r s d a y i t was a t 65 c e n t s . Indiscriminate  interruptions  of  regular  floor  trading  60 are "further trading  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  halts,  regarding ing for  s u s p e n s i o n s and d e l i s t i n g s .  indiscriminate  interruptions  TSE (and a l s o i t  on a TSE p o l i c y An e x c e r p t  appears for  statement  from t h a t  of  delays,  The p r e s e n t regular  policy  floor  trad-  t h e MSE and VSE) i s  based  w h i c h was i s s u e d on November 8 ,  policy  statement  is  presented in  1967  Exhibit  4. The M o n t r e a l  Stock Exchange  The f i r s t curred the  in Montreal  Board of  regulating  Board of  Approximately  became t h e  Canada o c -  ten years In  1863  Stock Brokers with t h e i r  S t o c k E x c h a n g e was g r a n t e d first  publicly  later, this  own  fees.  a provincial  incorporated  stock  rules In  1874,  charter exchange  Canada. The M o n t r e a l  modate t r a d i ng o f In  1832.  shares in  m e m b e r s h i p , c o m m i s s i o n s and l i s t i n g  the M o n t r e a l and t h u s  in  of  S t o c k and P r o d u c e was f o r m e d .  b o a r d became t h e  in  organized trading  Curb M a r k e t was formed  in  s e c u r i t i e s w h i c h were not  1953, the M o n t r e a l  1926 t o a c c o m -  listed  Curb M a r k e t was i n c o r p o r a t e d  on t h e MSE. as t h e C a -  nadian Stock Exchange.  S i n c e 1 9 5 3 , ' . t h e MSE has s h a r e d i t s  cilities  In  w i t h the  have s h a r e d t h e  CSE.  floor  and r e g u l a t i o n s .  t h e CSE and MSE o f f i c i a l l y  In  the  two e x c h a n g e s  they  have had  January of  merged w i t h t h e MSE b e i n g t h e  1974, sur-  e n t i ty . The M o n t r e a l  Committee. lic  while  same management and b u i l d i n g ,  a separate trading  viving  particular,  fa-  Stock Exchange i s  This committee  governors  c o n s i s t s of  and e l e v e n member  g o v e r n e d by a G o v e r n i n g a P r e s i d e n t , three  governors.  pub-  61 Disclosure statements.  provisions:  The r u l e s  of  the  dealing with d i s c l o s u r e . or  deceptive  trading  to  9456 d e a l w i t h t i m e l y Detection  relevant  MSE c o n t a i n  methods  --  --  (or  undertake until  Sections  September of  The a u t h o r i t y  for  r e a d s as  any  the  sections  manipulative 9451  6.  The MSE (and CSE) d i d  surveillance)  R u l e 9457 w h i c h  5.  see E x h i b i t  p r i c e / v o l u m e market  from  policy  a number o f  see E x h i b i t  disclosure  ate a s u r v e i 1 1 a n c e d e p a r t m e n t  rived  and  S e c t i o n 6180 d e a l s w i t h  mechanisms.  1973.  by-laws  not  cre-  meaningful  latter  such a c t i v i t y  part is  of de-  follows:  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 t o 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 t h e 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 t o 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 . It i s hoped t h a t l i s t e d c o m p a n i e s w i l l a n t i c i p a t e t h e p o s s i b i l i t y o f u n u s u a l m a r k e t a c t i v i t y and w i l l a l e r t t h e E x c h a n g e ' s Department of Market S u r v e i l l a n c e of a pending corporate development. In a d d i t i o n t o b e i n g a v a i l a b l e t o a s s i s t management, t h e D e p a r t m e n t m a i n t a i n s a s t o c k w a t c h i n g p r o g r a m and e n q u i r e s i n t o unusual market a c t i v i t i e s in the s e c u r i t i e s of l i s t e d companies. The D e p a r t m e n t i n p e r f o r m i n g this f u n c t i o n w i l l c o n t a c t management t o 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 w h i c h has not been r e l e a s e d t o the p u b l i c . I f a s i g n i f i c a n t change has t a k e n p l a c e and has not been d i s c l o s e d , t h e 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 t h e s h a r e s o f t h e company may be h a l t e d . Regulatory types  of  sion). Sections tively,  regulatory  actions. actions  The a u t h o r i t y  to  6055 and 9458 o f which  r e a d as  In  g e n e r a l , t h e MSE u s e s t h e  as t h e  interrupt  TSE ( s e e t h e trading  t h e MSE r u l e s  II  is  earlier  derived  and I V ,  same  discusfrom  respect' -  follows:  R u l e 6055 O r d e r l y T r a d i n g . - The F l o o r C o m m i t t e e s h a l l have a u t h o r i t y t o make s u c h d e c i s i o n s as may be r e q u i r e d a t any t i m e t o a s s i s t i n t h e o r d e r l y o p e n i n g o f t r a d i n g i n any s t o c k and t o 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 i m e 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 ing.  62 R u l e 9458 H a l t e d and S u s p e n d e d T r a d i n g . - The E x c h a n g e s may h a l t o r s u s p e n d t r a d i n g i n t h e 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 t h e m a k i n g o f a c o r p o r a t e announcement and t o a l l o w f o r t h e 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 t h e E x c h a n g e 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 o r c a n n o t make a c l a r i f y i n g s t a t e m e n t and t h e m a r k e t 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 t o some t r a d e r s but n o t t o t h e p u b l i c at l a r g e . A h a l t or suspension of t r a d i n g should not be assumed to be a c r i t i c i s m o f management. In some i n s t a n c e s c o m p a n i e s have r e q u e s t e d t h i s a c t i o n when t h e y a r e u n a b l e t o make f u l l d i s c l o s u r e and u n u s u a l t r a d i n g i s taking place. The g u i d i n g p r i n c i p l e i n t h e T i m e l y D i s c l o s u r e P o l i c y of 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 t h e o p p o r t u n i t y t o 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 t o buy o r s e l l l i s t e d s h a r e s on t h e b e s t i n f o r m a t i o n available. Whether members o f t h e p u b l i c d e c i d e t o 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 u d g e m e n t , but i f t h e p r i n c i p l e s h e r e i n a r e o b s e r v e d , a t l e a s t t h e y w i l l be i n a p o s i t i o n t o make a r e a s o n e d d e c i s i o n . The E x c h a n g e s 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 i c y p o s e s 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 some c i r c u m s t a n c e s e x c e p t i o n s t o t h e g e n e r a l r u l e a r e quired. In s u c h c a s e s t h e m a t t e r s h o u l d be d i s c u s s e d the Exchanges' Department of Market S u r v e i l l a n c e . The p r e s e n t tions  of  policy  regular  floor  sections  6406 -  6409 o f  tical  t h e TSE p o l i c y  to  regarding  trading R u l e II  for --  statement  indiscriminate  t h e MSE i s  of  interrup-  contained  see E x h i b i t  7.  November 8 ,  polin rewith  It  in  is  iden-  1967.  The V a n c o u v e r S t o c k E x c h a n g e The V a n c o u v e r S t o c k E x c h a n g e was f o r m e d by t h e couver  Stock Exchange A c t of  1907.  F o r most o f  t h e VSE has been e s s e n t i a l l y a r e g i o n a l ing  in  speculative natural  all  member b r o k e r a g e Disclosure  statements.  history,  s t o c k exchange  resource ! issues.  VSE i s g o v e r n e d by a c o m m i t t e e  its  composed o f  Van-  Presently,  dealthe  representatives  firms.  provisions:  The r u l e s  of  relevant  b y - l a w s and p o l i c y .  t h e VSE c o n t a i n  three  sections,  of  63 385.1,  3 8 5 . 2 and 3 8 5 . 3 , w h i c h  Exhibit  deal with d i s c l o s u r e  --  see  8. Detection  mechanisms.  v e i l l a n c e department ume m a r k e t  (or  undertake  surveillance)  dures p r e s e n t l y  being  The VSE d i d  until  used a r e  not  create  any m e a n i n g f u l  January of  1973.  similar  those  to  a sur-  price/volThe p r o c e -  used by  the  TSE and t h e MSE. Regulatory actions. types  of  regulatory  In  actions  g e n e r a l , the  as t h e TSE ( s e e . t h e  cussion).  The a u t h o r i t y  is  f r o m S e c t i o n s 6 2 5 , 626 and 635 o f  derived  which  r e a d as  VSE u s e s t h e  to  interrupt  (or  earlier  reinstate) the  same  dis-  trading  VSE r u l e s  follows:  R u l e 6 2 5 . ( S u s p e n s i o n o f t r a d i n g ) . - At any t i m e and w i t h o u t n o t i c e t h e B o a r d may s u s p e n d 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 t h e B o a r d s h a l l n o t be r e q u i r e d t o say on what g r o u n d o r f o r what r e a s o n t h e y s u s p e n d e d . R u l e 6 2 6 . ( T e r m i n a t i o n o f s u s p e n s i o n ) . - The B o a r d may l i f t t h e s u s p e n s i o n on s u c h t e r m s ( i f any) as t h e B o a r d may p r e s c r i b e . R u l e 6 3 5 . ( D e l i s t i n g o f s e c u r i t i e s ) . - At any t i m e and w i t h o u t n o t i c e t h e B o a r d may d e l i s t a l i s t e d s e c u r i t y and t h e B o a r d s h a l l n o t be r e q u i r e d t o say on what g r o u n d o r f o r what r e a s o n t h e y d e l i s t e d . The p r e s e n t tions ary  of  28,  regular 1974.  policy  floor  In inal the  Canada,  code a r e  R.C.M.P.  Generally,  trading  A copy o f  THE R . C . M . P .  that  for  indiscriminate  the  policy  is  interrup-  VSE was i s s u e d on presented  in  Janu-  Exhibit  9.  AND THE MUNICIPAL FRAUD SQUADS  the  investigation  undertaken  and/or  regarding  the  by t h e  fraud  since security  of  violations  commercial  squads o f  regulation  is  crime  of  section  the m u n i c i p a l under  the  crimof  police.  provincial  juris-  64 diction,  s u c h an i n v e s t i g a t i o n  attorney-general. R.C.M.P.  or  This  is  does n o t ,  the m u n i c i p a l  police  i n g an i n v e s t i g a t i o n  if  ing a crime  committed.  Legal  charges, in  Canada, only  if  the  any, w i l l public  individuals  ations  e l e c t e d member o f cute .  u  restrict  ;the initiat-  have r e a s o n a b l e c a u s e f o r  believ-  be p l a c e d . to  If  he d e c i d e s t h a t  prosecute,  provincial  it  is  he may not  proceed  involves  influen-  investigation that  i n a d e c i s i o n by t h e the  d e c i d e s what  political  consider-  attorney-general,  legislature,  not  to  an  prose-  9  Code.  To d a t e ,  prosecutions lack  units,  of  (2)  attorneys  both the  of  and t h e r e f o r e the  recent  s i g n i f i c a n t - r e v i s i o n s 'in Enforcement  the  should receive of  attempted  the  popular  reasons:  the  lack  in  eight  the  of  prosecuting  Canadian b e l i e f  no p r o t e c t i o n  (1)  investigating  judges,  were e i t h e r  last  Criminal  and s u c c e s s f u l  following  by t h e  revision  the  the  d e a l i n g w i t h and t h e  such v i o l a t i o n s (3)  under  and manpower o f  such v i o l a t i o n s  lack  initiated  for  i n e x p e r i e n c e of  and j u r i e s , of  is  number o f  sophistication the  victims  and (4)  itself,  has been s m a l l  understanding  the  provincial  from i n d e p e n d e n t l y  has been a l l e g e d  Prosecution,  the  however,  attorney-general  When t h e it  can r e s u l t  the  interest  with prosecution. tial  they  by a  Action In  not  has been  initiated  greedy or  that stupid  from the  courts,  Criminal  Code  (no  years).  Problems  One o f  the major  problems  encountered  by t h e  investi-  65 gating cial  units  corporate  c o l l a p s e of  Atlantic  fraud  from the  to  and  Acceptance in  commer-  police  all  corruption.  section's  relative 1967,  after  1965 and P r u d e n t i a l  Fi-  1966. A second major  units  requires report  R.C.M.P.  The s e c t i o n was c r e a t e d on November 1,  nance i n  tion  the  329 o f f i c e r s  and b u r e a u c r a t i c  l a c k o f manpower r e s u l t s  newness. the  At p r e s e n t ,  crime s e c t i o n c o n s i s t s of  areas of This  i s manpower.  is  the  that  the  p r o b l e m e n c o u n t e r e d by t h e complexity  expenditure  stated  of  of  financial  much t i m e .  investiga-  investigations  For example, a r e c e n t  that:  . . . two members o f t h e R . C . M . P . C o m m e r c i a l F r a u d Squad, w i t h the a s s i s t a n c e of v a r i o u s people i n the S e c u r i t i e s C o m m i s s i o n , d e v o t e d more t h a n e i g h t e e n months to t h e p r o s e c u t i o n o f one c a s e a l o n e . 5 0  SUMMARY In  this  enforcement corporate ter,  listed  securities  d i s c l o s u r e have been p r e s e n t e d .  potheses with  tests  of  r e g a r d to  efficiency  presented.  Canadian r e g u l a t o r y  procedures for  empirical  market  chapter,  the  predictions  the e f f e c t s  and t h e  of  behaviour of  of  law, in  In  trading stock  the area  the  the  a g e n c i e s and  next  of  chap-  NRYand SR h y s u s p e n s i o n s on  prices will  be  66 Exhibit Ontario  Securities  1  Commission's Timely P o l i cy  POLICY NO. TIMELY  Disclosure  2-12  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 is 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 p e r s o n s i n t e r e s t e d i n s e c u r i t i e s , w h e t h e r as i n v e s t o r s , as e x e c u t i v e s o r r e g u l a t o r y bodies. W i t h t h e 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 Commission, a f t e r d i s c u s s i o n w i t h t h e T o r o n t o S t o c k E x c h a n g e , have p r e p a r e d t h e 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 e q u a l f o o t i n g i n s o f a r as k n o w l e d g e o f t h e m a t e r i a l f a c t s r e g a r d i n g t h e company w h i c h has s e c u r i t i e s i n t h e hands o f t h e p u b l i c . T h e r e f o r e , i m m e d i a t e 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 ^ c a n t i n f o r m a t i o n t h r o u g h news media i s e n c o u r a g e d . Unfavoura 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 r o p o s e d . change when a d e c i s i o n a c c e p t i n g o r recommending a c c e p t a n c e o f s u c h p r o p o s a l o r p r o p o s e d 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 s u c h change has o c c u r r e d o r when s u c h change has been a g r e e d upon by t h e 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 t h e d e t a i l s may n o t have been documented. Material  changes or  development  proposed changes  include:  1.  Actual pany;  or  in  the  2.  Actual terial  or proposed a c q u i s i t i o n assets;  3.  Proposed t a k e - o v e r s , mergers, mations 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 , c h a n g e s o r d e v e l o p m e n t s 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 , which 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 t h e company upwards o r d o w n w a r d s ;  5.  Proposed changes i n c a p i t a l s p l i t s or stock d i v i d e n d s ;  6.  Indicated more t h a n  or  control  disposition  consolidations,  structure,  changes i n e a r n i n g s recent average s i z e  of  the of  comma-  amalga-  including  stock  upwards o r downwards o f and c h a n g e s i n d i v i d e n d s ;  67 Exhibit 7.  1  (Cont'd)  Any o t h e r m a t e r i a l change i n t h e a f f a i r s o f t h e company w h i c h 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 mat e r i a l l y the v a l u e of the s e c u r i t y .  In t h i s c o n n e c t i o n t h e C o m m i s s i o n w i s h e s t o p o i n t o u t t h a t u n d e r t h e 1968 amendments i t has a u t h o r i t y i n t h e 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 c e a s e and i t . a l s o may deny t h e r i g h t t o 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 b o t h o f t h e s e p r o c e d u r e s may be e v o k e d by t h e Comm i s s i o n i f c o m p a n i e s f a i l to make 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 as i n d i c a t e d a b o v e , o r i f p e r s o n s knowing s u c h 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 n o t e d t h a t t h e T o r o n t o S t o c k E x c h a n g e 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 t o t h e same e f f e c t as the a b o v e . Compliance w i t h the r e q u i r e m e n t s of the Exchange by c o m p a n i e s whose s e c u r i t i e s a r e l i s t e d t h e r e o n w i l l normally be v i e w e d as c o m p l i a n c e w i t h t h e 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 , t h e f a i l u r e by a company to c o m p l y w i t h t h e r e q u i r e ments o f t h e E x c h a n g e may r e s u l t i n t h e C o m m i s s i o n c o n s i d e r i n g t h e 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 t h e p u b l i c i n t e r e s t , as mentioned above. The C o m m i s s i o n r e c o g n i z e s t h a t t h e r e may be c a s e s where d i s c l o s u r e m i g h t o c c a s i o n harm t o t h e company w h i c h m i g h t o u t w e i g h any p o s s i b l e damage t o t h e 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 a k e e v e r y p o s s i b l e p r e c a u t i o n to e n s u r e t h a t no t r a d i n g w h a t s o e v e r t a k e s p l a c e by any i n s i d e r s o r i n d i v i d u a l s who a r e a s s o c i a t e d w i t h t h e company and who may be i n p o s s e s s i o n o f t h e c o n f i d e n tial information. The C o m m i s s i o n r e a l i z e s t h e d i f f i c u l t i e s t h a t may a r i s e in the i m p l e m e n t a t i o n of t h i s p o l i c y . The o u t l i n e s s e t o u t above a r e g u i d e l i n e s . I f management has an u n u s u a 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 should d i s c u s s the matter promptly w i t h the Commission whether the s e c u r i t i e s of the company a r e l i s t e d o r u n l i s t e d and a l s o w i t h t h e e x c h a n g e r e c o g n i z e d by t h e C o m m i s s i o n on w h i c h t h e s e c u r i t i e s a r e 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 c h a n g e s must be d i s c u s s e d w i t h C o m m i s s i o n p r i o r to d i s c l o s u r e to t h e i n v e s t i n g p u b l i c : 1.  Actual pany;  or  proposed changes i n  2.  Actual terial  or proposed a c q u i s i t i o n assets;  3.  Proposed t a k e - o v e r s , mergers, m a t i o n s , or r e - o r g a n i z a t i o n s ;  the  control  of  or d i s p o s i t i o n consolidations, or  the  the com-  o f maamalga-  Exhibit 4.  1  (Cont'd)  Proposed 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 v e r s i o n s , stock s p l i t s or stock d i v i d e n d s .  R e v i s e d December 6 t h ,  1971.  con-  69 Exhibit Ontario  2  Securities-. Commission's P o l i c y for 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.  Administering  3-23  ADMINISTRATION: TIMELY DISCLOSURE P O L I C Y : UNIFORM ACT POLICY 2 - 1 2 The C o m m i s s i o n i s aware t h a t t h e a d d i t i o n a l paragraph added on December 6 t h , 1 9 7 1 , to U n i f o r m A c t P o l i c y 2 - 1 2 has g i v e n r i s e 'to- o:o:nic.e.-rn".. The C o m m i s s i o n p r o p o s e s t o a d m i n i s t e r the p o l i c y in 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 t h e C o m m i s s i o n 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 t h e C o m m i s s i o n w i s h e s to be advised of 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 n e c e s sary. Since timing is often c r i t i c a l i t is anticipated 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 p u r p o s e 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 c a s e s i s so t h a t i t may be p r e p a r e d to s t o p 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 t o a f f o r d an o p p o r t u n i t y f o r t h e 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 . B e i n g aware o f t h e d e v e l o p m e n t s b e f o r e t h e i n f o r m a t i o n i s p u b l i s h e d t h e C o m m i s s i o n a l s o may be a l e r t to s t o p t r a d i n g where i t a p p e a r s t h e m a r k e t i s r e s p o n d i n g to rumours and not to f a c t . (3) The a d v i c e to t h e C o m m i s s i o n 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 comm 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 t h e C h a i r m a n and marked " C o n f i d e n t i a l " . Personal c o n t a c t , through 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 t h e C h a i r m a n o r V i c e - C h a i r m a n , or i n t h e i r absence w i t h the D i r e c t o r or the Chief Legal I n v e s t i g a t i o n O f f i c e r . December 6 ,  1971.  70 Exhibit  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 D i s c l o s u r e of M a t e r i a l F a c t s Timely  Timely  D i s c l o s u r e of M a t e r i a l F a c t s P o l i c y S t a t e m e n t No. 24 Section 1 Interpretation  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 t h e S e c u r i t i e s A c t ( R . S . Q . 1 9 6 4 , c h . 2 7 4 , as amended) a p p l y t o t h i s p o l i c y statement. 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 the-aff a i r s o f a p e r s o n ^ o r . - a ' ' c o m p a n y Which m i g h t 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 materia'dlyethe" 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.  actual  or  proposed changes i n  1.2.2. actual material assets;  or  proposed a c q u i s i t i o n  1.2.3. proposed t a k e - o v e r s , mergers, amalgamations or r e o r g a n i z a t i o n s ;  control; or  disposition  of  consolidations,  1.2.4. any m a t e r i a l d i s c o v e r i e s , c h a n g e s o r d e v e l o p m e n t s 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 , which 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 o r d o w n w a r d s ; 1.2.5. proposed changes i n c a p i t a l s t r u c t u r e , c o n v e r s i o n s , stock s p l i t s or stock d i v i d e n d s ; of  1.2.6. i n d i c a t e d changes i n more t h a n r e c e n t a v e r a g e s i z e  including  e a r n i n g s upwards o r downwards and c h a n g e s i n d i v i d e n d s .  Section 2 Public  Disclosure  A l l i n v e s t o r s must have e q u a l a c c e s s t o m a t e r i a l f a c t s r e g a r d i n g a p e r s o n o r company h a v i n g s e c u r i t i e s i n t h e ' hands o f the p u b l i c . T h e r e f o r e , s u c h p e r s o n s o r c o m p a n i e s must i m m e d i a t e l y d i s c l o s e to t h e 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 w h i c h a r i s e i n the course of 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 . Section 3 Time o f  Disclosure  71 E x h i b i t .3  (Cont'd)  D i s c l o s u r e o f a p r o p o s e d change s h o u l d be made when a d e c i s i o n a c c e p t i n g o r recommending a c c e p t a n c e o f s u c h p r o p o s a l o r p r o p o s e d change has been made a n d , i n o t h e r c a s e s o f mat e r i a l c h a n g e , when s u c h change has o c c u r r e d o r when s u c h a change has been a g r e e d upon by t h e r e l e v a n t p a r t i e s , notwiths t a n d i n g t h a t a l l t h e d e t a i l s may not have been s t i p u l a t e d . Section 4 Method o f  Disclosure  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 t h e 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 t o t h e i n v e s t i n g p u b l i c i n g e n e r a l , s u c h as may be d o n e , f o r e x a m p l e , by t h e r e l e a s e o f a p r e s s communique t o t h e a p propriate public information media. Section 5 Prejudicial  Disclosure  T h e r e may be c a s e s 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 mat e r i a l f a c t s m i g h t o c c a s i o n harm to t h e p e r s o n o r company w h i c h m i g h t o u t w e i g h any p o s s i b l e damage to t h e s h a r e h o l d e r s by w i t h h o l d i n g t h e i n f o r m a t i o n . Where t h i s a.ris.e.s, management must t a k e a l l p r e c a u t i o n s n e c e s s a r y t o e n s u r e t h a t t h e i n f o r m a t i o n r e m a i n s 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 o r a s s o c i a t e s o f t h e p e r s o n o r company who may be i n p o s s e s s i o n o f t h e 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 of such person o r company o r a c q u i r e any o p t i o n s on s u c h s e c u r i t i e s . Section 6 Clarification  or  C o n f i r m a t i o n of usual Market  Rumours and R e p o r t s and U n Action  6.1. As s o o n as t h e management o f a p e r s o n o r company whose s e c u r i t i e s a r e h e l d by t h e p u b l i c becomes aware o f a r u mour o r r e p o r t w h i c h has had o r may have an e f f e c t on t h e v a l ue o f 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 o r c o n f i r m t h e rumour o f t h e 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 t h e r e a sons f o r u n u s u a l o r sudden m a r k e t a c t i o n o f t h e s e c u r i t i e s o f t h e p e r s o n o r 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 t h e 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 d e v e l o p m e n t i n t h e ' b u s i n e s s o f t h e p e r s o n o r company a n d , to i t s k n o w l e d g e , t h e r e i s nothing which j u s t i f i e s such a c t i v i t y . Section 7 Exceptional  Circumstances  72 Exhibit  3  (Cont'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 should immediately n o t i f y the Commission t h e r e o f . Section 8 Notice  to  the Commission  8.1. N o t i c e must be g i v e n to t h e 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 t o t h e 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 r e a s o n 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 t o i s s u e a c e a s e t r a d i n g o r d e r w i t h r e s p e c t to t h e s e c u r i t i e s o f a p e r s o n o r company i n o r d e r to p e r m i t t h e d i s c l o s u r e and d i s s e m i n a t i o n o f a m a t e r i a l fact. 8.2. S i n c e time i s of the essence i n such c i r c u m s t a n c e s , t h e C o m m i s s i o n a n t i c i p a t e s t h a t t h e 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 communications 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 t h e S e c r e t a r y o f t h e C o m m i s s i o n and a l l w r i t t e n c o m m u n i c a t i o n s s h o u l d be a d d r e s s e d t o him and marked " C o n f i d e n t i a l " . Section 9 Coming i n t o 9.1. ately.  The f o r e g o i n g  May 1 4 ,  1974.  Force  P o l i c y Statement  is  effective  immedi-  73 Exhibit 4 Toronto  Stock 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 r u p t i o n s of Regular F l o o r T r a d i n g  Inter-  The B o a r d has c o n s i d e r e d t h e v a r i o u s f a c t o r s w h i c h 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 t h e f o l l o w i n g p o l i c y s t a t e m e n t : Delayed Opening  (1)  An a c c u m u l a t i o n o f o r d e r s a t an o p e n i n g o r d u r i n g t h e c o u r s e o f 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 usual a u c t i o n p r o c e s s to t a k e p l a c e .  Halt in t r a d i ng  (2)  P r i o r t o an o p e n i n g or d u r i n g t h e day t h e E x c h a n g e 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 i m m i n e n t . The m a r k e 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 p e r s o n s and not t o o t h e r s . A decision 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 i m e i n s u c h 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 e x t e n d beyond one t r a d i n g s e s s i o n .  (3) Suspended from the trading list  The E x c h a n g e may have r e a s o n t o b e l i e v e t h a t a s e c u r i t y i s being traded with inadequate 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 t h e company t o make a s t a t e m e n t and i t i s u n a b l e o r u n w i l l i n g t o comply w i t h t h e 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 t h e 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) Suspended from the t r a d i ng l i s t  A l i s t e d company has f a i l e d to c o m p l y w i t h l i s t i n g requirements. The company may be g i v e n a p e r i o d o f t i m e to r e c t i f y t h e s i t u a t i o n w h i c h may be q u i t e p r o t r a c t e d .  The B o a r d c o n s i d e r s t h a t i n t h e f i r s t c i r c u m s t a n c e i t is unappropriate that trading should take place o v e r - t h e - c o u n t e r w h i l e t h e r e g u l a r m a r k e t i s no l o n g e r f u n c t i o n i n g . Overt h e - c o u n t e r t r a d i n g w o u l d make i t d i f f i c u l t t o resume t h e 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 . 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 t o as a " d e l a y e d o p e n i n g " and as t h e s e c u r i t y w i l l r e m a i n on t h e 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 t h e s e c o n d c i r c u m s t a n c e t h e 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 t o as a " h a l t i n g o f t r a d i n g " o r " t r a d i n g h a l t e d " t o 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 e x t e n d beyond t h e . u c u r r e n t t r a d i n g e s e s s - t o n and ' a s t h e : s e c u r - i t y w i l l r.eman'n •on.rthertria'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 p e r m i t t e d ! . ,  74 Exhibit  4  (Cont'd).  In t h e 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 t h e interruption i n t r a d i n g w i l l be r e f e r r e d t o as a " s u s p e n s i o n " o r " s u s p e n d e d f r o m t h e t r a d i n g l i s t " t o 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 interruption. As t h e s e c u r i t y w i l l no l o n g e r be p o s t e d 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 t o t r a d e i n t h e o v e r - t h e - c o u n t e r m a r k e t , as t h e y may s e e f i t , i n t h e i r own i n t e r e s t s or in the i n t e r e s t s of t h e i r c l i e n t s . T h e r e 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 t h e f o l l o w i n g day w h e n , f o r e x a m p l e , t h e l a c k o f i n f o r m a t i o n has n o t been r e c t i f i e d p r i o r t o t h e o p e n i n g o f t h e m a r k e 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 .  Source:  T o r o n t o S t o c k E x c h a n g e , " P o l i c y S t a t e m e n 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 , 1 9 6 7 .  75 Exhibit Montreal  5  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 c e p t i v e T r a d i n g Methods  o r De-  6180 M a n i p u l a t i v e o r D e c e p t i v e T r a d i n g M e t h o d s . - No memb 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 or employee of 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 o r k n o w i n g l y p a r t i c i p a t e i n t h e use o f any m a n i p u l a t i v e o r 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 t h e p u r c h a s e o r s a l e o f any s t o c k l i s t e d on a s t o c k e x c h a n g e w h i c h c r e a t e s o r 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 of t r a d i n g activity o r an a r t i f i c i a l p r i c e f o r t h e s a i d s t o c k . W i t h o u t i n any way l i m i t i n g t h e g e n e r a l i t y o f t h e f o r e g o i n g t h e 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 o r 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 o r g i v i n g o r 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 t h e b e n e f i c i a l ownership of such a s t o c k ; (b) e n t e r i n g an o r d e r o r o r d e r s on t h e E x c h a n g e f o r t h e p u r c h a s e o f s u c h a s t o c k w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e , f o r t h e s a l e o f any s u c h 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 t h e same o r d i f f e r e n t p e r s o n s 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 a p pearance 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 t h e m a r k e t 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 o r o r d e r s on t h e Exhange f o r t h e s a l e o f s u c h a s t o c k w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r t h e p u r c h a s e o f s u c h 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 t h e same o r d i f f e r e n t p e r s o n s 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 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 o r 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 t h e E x c h a n g e , p u r c h a s e s o f o r 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 t o s e l l any s t o c k at s u c c e s s i v e l y lower 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 t o c k or f o r the purpose of unduly or i m p r o p e r l y influencing 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 o r 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 s u c h s t o c k , f o r t h e p u r p o s e o f i n d u c i n g the purchase or s a l e o f ' s u c h a s t o c k , which c r e a t e s a c t u a l or apparent t r a d i n g i n such s t o c k 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 t o c k .  76 Exhibit  5  (Cont'd)  N o t w i t h s t a n d i n g t h e f o r e g o i n g , a member may p u r c h a s e o r o f f e r to purchase a s t o c k f o r h i m 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 t o c k p r o v i d e d t h a t s u c h p u r c h a s e 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 t h a n t h a t a t w h i c h t h e s t o c k was t r a d e d by o t h e r s p r i o r t o t h e commencement o f p u r c h a s e s f o r s u c h p u r p o s e .  77 Exhibit 6 Montreal  S t o c k Exchange Rules Disclosure  Dealing with  Timely  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 Information.A l i s t e d company and i t s management i s r e q u i r e d t o 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 of a l l m a t e r i a l changes i n i t s - a f f a i r s w h i c h m i g h t 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 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 w h e t h e r t h e change i s l i k e l y t o mat e r i a l l y a f f e c t the v a l u e o f t h e s e c u r i t i e s , t h e e f f e c t o f t h e change on t h e m a r k e t p r i c e o f t h e s e c u r i t i e s i s t h e b e s 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 t h e announcement o f t h e change w o u l d r e s u l t i n a sudden change i n the p r i c e o f t h e 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 t h e 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 t h e s e c u r i t y and an a n n o u n c e ment s h o u l d be made. W i t h o u t i n any way l i m i t i n g t h e g e n e r a l i t y o f t h e f o r e g o i n g , the f o l l o w i n g e v e n t s 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 o r n a t u r e o f t h e b u s i n e s s o r a f f a i r s o f comp a n i e s w h i c h a r e p a r t i c u l a r l y l i k e l y t o r e q u i r e prompt a n n o u n c e 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 , 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 t e r m i n a t i o n of e a r n i n g s ; (c) a stock s p l i t , stock capital structure; (d)  the  acquisition  (e)  a significant  dividend  or l o s s of  new p r o d u c t  dividends or o r any o t h e r  a significant or  a call  (h)  the  of  securities  borrowing  of  significant  (k)  the  (1)  a significant  de-  change  s a l e of  contract;  change i n  owner-  amount o f  funds;  a significant  amount  litigation;  purchase or s a l e of change i n  in  redemption;  a significant  ( i ) the p u b l i c or p r i v a t e additional securities; (j)  for  the  discovery;  ( 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 s h i p o r i n management^ (g)  acquisition,  a significant capital  asset;  investment  plans;  of  78 Exhibit  6  (Cont'd)  (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 t r a c t o r s or s u p p l i e r s ;  or d i s p u t e s  with subcon-  (n) e s t a b l i s h m e n t o f a p r o g r a m to make p u r c h a s e s o f Company's own s h a r e s , where p e r m i t t e d ; (o)  a tender  offer  for  another  company's  the  securities;  (p) any m a t e r i a l d i s c o v e r i e s , c h a n g e s o r d e v e l o p m e n t s 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 cont r a c t s , which 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 t h e company upwards o r d o w n w a r d s ; (q)  a change i n  the  nature  of  b u s i n e s s of  the  ( r ) any o t h e r m a t e r i a l change i n t h e a f f a i r s pany w h i c h c o u l d r e a s o n a b l y be e x p e c t e d t o t e r i a l l y the v a l u e of the s e c u r i t y .  company; o f t h e coma f f e c t ma-  9452 T h o r o u g h 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 semination. The recommended p r o c e d u r e i s t h a t t h e announcement be made to t h o s e s e r v i c e s w h i c h d i s s e m i n a t e f i n a n c i a l news o v e r a b r o a d a r e a and i n t h e main p o p u l a t i o n c e n t r e s . The E x c h a n g e s 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 t h e 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. It 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 t h e d e t a i l t h a t w o u l d be i n c l u d e d in 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 t h e n a t u r e o f t h e change and t o e n a b l e i n v e s t o r s t o 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 t o s u p p l y f u r t h e r information when t h e o c c a s i o n c a l l s f o r it. Proper timing is important. 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 i m p o r t a n t corporate development. U n u s u a l t r a d i n g p r i o r t o an a n n o u n c e 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 t o management and damaging to t h e r e p u t a t i o n o f t h e s e c u r i t i e s m a r k e t s i n c e t h e p u b l i c may assume t h a t someone had a c c e s s t o 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 of 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 o r C o n f i r m a t i o n o f Rumours and R e p o r t s . Whenever a l i s t e d company becomes aware o f a rumour o r 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 , o r has h a d , an a f f e c t on t h e t r a d i n g i n t h e c o m p a n y ' s s e c u r i t i e s o r w o u l d be l i k e l y t o 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 ,  79 Exhibit  6  (Cont'd)  t h e company i s r e q u i r e d to p u b l i c l y 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 .  clarify,  deny t h e  rumour,  9454 R e s p o n s e to U n u s u a l M a r k e t A c t i o n . - Whenever u n u s u a l market a c t i o n takes p l a c e in a l i s t e d company's s e c u r i t i e s , t h e company i s e x p e c t e d t o make i n q u i r y t o d e t e r m i n e w h e t h e r rumours o r 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 a k e whatever a c t i o n i s a p p r o p r i a t e . If, after the company's r e v i e w , the unusual market a c t i o n remains unexp l a i n e d , i t may be a p p r o p r i a t e f o r t h e company t o a n n o u n c e t h a t t h e r e has been no m a t e r i a l d e v e l o p m e n t 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 k n o w l e d g e , any o t h e r r e a s o n t o a c c o u n t f o r t h e u n u s u a l m a r k e t a c t i o n . 9455 U n w a r r a n t e d 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 company s h o u l d r e f r a i n f r o m 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 w h i c h e x c e e d s t h a t n e c e s s a r y to e n a b l e t h e p u b l i c to make i n f o r m e d investment 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 a n n o u n c e m e n t s not j u s t i f i e d by a c t u a l developments in a company's a f f a i r s , exaggerated 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 w o r d i n g and o t h e r f o r m s o f 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 w h i c h may m i s l e a d i n v e s t o r s and c a u s e u n w a r r a n t e d p r i c e movements and a c t i v i t y in 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 . - T h e r e a r e 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 t o r e s o l v e ; s u c h a s , t h e d u t y t o keep i t s s h a r e h o l d e r s i n f o r m e d and i t s d u t y to t h e company t o 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 t h e w e l f a r e o f t h e company not t o make d i s c l o s u r e , t h e n i t f o l l o w s t h e i n f o r m a t i o n s h o u l d be k e p t c o n f i d e n t i a l by t h o s e p e r s o n s who f o r c o r p o r a t e r e a s o n s a r e r e q u i r e d t o know t h e i n f o r m a t i o n . A l l c o m p a n i e s 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 h o s e 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 r o m t r a d i n g p e n d i n g 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 t o be k e p t 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 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 in i t s s e c u r i t i e s . Unusual m a r k e t a c t i v i t y i n t e r m s o f p r i c e o r volume i s t h e b e s t i n d i c a t i o n o f w h e t h e r c o n f i d e n t i a l i t y has n o t been m a i n t a i n e d . I f s u c h a c t i v i t y o c c u r s , t h e E x c h a n g e s r e q u i r e t h a t an a n n o u n c e ment be made c l a r i f y i n g t h e s i t u a t i o n .  80 Exhibit 7 Montreal  S t o c k 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 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  Inter-  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 r o m 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 e a s o n s which f a l l w i t h i n the f o l l o w i n g categori es: (1) D e l a y e d 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 o p e n i n g o r d u r i n g the c o u r s e o f 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 usual a u c t i o n p r o c e s s to t a k e p l a c e . (2) H a l t i n t r a d i n g : P r i o r t o an o p e n i n g o r d u r i n g t h e day t h e E x c h a n g e s 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 i m m i n e n t . The m a r k e 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 p e r s o n s and not to others. 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 t h e s e c u r i t y t r a d e d u n t i l t h e 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 i m e i n s u c h 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 e x t e n d beyond one t r a d i n g session. (3) S u s p e n d e d f r o m t h e t r a d i n g l i s t : The E x c h a n g e may have r e a s o n to b e l i e v e t h a t a s e c u r i t y i s b e i n g 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 t h e company t o make a s t a t e m e n t and i t i s u n a b l e o r u n w i l l i n g to comply w i t h the r e q u e s t . Trading in these 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 . A listed company may be g i v e n a p e r i o d o f t i m e to r e c t i f y t he s i t u a t i o n w h i c h may be q u i t e p r o t r a c t e d . 6407 D e l a y e d O p e n i n g . f i r m s and c o r p o r a t i o n s w i l l been i n t e r r u p t e d f o l l o w i n g w i l l r e m a i n on t h e 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 not be p e r m i t t e d when t r a d i n g has a d e l a y e d o p e n i n g as t h e s e c u r i t y list.  The E x c h a n g e 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 ing s h o u l d take 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 w o u l d make i t d i f f i c u l t to resume t h e f u n c t i o n i n g o f t h e 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 n o t 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 t h e s e c u r i t y w i l l r e m a i n on t h e t r a d i n g list. T h i s i n t e r r u p t i o n i s t e m p o r a r y and w i l l beyond t h e c u r r e n t t r a d i n g s e s s i o n .  not  normally  extend  6409 S u s p e n d e d f r o m t h e 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 t h e s e c u r i t y w i l l no l o n g e r be p o s t e d 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  Exhibit  7  (Cont'd)  m a r k e t , as t h e y 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 t h e i n t e r e s t s o f 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 t h e E x c h a n g e .  82 Exhibit Vancouver  8  Stock 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 D e c e p t i v e Methods o f T r a d i n g  or  Rule 385.1. ( 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 of a s e a t h o l d e r , d i r e c t o r , officer o r e m p l o y e e o f a s e a t h o l d e r o r an a f f i l i a t e d company s h a l l use o r k n o w i n g l y p a r t i c i p a t e i n t h e use o f any m a n i p u l a t i v e o r 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 t h e p u r c h a s e o r 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 e x c h a n g e w h i c h c r e a t e s o r may c r e a t e a f a l s e . o r . m i s 1 e a d i n g a p p e a r a n c e 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 t h e s a i d s e c u r i t y . 3 8 5 . 2 ( O t h e r p r o h i b i t i o n s ) . - W i t h o u t i n any way l i m i t i n g t h e g e n e r a l i t y o f t h e f o r e g o i n g , t h e 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 o r d e c e p t i v e methods o f t r a d i n g : (a) m a k i n g a f i c t i t i o u s t r a n s a c t i o n o r g i v i n g o r 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 c h a n g e i n the b e n e f i c i a l o w n e r s h i p 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 t h e e x c h a n g e f o r t h e p u r c h a s e o f s u c h a s e c u r i t y w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e , f o r t h e s a l e o f any s u c h s e c u r i t y , has been o r w i l l be e n t e r e d by o r f o r t h e same o r d i f f e r e n t p e r s o n s and w i t h t h e 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 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 market p r i c e of 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 t h e e x c h a n g e f o r t h e s a l e o f s u c h a s e c u r i t y w i t h t h e k n o w l e d g e 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 t h e same s i z e , a t s u b s t a n t i a l l y t h e same t i m e and a t s u b s t a n t i a l l y t h e same p r i c e f o r t h e p u r c h a s e o f s u c h 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 t h e same o r d i f f e r e n t p e r s o n s and w i t h t h e 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 market p r i c e of a s e c u r i t y ; (d) m a k i n g , on t h e e x c h a n g e , p u r c h a s e s o f o r o f f e r s t o 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 t o 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 lower 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 purpose of unduly or i m p r o p e r l y influencing the market p r i c e of 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 n s a c t i o n s i n any s u c h s e c u r i t y , f o r t h e p u r p o s e of i n d u c i n g the purchase or s a l e of such a s e c u r i t y , w h i c h 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 s u c h 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 Exhibit  8  (Cont'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 p u r c h a s e o r o f f e r t o p u r c h a s e a s e c u r i t y f o r h i m 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 in such a s e c u r i t y .  84 Exhibit Vancouver  9  Stock Exchange P o l i c y R e g a r d i n g Indiscriminate 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 ,  1.  1974  Suspensions I f t h e c i r c u m s t a n c e s a r e s u c h 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 , t h e n t h e P r e s i d e n t must be a p p r i s e d o f t h e r e a s o n f o r t h e 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 . If t h e 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 t h e F l o o r M a n a g e r , may o r d e r the s u s p e n s i o n . If 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 , t h e 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 conjunction w i t h another V i c e - P r e s i d e n t or the F l o o r Manager. I f t i m e 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 t h e P r e s i d e n t o f t h e E x c h a n g e , vor. i f u n a v a i l a b l e , t h e Cha i rman o f t h e B o a r d , o r a member o f t h e E x e c u t i v e Comm i t t e e , s h o u l d t h e C h a i r m a n a l s o be u n a v a i l a b l e . In any e v e n t , s u c h p e r s o n s 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 t h e 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 , t h e B . C . S e c u r i t i e s C o m m i s s i o n 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 pension.  2.  Halt  Trading  Where a c t i o n i s an i n t e r i m o r t e m p o r a r y m e a s u r e , effective o n l y f o r t h e 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 s u c h may be an emergency s i t u a t i o n , t h e n a h a l t i n t r a d i n g may be o r d e r e d by t h e P r e s i d e n t o f t h e E x c h a n g e . If the P r e s i de n t ~ T s ~ l T o T T l m ^ t h e n t h e a c t i o n may be t a k e n by t h e V i c e - P r e s i d e n t , L i s t i n g , o r 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 t h e F l o o r M a n a g e r . Subsequent 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 the E x c h a n g e , i n h i s a b s e n c e , the Chairman of the B o a r d , o r a member o f t h e ' E x e c u t i v e C o m m i t t e e 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 C o m m i s s i o n 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 o f t h e s i t u a t i o n , and t h e r e a s o n s f o r w h i c h t h e a c t i o n was t a k e n . 3.  Listing  and  Delisting  Listing  and d e l i s t i n g  of  securities  must  be by  resolution  85 Exhibit  9  (Cont'd)  o f t h e L i s t i n g C o m m i t t e e a t a r e g u l a r m e e t i n g o f t h a t Committee. In t h e e v e n t o f d e l i s t i n g , t h e company must i m 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 t h e r e g i s t e r e d office. 4.  C e a s e and D e s i s t O r d e r f r o m t h e  Superintendent  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 a r e to be a d v i s e d o f s u c h o r d e r s and a n o t i c e the F l o o r . 5.  Trading  of  Brokers  personnel p u t o u t on  Session  In t h e a b s e n c e o f t h e 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 s u s p e n d e d 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 a n o t h e 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 t h e C h a i r m a n o r V i c e Chairman of the Board of G o v e r n o r s . In t h e e v e n t t h a t t h e Chairman 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 o f a member o f t h e E x e c u t i v e C o m m i t t e e . 6.  Information Services, Chief  Examiner  and Data  Processing  It 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 , t h e C h i e f E x a m i n e r and t h e Manager o f t h e D a t a P r o c e s s i n g D e p a r t m e n t s a r e 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 M a n a g e r , 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 w h a t e v e 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 t h e p u b l i c as to t h e r e a s o n s f o r w h i c h any a c t i o n has been t a k e n . 7.  P o l i c y S t a t e m e n t d a t e d M a r c h 8 , 1 9 7 3 , i n r e l a t i o n to t h e p r e c e d i n g i s hereby c a n c e l l e d , dated J a n u a r y 16, 1974. Signed C y r i l  White  C y r i l White, President  Q. C .  86  FOOTNOTES  da  J . Peter Williamson, S e c u r i t i e s Regulation ( T o r o n t o : U n i v e r s i t y of T o r o n t o P r e s s , 1 9 6 0 ) .  lation  J  in  Cana-  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 Canada ( O t t a w a : Q u e e n s P r i n t e r , 1 9 6 6 ) .  Regu-  in  J . W. B ai.lTnVe , "The P r o t e c t i o n o f t h e I n v e s t o r i n O n t a r i o , " C a n a d i a n 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 ) , p p . 17 2 268 and ( S e p t e m b e r , 1 9 6 5 ) , p p . 3 2 5 - 4 3 2 . 3  :  3  " O n t a r i o , Report of the A t t o r n e y G e n e r a l ' s 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 , 1 9 6 5 .  Committee  0 n t a r i o , R e p o r t of the Committee of 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 on t h e P r o b l e m s 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  Q u e b e c , Report I n d u s t r y in Quebec, 6  ties  of the 1972.  Study Committee  on t h e  Securi-  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 o f Canada ( T o r o n t o : M a c M i l l a n Company o f C a n a d a , 1 9 7 2 ) , p p . 532-41 ; and t h e s o u r c e s r e f e r e n c e d i n f o o t n o t e s 1 t o 6. 7  8  J.  Toronto 1890.  9  ary  30,  Peter Williamson, Stock  Securities  Exchange, Minutes  Regulation of  in  a meeting  Canada. of  Janu-  T h i s r e s u l t e d f r o m (1) t h e a d o p t i o n o f t h e Kansas "blue sky" l e g i s l a t i o n , dealing e s s e n t i a l l y with 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 M a n i t o b a ( 1 9 1 2 ) , S a s k a t c h e w a n ( 1 9 1 5 ) , A l b e r t a ( 1 9 1 6 ) , New B r u n s w i c k ( 1 9 2 3 ) and Quebec ( 1 9 2 4 ) and (2) t h e i n t r o d u c t i o n o f r e g u l a t i o n s p r o t e c t i n g investors a g a i n s t new i s s u e f r a u d by M a n i t o b a ( 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 ) . 1 0  ^Williamson,  Securities  Regulation  in  Canada,  p.  30.  T h e 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 f i r s t a p p e a r e d by name i n l e g i s l a t i o n o f 1933 and i n 1937 t h e C o m m i s s i o n was f o r mally e s t a b l i s h e d . P r i o r t o 1933 a b o a r d e x i s t e d t o a d m i n i s t e r the a c t . 1 2  " E d m o n t o n Exchange S u s p e n d s O p e r a t i o n s , " February 13, 1958. 1 3  Miner,  Northern  87 T h i s i s t h e p r a c t i c e o f i s s u i n g s h a r e s to t h e p u b lic d i r e c t l y f r o m t h e t r e a s u r y o f m i n i n g and o i l c o m p a n i e s t h r o u g h t h e f a c i l i t i e s o f an e x c h a n g e ( s u c h as t h e T S E ) . 1 H  S e e O n t a r i o , Report of on S e c u r i t i e s L e g i s l a t i o n  t h e A t t o r n e y G e n e r a l ' s Comin O n t a r i o , March, 1965.  1 5  mittee  1 6  0ntario,  Report  of  the  Attorney  General's  Committee.  N e w s R e l e a s e , Monday, August 2 9 , 1966, of 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 , " 6 4 t h CICA A n n u a l C o n f e r e n c e , R e g i n a , Saskatchewan. 1 7  1 8  Financial 1 9  25,  " 0 n t a r i o s h o w i n g t h e way w i t h t o u g h new a c t , " T i m e s , J a n u a r y 1 8 , 1 9 6 7 , p. 6 9 . "Letter  to  Editor,"  The G l o b e and Mai 1 , J a n u a r y  1967.  0ntario 555 Yonge S t r e e t , 2 0  S e c u r i t i e s Commission, B u l l e t i n A u g u s t , 1 9 7 3 ) , p. 1 0 9 .  2 1  "Tighter 1957.  2 2  Toronto  2 3  Canadian Securities 1974).  March 2 , in  the  The  1957  June 24,  R e i n Now on S t o c k P u s h e r s , " F i n a n c i a l Stock  ^Canadian June 24, 1974).  Exchange, Stock  Securities  Exchanges of  T h i s section relies 1973, pp. 258-71.  Code,  Canada  (CCH Canada  Limited,  Law R e p o r t s  (CCH Canada  Limited,  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 , C a n a d a , Number 1 0 9 , March 3 1 , 1 9 7 5 . 2 6  Post,  Law R e p o r t s  2 5  ted,  (Toronto:  extensively  2 7  R e J . H.  2 8  R.  v.  DALLEY, R . S . O .  2 9  R.  v.  PIEPGRASS  3 0  R.  v.  LAMPARD ( 1 9 6 8 ) ,  3 1  See  CCH C a n a d i a n L i m i -  on M a r t i n ' s  Criminal  (1 91 2) , 25 0 . L . R . 1 3 2 . 1950, c . 3 5 1 ,  (1959),  125  s.6.  C.C.C.365.  4 C.C.C.201,  (1968)  2 0.R.470  (C.A.). (1 969)  3 C.C.C.249 , 6 C R . N . S . 1 5 7  S e e R. v JAY ( i l 9 6 6 ) 1 C . C . C . 7 0 , ( 1 965) 2 0 . R . 4 7 1 . S e e R . v . D.MMMi!liAN-; 9 (1 969;) , o 2 0 C \ . C . C . 289., ( 1 968) 1 (ClA.:)..- - n <)WIv*b\i * . r t Q^EEfv ,> , :  3 2  3 3  0.R.475  (S.C.C.).  r  88 " S e e R. v . DAVIDSON ( 1 9 7 1 ) , 3 C . C . C . (2d) 5 0 9 , (1971) 4 W . W . R . 7 3 1 , sub nom. DAVIDSON v . THE QUEEN ( 2 ; 1 ) (B.C.C.A.). 3  3 5  C0X  and PATON v .  THE QUEEN,  (1963),  2 C.C.C.148,  40  C.R.52. R. 2 0.R.665. 3 6  v.  COLUCCI, Number  (1965)  3 7  CCH,  3 8  Canadian Securities  3 9  O.S.C.  4 C.C.C.56,  108, February  28,  46 C . R . 2 5 6 ,  (1965)  1975.  Law R e p o r t s ,  C C H , Volume 1,  p.  531 • Bulletin,  May,  1969.  " " F o r an e a r l y e x a m i n a t i o n o f C a n a d i a n s e c u r i t i e s e x c h a n g e s s e e 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 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 . X V , ( S e p t e m b e r , 1 9 6 0 ) , p p . 3 0 7 - 2 4 ; and J . G . K . S t r a t h y , "The S t o c k E x c h a n g e - I t s O r i g i n and F u n c t i o n i n t h e E c o n o m y , " C a n a 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. 1 0 7 . See "The S t o c k L i s t D e p a r t m e n t , " E x c h a n g e R e v i e w , ( D e c e m b e r , 1 9 7 0 ) , p. 6 . ftl  The T o r o n t o  Stock  " L i s t e d i n d u s t r i a l c o m p a n i e s do not c a r r y o u t new i s sues t h r o u g h t h e E x c h a n g e , but must f i l e a p r o s p e c t u s w i t h t h e S e c u r i t i e s C o m m i s s i o n and have t h e p r i m a r y d i s t r i b u t i o n effected through the u n l i s t e d or o v e r - t h e - c o u n t e r market. 2  " I n a d d i t i o n to the s u p e r v i s i o n of t r a d i n g i n the a u c t i o n m a r k e t , t h e d e p a r t m e n t t h r o u g h i t s c l e a r i n g house h a n d l e s t h e 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 t h r o u g h 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 o f member f i r m s . 3  " " S e e " S t o c k W a t c h : 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 T o r o n t o S t o c k Exchange R e v i e w , S e p t e m b e r , 1 9 7 0 , p. 6 . " 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 , 54-882, V o l . 3, para. 92-004. 5  CCH, V o l . 2,  para.  " T h e methods o f " m a k i n g t h e m a r k e t " e m p l o y e d on t h e T S E , NYSE, and 0TC a r e 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. W e s 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 t h e U . S . A . : A Comparison of Agent Versus 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 ) , p p . 4 6 - 7 2 . 6  " " R u n n i n g t h e b o x " i s t h e name g i v e n t o t h e m a r k e t making s y s t e m used t o p r o v i d e l i q u i d i t y i n C a n a d i a n 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 . 7  " T h e Penny M i n e r , " S u d d e n d i s a s t e r 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 , 1 9 7 3 , p. 8  for four 21.  stocks,"  89 " " W h i t e - c o l 1 a r c r i m e pays t o o w e l l , " S e p t e m b e r 2 0 , 1 9 7 5 , p. H - l . 9  Star,  The  Montreal  " C o o r d i n a t e d Law E n f o r c e m e n t U n i t , I n i t i a l R e p o r t O r g a n i z e d Crime i n B . C . , Department of A t t o r n e y - G e n e r a l of t i s h C o l u m b i a ( O c t o b e r , 1 9 7 4 ) , p. 2 7 . 5  on Bri  Chapter 3 THE EFFECTIVENESS OF TRADING SUSPENSIONS: A REGULATORY ACTION DESIGNED TO PREVENT THE EXPLOITATION OF MONOPOLY INFORMATION In in  this  contrast  chapter,  tested.  the  formulated the  vent  last  d i s c l o s u r e of  tion.  The r e g u l a t o r y  suspensions, procedure  of  o f monopoly previously  and t h e  of  NR and SR  suspensions  issued in  is  trading  order  to  pre-  by f o r c i n g  the  informa-  suspensions,  on t h e e f f e c t i v e n e s s  findings  are  confined  firm-specific  the methodology  empirical  the  information  for  descriptive,  empirically  The a n a l y s i s  private  rationale  data used,  are  trading  tested.  each h y p o t h e s i s  the  w h i c h was  predictions  s u s p e n s i o n s t h a t were  public  of  the  effectiveness  exploitation  predictions  chapter,  NR and SR h y p o t h e s e s  and e m p i r i c a l l y  trading  the  lowing  the  More s p e c i f i c a l l y ,  h y p o t h e s e s on t h e  to  to  of  the  of  the  trading  testing  are d i s c u s s e d in  the  fol-  sections.  THE DESIRED IMPACT OF TRADING SUSPENSIONS The p o l i c y s u s p e n s i o n of presented  regular  the  use t r a d i n g  ity  being traded  various  floor  in Chapter 2.  lators is  of  exchanges r e g a r d i n g  trading  for  A c c o r d i n g to  listed  that  s u s p e n s i o n s when t h e y with  porate  information  and t h e management  either  unable or  public  dissemination  unwilling of  to  that  of  believe  the  comply w i t h t h e information. 90  s t o c k s was  stated  inadequate or p o o r l y  the  policy, that  a secur-  dispersed affected request  regu-  cor-  firm for  is the  91 Implicit a required  public  when r e g u l a r (1)  (2)  the p o l i c y  trading  the  have e q u a l  and a c t u a l  on m a r k e t  form of  market  during  that  a period  to  all  contemplate this  all  by m a k i n g  investors,  by e n s u r i n g t h a t a l l relevant  chapter w i l l  (and s e c u r i t y  investors  selling.  deal w i t h the  of  and  information  p u r c h a s i n g or  economic i m p l i c a t i o n s  efficiency  belief  efficiency  a v a i l a b l e to  and c o s t l e s s a c c e s s  The r e m a i n d e r o f  regulatory  information  equity  own o r  the  suspended w i l l :  publicly  investor  s t o c k s they  sible  is  strong  information improve  is  d i s c l o s u r e of  floor  improve  monopoly  about  in  trading  pos-  suspensions  returns).  THE POSSIBLE IMPACT OF TRADING SUSPENSIONS ON MARKET EFFICIENCY AND THE BEHAVIOUR OF STOCK PRICES A necessary condition p r o v e d by t r a d i n g cess  to  stock  suspensions is  information  prices.  pension  is  to  expectations control,  that  In o t h e r  about  financial  The p u b l i c during  equilibrium. form, the  the  the  words,  that  if  use o f  the  be i m -  have a c -  in  current  trading  affects  investors'  during  the  to  other  firms,  the  it  previously monopolistic  is  efficient  in  the  post-suspension period  The d i r e c t i o n  of  as i t  this  etc.,  suspension period.  s u s p e n s i o n should cause market if  sus-  prospects, riskiness,  a v a i 1 ab1e i n f o r m a t i o n  state.  that  relationships  d i s c l o s u r e of  to  regulators  reflected"  the  future  efficiency  the  "fully  investors  trading  market  information  affairs,  The m a r k e t ,  new p u b l i c l y  not  firm's  should respond in  equilibrium  is  be e f f e c t i v e ,  s h o u l d be c o n v e y e d t o  mation  for  infordis-  semi-strong by  impounding  moves t o w a r d  m a r k e t movement  a new will  92 depend upon w h e t h e r as b e i n g  the market  "favourable"  or  To e m p i r i c a l l y hypotheses, to  must be s p e c i f i e d reactions or  in  "no new"  the  (1)  in greater  prior  In  information  of  t h e NR and SR  detail.  a trading  The f o u r to  in  suspension  possible  market  "unfavourable  Figure l .  this  case  the  new"  These  1  regulators  that  had not  been " f u l l y  the  trading  suspension.  to  information  four  can be d e s c r i b e d a s :  m a r k e t made no a d j u s t m e n t "new"  "new"  the p o s t - s u s p e n s i o n p e r i o d  are p i c t u r e d  reactions  R e a c t i o n AC:  prices  in  post-suspension period  s e s s any i n f o r m a t i o n stock  predictions  disseminated during  information  p o s s i b l e market  the  reactions  any new i n f o r m a t i o n  the  "unfavourable".  test  the market  assesses  in  the  did  not  reflected"  posin  Therefore,  post-suspension period  supposedly disseminated during  the  the  to  the  trading  suspension. (2)  R e a c t i o n BD:  In  information  t h a t was not  previous  the  being in  to  efficient  the  in the  R e a c t i o n AD:  "unfavourable stock  new"  prices  the m a r k e t ,  form,  adjusted  "unfavourable suspension.  In  to  the  this  case the  not  slowly  the  stock  immediately new"  regulators  did  "fully  infor-  suspension. i n the  disseminated during  possess  reflected" There-  semi-strong  the p o s t - s u s p e n s i o n p e r i o d  new" i n f o r m a t i o n  market,  suspension.  t h a t was not trading  possess  prices  the  adjusted  being very e f f i c i e n t in  did  "unfavourable  trading  information to  the  in  Therefore,  semi-strong form,  previous  fore,  regulators  reflected"  suspension.  disseminated during  (3)  case the  "fully  post-suspension period  mation  in  trading  this  to the  the trading  93  Figure  1:  P o s s i b l e market r e a c t i o n s in 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" o r "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  is  the date of  suspension  of-trading,  +1  is  the date of  reinstatement  of  trading,  F i s t h e f i r m - s p e c i f i c component o f r e t u r n t h e s t o c k a t the d a t e o f s u s p e n s i o n , A,  for  B a r e 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 date of r e i n s t a t e m e n t , and  C , D a r e 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 a date subsequent to the date 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 t h e f a c t o r market model.  error  term f r o m t h e  single  94 (4) sess  R e a c t i o n BC:  any i n f o r m a t i o n  prices ket,  previous  being  to  In  the  trading in  the  "unfavourable  nated during  the  accordingly.  case the  t h a t was not  inefficient  ceived that  this  trading  Later,  new"  "fully  information  a careful  the market  stock prices  to  to  is  consistent with  would new" in  be i n e f f e c t i v e (or  current  stock  profiteering to  the  new")  prices BC i s  suspension is  detrimental.  NR n o t i o n  because the  "favourable  Market r e a c t i o n ing  the  That  not is,  potential  that  stock  former  not  the  trading  the  dis-  levels. such  suspension "unfavourable  "fully  regulators  ineffective  prices  M a r k e t r e a c t i o n AC  reflected"  w o u l d be s m a l l .  c o n s i s t e n t w i t h a NR n o t i o n only  per-  reaction  average v a l u e of  and known t o  mar-  no s i g n i f i c a n c e ,  a trading  information  stock  initially  a market  but  that  that  it  a trad-  may a l s o be  s u s p e n s i o n may i n t r o d u c e a  by c a u s i n g i n c o r r e c t  market  adjustments,  t r a d i n g suspension.-. The SR h y p o t h e s i s w o u l d p r e d i c t  as BD o r AD a f t e r and AD a r e b o t h v a l u e of current cient  be o f  suspension.  pos-  had been d i s s e m i - '  their  The NR h y p o t h e s i s w o u l d p r e d i c t a trading  in  reassessment of  it  not  However, the  semi-strong form,  and f i n d i n g  BC a f t e r  reflected"  suspension.  seminated i n f o r m a t i o n  as AC o r  did  s u s p e n s i o n and a d j u s t e d  after  readjusted  regulators  the  period.  suspension.  c o n s i s t e n t w i t h the  "non-public"  over the  cause a s i g n i f i c a n t  not  that  "fully  regulators fall  reaction  such  M a r k e t r e a c t i o n s BD  SR n o t i o n  information  s t o c k p r i c e s and known t o  v a l u e to  either  a trading  a market  average  reflected"  w o u l d be o f  (rise)  s u s p e n s i o n p e r i o d or d u r i n g  the  in  stock  in  suffiprices  the p o s t - s u s p e n s i o n  95  HYPOTHESES The f o u r l e a d to  p o s s i b l e market  r e a c t i o n s d i s c u s s e d above  two t e s t a b l e h y p o t h e s e s .  Hypothesis 1 Hi  is  stated as:  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 date of t r a d i n g r e i n s t a t e m e n t . Tests  of  H-| w i l l  determine whether  makes u n b i a s e d f o r e c a s t s o f disseminated during  a trading  the f o r e c a s t s are q u i c k l y prices.  Thus, i f  market  is  inefficient  impact of  not  the  any new  to  s u s p e n s i o n and w h e t h e r  in the  hold, this  market  i n f o r m a t iion  and u n b i a s e d l y r e f l e c t e d  H-j f a i l s  s u s p e n s i o n s may n o t  the  or  or  in  would imply  stock that  s e m i - s t r o n g f o r m and t h a t  be as e f f e c t i v e  not  the  trading  as i n t e n d e d .  Hypothesis 2 H^ i s  stated as:  A t r a d i n g s u s p e n s i o n does n o t c o n v e y any new i n f o r m a t i o n w h i c h i s impounded i n s t o c k p r i c e s d u r i n g o r s u b s e q u e n t to t h e s u s p e n s i o n p e r i o d . Tests possess  of  any s i g n i f i c a n t  d i s s e m i n a t e d to if  Hg f a i l s  cient  Hg w i l l  to  determine whether or monopolistic  the market d u r i n g hold, this  i n t h e s t r o n g f o r m and t h a t  information  a trading  would imply  not  that  trading  regulators which  is  suspension. the market  is  Thus, ineffi-  suspensions are  effective. The s e l e c t i o n , e x t e n t is  described  next.  and r e l i a b i l i t y  of  the  data  set  96 THE SAMPLE AND DATA SOURCES "Interrupted"  Stocks  The f i r s t of  both p u b l i c  regular  floor  s t e p was to  and p r i v a t e trading  stock exchanges: Montreal and the  interruptions  p e r i o d of  delayed during time),  the  trading  a trading  more d e t a i l e d presented  halts  in Table  does n o t  (trading  In  for  trading  ing  interruption  identified,  trading  a very  delayed  delays short  one t r a d i n g  for  (trading period the  of  trad^  session)  stopped during  interruptions  of  public  by E x c h a n g e .  include a notice  fact,  of  1967  time).  o r :• A  3  by e x c h a n g e  I.  p u b l i s h accounts of  basis.  total  halted during  up to  trading  of  for  i n g d e l a y s and t r a d i n g , h a l t s . not  Of t h e  identified  J a n u a r y 1,  an e x t e n d e d p e r i o d o f  and e x t e n t  differs  p e r i o d of  suspensions (trading  breakdown o f  S t o c k E x c h a n g e (TSE)  28 were t r a d i n g  each e x c h a n g e i n c l u d e s a n o t i c e it  the  major  The  The s e a r c h  (opening  time  session for  The n a t u r e interruptions  of  on C a n a d a ' s f o u r  session for  a p e r i o d of  and 388 were t r a d i n g  is  during  time),  362 were t r a d i n g  session for  after  interruptions  Vancouver S t o c k Exchange ( V S E ) .  short  search  The C a n a d i a n S t o c k E x c h a n g e ( C S E ) ,  were no d e l a y e d o p e n i n g s  a very  for  2  stocks l i s t e d  December 3 1 , 1 9 7 3 , i n c l u s i v e .  there  ing  sources  an e x t e n s i v e  S t o c k E x c h a n g e ( M S E ) , The T o r o n t o  778 t r a d i n g to  of  undertake  trading  While the all  on t h e  trading  Daily  trading  Record of  suspensions,  most d e l a y e d o p e n i n g s ,  Also,  the f i n a n c i a l  interruptions  the o n l y c o n s i s t e n t  interruptions  d i s c l o s u r e of  public  i s a message a t Exchange's tape.  trad-  p r e s s does  on a c o n s i s t e n t  d i s c l o s u r e method  the  time  of  the  trad-  97  Table  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 t h e C S E , M S E , TSE a n d / o r VSE D u r i n g t h e P e r i o d o f J a n u a r y 1, 1967 to December 3 1 , 1 9 7 3 , Inclusive. Regulatory Body  Delayed Openings  Delays  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  0nly  i n f o r m a t i o n on t h e  9  TSE was  Halts  b  Suspensions  0  Total  available.  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 t h e C S E , MSE and VSE was a v a i l able. I n f o r m a t i o n f o r t h e TSE was o b t a i n e d f r o m an i n t e r n a l TSE f i l e . b  c  Believed  to  be a l l  the  suspensions  issued.  98 This in  very  than  historic  incomplete  trading  confined  to  lack  of  a d e q u a t e d i s c l o s u r e has  data a v a i l a b i l i t y  suspensions. trading  the  suspension  date  presented two to  because of  for  to  was t o  (1)  a failure  testing  of  classify  two g r o u p s .  all  the  each o f  different  one o f  the  pended s t o c k s  in  the  the  above two  to  being  respectively.  into  this  least  of  the  broad groups  the  requirements. relevant  third into  the  First,  II).  Then,  categorize  Classifica-  225 and 163 to  see T a b l e s  reinstated  groups III  reduced to for  and t r a d e d  resultant  sample of  for  sus-  one and  and  IV.) one,  a period  134 s u s p e n d e d  120 when m u l t i - e x c h a n g e the  of  classified  two g r o u p s . in  one  stages.  (see T a b l e  resulted  step  225 s u s p e n d e d s-toc k<s i n g r o u p  This  same s e c u r i t y  suspended  a r e not  two  into  failure  r e a s o n s was used t o  procedure  the  a  (technical )  a s u s p e n s i o n were  of  sus-  suspensions  those  388 s u s p e n d e d s t o c k s  ( F o r more d e t a i l  s i x months.  was f u r t h e r of  and (2)  second group  one o f  134 were s u b s e q u e n t l y  stocks  on t r a d i n g  c a t e g o r i z e d as b e l o n g i n g  Furthermore,  sions  information  classification  according  at  and  those suspended because of  reasons for  suspended s t o c k s  of  date of  stock.  T h i s was a c c o m p l i s h e d i n  the  only  the  t h e NR and SR h y p o t h e s e s , t h e  resultant  two,  of  applicable)  policy  to meet l i s t i n g  the  tion  official  requested  the  under  (if  each s u s p e n d e d  the  suspended s t o c k s  the  a n a l y s i s was  i n C h a p t e r 2 , s u s p e n d e d sjto.cJos a r e c a t e g o r i z e d  disseminate  for  collection  reinstatement  raionale  broad g r o u p s :  Since  empirical  other  suspensions.  of  According  interruptions  As a r e s u l t ,  The s e c o n d s t e p was t h e pension,  for  resulted  same t i m e p e r i o d  suspen-  were  included  99 Table  II  A C l a s s i f i c a t i o n o f Reasons G i v e n f o r T r a d i n g S u s p e n s i o n s Und e r the O f f i c i a l P o l i c i e s o f t h e V a r i o u s E x c h a n g e s Group  Group  I:  II:  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 t h e s u s p e n s i o n i s one o r more o f t h e f o l l o w i n g : 1.  Pending c l a r i f i c a t i o n of p r o p e r t y a c q u i s i t i o n (or a f f a i r s , or 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 o f company a f f a i r s , o r change o f c o n t r o l , o r o f t h e c o m p a n y ' s o v e r s e a s a c t i v i t i e s , or of m i s l e a d i n g or 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 t o t h e i n v e s t ing publ i c ) .  2.  P e n d i n g company ( o r  shareholder)  3.  Pending 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 of e x p l o r a t i o n news).  or r e l e a s e of i n f o r m a t i o n i n f o r m a t i o n ( e . g . , of  4.  No n o t i f i c a t i o n o f m a t e r i a l c h a n g e s i n t h e company's c o r p o r a t e (or 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 statement about o r u n t i l an a d e q u a t e t e c h n i c a l r e p o r t a b l e to t h e p u b l i c .  6.  Lack of  7.  No r e a s o n f o r decrease) .  8.  Exchange i n v e s t i g a t i o n i n t o (or t r a d i n g activity).  public  announcement.  affairs is a v a i l -  information. sudden s h a r e p r i c e  increase  corporate  (or  affairs  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 t h e s u s p e n s i o n i s one o r more o f t h e f o l 1ow i ng : 1.  F a i l u r e to meet e x c h a n g e r e q u i r e m e n t s tinued l i s t i n g p r i v i l e g e s : transfer  for  con-  (a)  F a i l e d to m a i n t a i n  (b)  Insufficient  (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 u n a b l e to meet l i a b i l i t i e s ) .  (d)  No a n n u a l  (e)  Pending c o m p l e t i o n of a r i g h t s offering ( 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 or 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 ) .  shares in  the  facilities. public's  hands.  report.  100 Table  II  (Cont'd)  2.  Pending c l a r i f i c a t i o n status.  of  the  company's  listed  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 ( o r r e f i n a n c i n g o r r e o r g a n i z a t i o n o r the r e s o l u t i o n of 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  Table  III  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 t h e C S E , MSE, TSE a n d / o r VSE f o r w h i c h Regu l a r F l o o r T r a d i n g was S u s p e n d e d b e c a u s e o f a F a i l u r e to D i s seminate Requested I n f o r m a t i o n During the P e r i o d of January 1, 1967 to December 3 1 , 1 9 7 3 , I n c l u s i v e .  Regulatory Body  a  Reinstated Not D e l i s t e d Delisted Within 6 Within 6 Deli sted Months Months  Still Suspended  Total  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  As  of  January  31,  1974.  102  Table  IV  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 t h e C S E , M S E , TSE a n d / o r VSE f o r w h i c h R e g u l a r F l o o r T r a d i n g was S u s p e n d e d b e c a u s e o f F a i l u r e to Meet E x c h a n g e R e q u i r e m e n t s D u r i n g t h e P e r i o d o f J a n u a r y 1 , 1967 to December 3 1 , 1 9 7 3 , I n c l u s i v e .  Regulatory Body  a  Rei n s t a t e d Not. Del i s t e d Del i s t e d Within 6 Within 6 D e l i s ted Months Months  Still Suspended  Total  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  As  of  January  31,  1974.  103 only  once i n  the  a l o n g w i t h the and t h e Stocks  sample.  date of  (This  suspension r a t i o n a l e Suspended f o r  because the  Alleged  instances ecuted.  of  to  actual  Thus, in  (or this  reinstatement I.)  Manipulation  stocks in  or  of  are presented in Appendix  the  s a m p l e were  S i n c e i n s t a n c e s of  verify  suspended s t o c k s  date  suspension price effects  s t o c k s may be u n i q u e . are d i f f i c u l t  sample o f  s u s p e n s i o n , the  The m a n i p u l a t e d next  4  for  identified  such suspended  stock  manipulation  s u c c e s s f u l l y p r o s e c u t e , many  suspected) manipulation study,  manipulation  were not  pros-  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 t o regulatory  body  one o r more o f for  the  34 ( o f  the  trading the  allegedly is  (generally,  have been m a n i p u l a t e d  one o f  the  120)  the  stock.  presented in Table  A more d e t a i l e d  rationale  As a  5  s u s p e n d e d s t o c k s were i d e n t i f i e d  manipulated.  the  e x c h a n g e s ) had used  r e a s o n s g i v e n i n T a b l e V as t h e  suspension against  if  as  result, being  breakdown by e x c h a n g e  VI.  S u s p e n d e d S t o c k 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 Information Disseminated Since information  the s u s p e n s i o n p r i c e e f f e c t s  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  "unfavourable"  information  s t o c k s was n e x t information  c l a s s i f i e d by t h e  disseminated during  accomplish t h i s ,  the  information  s u s p e n s i o n was d e t e r m i n e d cording  to  identified  s u s p e n s i o n s , the  the  criteria  to  for  "favourable"  from t h a t  for  sample of  suspended  " f a v o u r a b l e n e s s " of  the  trading  the  suspension.  disseminated during  be f a v o u r a b l e  the  or  a  To trading  unfavourable  presented in Table VII.  ac-  The p r o c e d u r e  43 and 77 s u s p e n s i o n s as h a v i n g had f a v o u r a b l e  and  104  Table 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 Indicate Alleged Manipulation 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 3. 15.  P r i c e increase (decrease) without apparent reason. Unusual p r i c e (or t r a d i n g ) activity. Abnormal t r a d i n g activity. P u z z l i n g market activity. U n e x p l a i n e d market a c t i v i t y . P e r f o r m e d i n a v o l a t i l e manner i n t h e m a r k e t . To i n q u i r e i n t o t h e t r a d i n g a s p e c t s o f t h a t s t o c k . O r d e r l y m a r k e t was not d e v e l o p i n g . Scheme to m a n i p u l a t e t h e s h a r e s p r i c e . 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 market. A p p a r e n t l y been ( m a r k e t ) p r o m o t i o n o f t h e company. So t h e 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 t h e s t o c k . 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 information. 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 n a t e d . . . r e g a r d i n g p o s s i b l e r e s u l t s w h i c h t h e company i s s a i d to have o b t a i n e d . Wash t r a d i n g o r wash t r a d i n g a r r a n g e m e n t s .  105  Table  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 t h e C S E , M S E , TSE a n d / o r VSE f o r which Regular F l o o r Trading was.Suspended f o r A l l e g e d M a n i p u l a t i o n D u r i n g t h e P e r i o d o f J a n u a r y 1, 1 9 6 7 , t o December 3 1 , 1973, I n c l u s i v e .  Regulatory Body  Trading Reinstated Not D e l i s t e d Deli sted Within 6 Within 6 Deli sted Months Months  Still Suspended  Total  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  15  TOTAL  34  03  16  07  60  a  As  of  January  31 ,1 1 9 7 4 .  106 Table  VII  R a t i o n a l e f o r t h e C l a s s i f i c a t i o n o f S u s p e n d e d S t o c k s by t h e " 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 Trading Suspension Considered Favourable  Information:  1.  F i n a n c i n g ( e . g . , to p e r m i t w r i t i n g announcement);  2.  A l l e g e d m a n i p u l a t i o n o f s h a r e p r i c e downwards r e a s o n f o r sudden s h a r e p r i c e d r o p ) ;  3.  Property a c q u i s i t i o n ( e . g . , pending 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 or  5.  Consolidation, reorganization  6.  Company r e q u e s t , r e a f f a i r s ; and  7.  P e n d i n g company announcement r e p r e v i o u s l y w i t h h e l d (favourable) information.  target  in  a merger or  pending  Considered Unfavourable  financing  or  o r p e n d i n g an  under-  (e.g.,  information  no  about  pro-  acquisition; image c h a n g e ;  (favourable)  company announcement i  Information:  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 . , p e n d i n g exchange i n v e s t i g a t i o n of t r a d i n g or share 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 e a s o n o r u n u s u a l m a r k e t a c t i v i t y o r pendi n g 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 t h e p r i c e t h u s 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 o r p e n d i n g 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 o f 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 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 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 information);  3.  Company mismanagement ( e . g . , 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 statement ( e . g . , pending 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 p r o d u c t i o n o r p e n d i n g c l a r i f i c a t i o n o f company a g r e e m e n t on c l a i m s o r p e n d i n g company announcement r e p r o p e r t y a s s a y s ) ;  5.  Pending c l a r i f i c a t i o n  pending f u l l  and s e t t l e m e n t  of  investigation  company  affairs;  107 Table VII pending and  (Cont'd)  6.  Company r e q u e s t , ment r e a f f a i r s ;  (unfavourable)  7.  P e n d i n g company a n n o u n c e m e n t ' r e (unfavourable) information.  company a n n o u n c e -  previously  withheld  108 unfavourable  information  Data C o l l e c t i o n  for  the  disseminated,  respectively.  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 104 weeks b e f o r e  and 104 weeks a f t e r  The c h o i c e o f  104 weeks b e f o r e  arbitrary,  consistent  stock  is  dividends,  dividend  d a t e were  were a d j u s t e d gathered search after the  for  from the  Institute July,  Daily  tion  all  stock  following  leading  (Record)  listed  course of  Granby M i n i n g  data  Co. L t d . ,  sample b e c a u s e no t r a d e s  the  6  while  addition, ex-  employed  splits  and were  Financial  Re-  C S E , MSE and TSE  newspapers  each E x c h a n g e .  this  In  7  respective  on the  financial  of  suspension.  quotations  (1)  of  suspension,  and r e v e r s e  sources:  (2)  the  and t h e i r  splits  stocks  the  studies.  The p r i c e  for  Bulletin  pended s t o c k , the  8  1969,  During  with s i m i l a r  recorded.  a period  each t r a d i n g  and a f t e r  cash d i v i d e n d s ,  for  occurred within  (3)  1 0  collection, had to  and  9  one  sus-  be d e l e t e d its  data  from  collec-  per i od.  DESCRIPTION OF THE VARIABLES Before ing  proceeding  it  is  n e c e s s a r y to  define  the  follow-  terms: P.  . is of  the  closing  week t ,  stock  price  adjusted  splits,  on t h e  for  reverse  all  stock  ith  security  at  the  capital  changes  (e.g.,  splits  and s t o c k  divi-  dends) , D.  . is  the  during  cash d i v i d e n d week  t,  "paid"  end  on t h e  ith  security  109 Mj. i s  the  c l o s i n g v a l u e of  o f week t , R. . i s i ,z  the  unadjusted  rate  tinuous  of  the market for  return  compounding  dividends,  for  the  end  1 1  security  i  equal  In ((D.  . + P.  t h e TSE I n d u s t r i a l  Index  and i s  i,t-l>' R,. . i s a v a l u e r e l a t i v e M, t  index at  to  assuming c o n .) /  p  and i s s.j  is  the  stock w is  equal  to  In  length  of  the  i,  for  (Mj. /  M _i), t  trading  s u s p e n s i o n i n weeks  for  and  an i n d e x  of  time  i n weeks r e l a t i v e  to  the  suspension  period. Weeks w = 0 " and w = 0 for  which  trading  respectively.  dates  that for  0" and 0  all  week f o r  etc.,  trading  which  trading  immediately  a given  first  and l a s t  trading  are g e n e r a l l y  2, e t c . ,  are  then  week  suspension,  not  the  weeks i m m e d i a t e l y  following  was s u s p e n d e d .  Similarly,  weeks, w = - 1 , - 2 , e t c . , weeks  +  the  the  same  securities.)  T r a d i n g w e e k s , w = 1, second,  denote  was s u s p e n d e d f o r  (Note  chronological  +  are the  p r e c e e d i n g the  first, first  first,  the  last  trading  second, e t c . , week f o r  trading  which  trading  was s u s p e n d e d .  ASSESSING THE MARKET'S REACTION TO NEW I N F O R M A T I O N The m a r k e t ' s "non-public" trading this  r e s p o n s e to  information  suspension, is  new i n f o r m a t i o n ,  s u c h as  the  supposedly disseminated during a  a disequilibrium  phenomenon r e q u i r e s  12  phenomenon.  a precise specification  of  Measuring equilibrium,  no that  i s , what " w o u l d "  semination  (and c o r r e l a t e d  Equilibrium If period point in  in  time,  all  equilibrium,  exactly  stated  in  the  risk  where R.  - E (R  period  (t-1)  of  returns  for  E is  asset i the  )  in  period  It  is  is,  probability  capital  (t)  Or, market  on common s t o c k s o f  | X.  t  f  of  t  similar  ),  the  (1) r e t u r n on s e c u r i t y  assets during the  period  risk t,  of  period  returns  at  i,  the  end  distribution  t, (however  defined)  and  operator  taken  immediately  prior  t.  model  to  by t h e  investors  of  return e f f i c i e n t  s p e c i f y p r e c i s e l y t h e measure  expected r e t u r n .  states  its  w h i c h assumes t h e  of  probability  all  That  asset.  c o n c e r n i n g the  s u c h a manner t h a t  of  that  of  that  ensuing period  information  relationship  attempts  model  end  each a s s e t :  now n e c e s s a r y t o  two-parameter  for  its  available  expectation  to  and i t s  i  all  . i s a measure o f for  immediately  required  the  priced.  p r i c e d such t h a t  the  at  a v a i l a b l e at  be c o r r e c t l y  Thus f o r  set of  dis-  occurred.  equilibrium  expected returns  of  A.  in  information  a random v a r i a b l e the  information  had n o t  a two-parameter  t  <J>£_1 i s  risk  of  the  . is  over  distribution  | * _,)  i > t  the  assets w i l l  are e q u a l i z e d . E (R  is  each a s s e t i s  terms  the  Market  market  given  of y i e l d  equilibrium:  the  capital  if  events)  Capital  then,  distribution is  the  the  (t-1), in  have o c c u r r e d  that  In  equilibrium,  each a s s e t i s  priced  one-period expected return to  portfolios.  e x i s t e n c e of  hold mean-standard 1 3  In  the  Black  of  is  in .  determined  deviation,  formulation,  no r i s k l e s s s e c u r i t y ,  the  capi-  Ill t a l - a s s e t - p r i c i n g model risk  states  and e x p e c t e d r e t u r n E  | .X  where E ( R . i E  i f t  is  = E (S  )  I X. .) i s  .  t  )  is  as  between  follows:  )  0 i t  the r e l a t i o n s h i p  IE  +  (.R  M > t  )  - E („R  the e x p e c t e d r a t e  given asset i ' s  (RJYJ  that  risk  of  0 } t  )}  (2)  0 ^ ,  of  return  on a s s e t  market  return,  the e x p e c t e d r a t e  of  return  on t h e  the e x p e c t e d r a t e  of  return  on any a s s e t  p o r t f o l i o, E (Rg )  is  t  that 6  i  j  is  i s equal  t  sents of In  uncorrelated with  the  to  cov ( R  risk  the market  of  i  j  t  the market  ,  R M  asset i  portfolio  the Sharpe f o r m u l a t i o n ,  R  Q  t  j  t  ^  °  1  ,  respect to  {E  on an a s s e t i s  on an a s s e t , a t to  (Rjyj  time  is  - E  )  (R  t  Q  all  the a s s e t s i n the m a r k e t ,  the  total  implies  market  a linear  a s t o c k and i t s Disequilibrium  ^i,t If  relationship risk  in  of  from  <*t  * *i,t  (  }  T  n  M  its "  E  d  r  total  implies  E (RQ )  (the  t  is  e  P  r  e  -  risk  vari-  each w e i g h t e d  that  expected  premium, equal M includes  in proportion  shares.  the  r i s k l e s s with  market p o r t f o l i o  e  to  The model a l s o  between t h e e x p e c t e d r e t u r n  on  portfolio.  Market  new i n f o r m a t i o n  differ  n  have z e r o  (CAPM)  plus a r i s k  the market  . to  the  a  R Q ^.  that  outstanding  i n the C a p i t a l  Receipt c a u s e R.  value of  to  period t,  t"  )^3-|  to  assumed to  equal  the market p o r t f o l i o ) , t  R  and  M.  The c a p i t a l - a s s e t - p r i c i n g model  return  ^ M,t^  2  relative  ance and can be r e p l a c e d by a known r a t e  expected return  portfolio,  during  the  period t  should  e x p e c t a t i o n , as g i v e n by ( P  i,tl  t h e m a r k e t was i n e q u i l i b r i u m  *t-l '  before  )  and a f t e r  (  the  "new"  3  )  11 2 information the m a r k e t value" to  i n tf> became a v a i l a b l e , t h e n t  adjustment  t o t h e new i n f o r m a t i o n  o f t h e new i n f o r m a t i o n ) .  substitute «i,t  f o r E (R.  U  (R  M > t  t  -  information  therefore Sources  of  { E  '^O.t>  1 ) t  +  {  Q ) t  )  (2)  market,  | <j>) = 0 , t h a t i s ,  t  t  impounded i n s t o c k  are " r a p i d l y "  o f new i n f o r m a t i o n  investment.  dollar  return  Information  Information  t o be g e n e r a t e d by an disseminated during a  s u s p e n s i o n s h o u l d be o f t h i s  risk)  type.  c o n c e r n i n g the r i s k  of the u n c e r t a i n  s h o u l d change t h e e x p e c t e d r a t e  and  hence, holding  return  f r o m an i n d i -  F o r e x a m p l e , a change i n s y s t e m a t i c  future  returns  At the aggregate market  of return  constant,  level,  between s y s t e m a t i c  risk  {E (R.  the c u r r e n t  factors  risk  which  .)}, price.  change  and t h e e x p e c t e d  rate  return. W h i l e most s t u d i e s  all  ( a s m e a s u r e d by t h e  dollar  .)  relationship  i n the two-  c o n c e r n i n g the expected  ($.  of  p r i c e s and  removed by t h e m a r k e t .  investment.  the  E  t  (4)  E {£.  vidual  (3)  >  }  include:  The a r r i v a l  systematic  1  * 0 , t '  _  is quickly  value of the u n c e r t a i n  trading  (  Disequilibrium  parameter models  individual  E  - B  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  (1)  (2)  (3),  <*M,t> "  E  ) E (R  ).  disequi1ibria  "market  U s i n g CAPM r e l a t i o n s h i p  ) - (1 - B  In an " e f f i c i e n t " "new"  (the  t  (  i > t  measure  •'| <f>_-|) i n r e l a t i o n s h i p  t  <*t> = * 1 , t * t >  = R  will  t  but the f i r s t  have i g n o r e d d i s e q u i l i b r i u m  s o u r c e , the simultaneous  from  o c c u r r e n c e of the  113 various lems.  disequi1ibria  can c r e a t e  Techniques w i l l  specification Methods o f  numerous s p e c i f i c a t i o n  be e m p l o y e d t o  problems e x i s t  in  Measuring Market  this  determine  disequilibrium.  Disequilibrium  The s i n g l e  (models)  The two models t o  are c o n s i s t e n t w i t h the  of  linearly as  related  market model.  fol1ows: *i,t  =  a  assumes t h a t  to  The s i n g l e  the  security  returns  factor  tested  returns,  on a m a r k e t  R.  i  +  J>i * M , t  +  g  .,  portfolio,  and b.  R^  5  earlier,  (and t h e r e f o r e  + v^., where v  t  independent of  has z e r o e x p e c t a t i o n  t  isseriallyindependent,  e.  ,  t  <>  are constant  j_ = E (R|Y| )  i s measured w i t h o u t  t  are  i,t'  M  R^  by  1 5  where R. . and R . a r e as d e f i n e d i ,t M, t a.  next  c a p i t a l - a s s e t - p r i c i n g model.  factor  The model  1  measuring  be p r e s e n t e d  m a r k e t m o d e l , p r o p o s e d by S h a r p e , was e m p i r i c a l l y Blume. "  these  study.  T h e r e a r e many p o s s i b l e methods market  if  prob-  . is  the  disturbance  t), and (5a)  error,  and  term f o r  period  t and s t o c k  i.  1 , L  Substituting R  1 f t  U ) t  (5a)  = (1 -  "  ( 1  B  t  R'  1 f t  (6)  in  U ) t  E (R  and r e a r r a n g i n g 0 j t  )  3  +  1  f  t  (R  M j t  (4) -  gives: v ) t  ( c  (* ) Rewriting  )  1 f t  (4)  ^i,t M  +  f  3  into  i  terms = (1  i,t> - 8 of  - b .) n  1*0,0 v .  E  f  t  3  i,t  h,t  +  *1,t (6)  t  the a.  +  above s i n g l e f a c t o r +  b  i  R  M > t  ( )  +  h  model  (5):  -  b. v . q  Therefore,  it  follows  (7)  t  that  the  residual  (or  error  term),  §.  ,,  114 from  the R  ordinary  i,t  =  provides  a  i  +  b  i  R  M,t  an e s t i m a t e Or,  part  captured  by i t s  on the m a r k e t  of  the  specific  term  will  market  model  of  (<j> )  t  the  the  during  like  extensive  of  where  ^,  "  RQ  e. . i s i , x.  -  i,t> t  a stochastic i  in  with positive  b.  b  model  and R^  t  security  to  the  +  returns  accounted for  the  error the  by  term,  e.  ..  effects  of  information  sup-  suspension. The two  factor  market  (or  b a s i c a l l y an  m o d e l . . The model testing  by  has been f o u n d  stochastic  zero  has  Black-Jensen-  to  process  provide a generating  is: b  i,t  R  M,t  +  have a l r e a d y  t,  i,t'  term  assumed to  variance,  to  across i ,  systematic  g  been  disturbance  period  be u n c o r r e l a t e d  . is  be  w i t h the  t h e monopoly  empirical  the  non-diver-  presumed to  captures  model.  factor  )  1 6  Vt  =  (or  was p r o p o s e d by B l a c k and i s  The two f a c t o r i,t  not  in  a trading  market  is  relationship  therefore,  description  returns.  systematic  return  linear  8  v^.  Any r e t u r n s  single  to  - b..  t  and F a m a - M a c B e t h and i t  reasonable  R  (  be r e f l e c t e d  factor  been s u b j e c t e d  asset  i,t'  company i n f l u e n c e s  extension  (OLS) r e g r e s s i o n :  security's  (E.T.),  The two  Scholes  §  portfolio.  p o s e d l y made p u b l i c  beta)  I  estimated  relationship  The e r r o r  of  squares  s t a t e d more s i m p l y ,  sifiable)  this  least  risk  of  (  9  )  defined, in  the  return  have mean o f  be i n d e p e n d e n t  of  b.  on  zero and  and security  i  at  time  period  r e t u r n on a s e c u r i t y  is  assumed to  1 , L  t. In  this  m o d e l , the  115 be a f u n c t i o n and a l s o t h e it  is  of  the  general  firm-specific  a l s o assumed t h a t  market  variables,  variables,  b^  is  b.  constant  Rg  and R^  t  . and e. . .  over  t  ,  Generally,  time.  THE IMPACT OF TRADING SUSPENSIONS USING THE SINGLE FACTOR MARKET MODEL 1 7  Although  the  two  factor  s i d e r e d to  be s u p e r i o r  model,  the  lack of  available  determined  ex p o s t  relationship  sitated  the  Potential  use o f  the  Limitations  As a model model must  to  single  factor  data f o r  with)  is  generally  market  estimating  between  the  risk  con-  (SFM)  the  market-  and r e t u r n n e c e s -  S i n g l e Factor Market  disequilibrium,  possesses several weaknesses. be d e a l t  model  SFM m o d e l . of  of  the  market  when t h e model  the  single  Many o f is  Model factor  market  these appear  applied  to  the  (and  sample  of  120 s u s p e n d e d s t o c k s . Aggregate d i s e q u i l i b r i u m .  Suppose t h e  averaged a c r o s s suspended s t o c k s at logical error King  time,  terms 1 8  then  may n o t  and M e y e r s  different  the  standard  strongly  1 9  at  the  suggest that same p o i n t  are c o r r e l a t e d .  However, t h i s  study,  trading  are spread r a t h e r Table VIII for by  quarter.)  the  deviation  points  of  these  be " s m a l l " b e c a u s e f i n d i n g s  securities  s i n c e the  similar  e.  in  s h o u l d not  the  number o f  over  in  chrono-  averaged  presented  residuals  chronological be i m p o r t a n t  s u s p e n s i o n s and t h e i r  uniformly  . were  a seven y e a r  s u s p e n s i o n s and  in  of time in  this  reinstatements period.  (See  reinstatements  116  Table  VIII  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 Chronological Time P e r i o d Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Note:  1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1  1967 1967 1967 1 967 1 968 1 968 1968 1 968 1 969 1969 1 969 1969 1970 1970 1 970 1 970 1971 1 971 1971 1971 1972 1972 1 972 1 972 1 973 1 973 1973 1 973 1974  Number o f Suspensions  Number o f Rei nstatements  2 4 2 7 0 3 4 1 4 3 0 1 3 1 4 6 3 6 2 8 8 5 5 12 10 7 3 6 0  0 3 2 3 6 2 3 2 4 1 2 1 1 1 3 7 3 6 5 5 2 8 9 9 8 7 8 7 2  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 r o m t h e f i r s t q u a r t e r , 1 9 6 7 , to t h e 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 , 1974), 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 are p r i c e the  effects  f o r a suspended s t o c k .  associated with a trading  expected value of the e r r o r  will  be n o n z e r o .  the  equal  i s , that  to z e r o .  assumption  f o r the a f f e c t e d  would v i o l a t e  a basic  any o b s e r v a t i o n s  i s not s a t i s f i e d  then weeks  forming  assumption of  the expected value of the error  Therefore,  there  suspension,  The i n c l u s i o n o f t h e s e weeks i n  regression estimates  OLS, t h a t  terms  If  terms  f o r which  s h o u l d be e x c l u d e d f r o m  is  this  parameter  estimation. i n RQ  Variability the  true model, a  i  =  follows  =  t  ^ 0 t ~ 0 t^  (not  R  - 1  ( 1  b  i,t "  R  that =  a  )  +  i  "  b  R  i  i  R  M  0,t  (  1  - i b  }  +  ( i" i)  R  b  ]  1  S  b  n  o  n  z  e  i  R  M,t  +  o  '  M,t "  b  R  either  i,t  £  of  n  >  T  d  c a n be r e w r i t t e n a s : "  a  i  "  b  i  R  e  M,t  1 . f  due t o s a m p l i n g  over-  and p o s t - s u s p e n s i o n weeks t h u s  d i s e q u i 1 i b r i um.  M  M,t  p o s s i b l e i n the Sharpe f o r m u l a t i o n )  r e t u r n may be s y s t e m a t i c a l l y  pre-  a  term  +  ( o,t- o,t) r  R  ( 1 0 )  error  R  R  b,  M,t'  R  i  b  ( " i)  b  -  T  M,r  the estimated  R  >  and t h e a v e r a g e sample v a l u e o f ( 1 - b ^ ) of  when ( 9 ) i s  M,t  ("i-V  0 l  =  R  R  = R  "  ^  i  b  b  *1,t  J  (5) i s e s t i m a t e d  = Ro.tO-bi) +  *i,t It  If  >  then  i,t "  R  t  fluctuations  or changes i n RQ , T  i s nonzero,  then  or under-predicted  giving  a false  rates in  appearance  118 E s t i m a t i o n of  Parameters  The p a r a m e t e r s o f using  the  each o f ber of  returns  the  t h e m a r k e t model were  f r o m w e e k s - 1 0 4 to  119 s u s p e n d e d s t o c k s  in  -41  and +41  the  sample  weeks d e l e t e d was c h o s e n a p r i o r i  enough to  contain  a trading  suspension.  a p p e a r e d to  Visual  the  i n s p e c t i o n of  error  excluded p e r i o d .  the  of  E r r o r Terms ( o r R e s i d u a l s )  The e s t i m a t e d used to  suspension. found  for  =  R  i,t  the  be  error  long  each t r a d i n g  the  for  behaviour in  the  2 1  e.  model were t  ' s , for  week s u r r o u n d i n g  terms  terms  contained  the market  terms,  "  (  *i  +  estimated c o e f f i c i e n t s  for  the  of  security  the i  then  each trading  can be  M,t>' earlier  the market  variable  suspension period  length the  for  and a., and b^  are  model.  of  the s u s p e n s i o n  error  security  term, i  is  e.  ,,  found  over in  the  manner: =  R  ^ s where e^ ^ , s., and R ^ i  R  each suspended s t o c k ,  trading  following  1  £  and R^ ^ a r e as d e f i n e d  t  Because of  the  to  from:  where R^  period  of  error  The w e e k l y e r r o r  *1,t  the  parameters  compute t h e w e e k l y  suspended s t o c k  for  The num-  2 0  a s s u m p t i o n t h a t any a b n o r m a l  s u s p e n s i o n was e n t i r e l y  Calculation  .  as l i k e l y  c a u s e d by a t r a d i n g for  t o +104  any d i s c e r n i b l e p r i c e movements c a u s e d by  support  terms  estimated  are the  i!i  -  ( s  i  *T  +  £  i  r  M!I>>  *^ ^ a^ and b^ a r e as d e f i n e d rate  of  return for  earlier,  security  s and R^ ^  i and t h e  mar-  119 ket,  respectively,  over  the  trading  suspension p e r i o d ,  s^ .  " s e.. i the  is  in  fact  trading  the  cumulative  suspension p e r i o d ,  Procedure for  Estimating  Any e s t i m a t e the market error  behaviour  and t h e  ing market  prices.  above model  to  the  of  a trading  it  n e c e s s a r y to  a trading  of  a specific factors  out  accounted for  is  not  depends upon t h e  that  "events",  suspensions),  occur  c a n c e l out  than  to  con-  affectuse  the  general  error  purge a l l  the  impact  T h i s makes effect  of  independently  of  terms  influences  changes i n  t h e ones o f  The c r o s s - s e c t i o n a l  of  not  dividends,  of  the  must  this  each o t h e r  already labour  averaging  implicit  interest  be  pro-  assumption  (the  trading  and  their  are c r o s s - s e c t i o n a l 1 y averaged. average e r r o r  for  trading  week w (where  the  trading  suspension period) w  to  economic  security.  The v a l i d i t y  when t h e y  N  subject  assessment of  the weekly  satisfaction  other  is  Terms  prices.  include  and t e c h n o l o g y ) .  over  s u s p e n s i o n on  feasible  a n a l y s i s on t h e  a v e r a g e d to  cess  Error  a trading  security  a detailed  the  (examples  the  beside general  it  s u s p e n s i o n on m a r k e t  cross-sectional1y  effects  of  s u s p e n s i o n on an i n d i v i d u a l focus  i  suspension are s i m u l t a n e o u s l y  To a c c o m p l i s h t h i s ,  contracts  impact  Therefore,  carry  security  s.."  of  trading  term f o r  the Magnitude of  b e c a u s e many o t h e r  ditions  error  w is  term,  e  w  or  a l w a y s measured r e l a t i v e is  given  A.E.T., to  :  by  .  w where e .  is  the  error  term f o r  security  i  in  trading  week w,  1 20 N is w  the  trading  number o f  stocks  The c u m u l a t i v e week w i s  average e r r o r  average e r r o r  given  where e .  is  is  N  the  term,  the  *  T  )  E - e.  1 T=W* N  w  terms  by  w  N  which data  is available  in  week w. The w e e k l y  •T,  for  i =1  error  number o f  '  1  term  for  trading  c  for  w* <_ w  T  security  stocks for  cumulated.  e, , o r C . A . E . T . , f o r w  w £ e x=w*  T  were a l s o  which  i  in  data  trading  is  week  available  in  T  trading  week x and x r u n s  a l w a y s measured r e l a t i v e The E m p i r i c a l In  abnormal  turns  are t e s t e d .  returns  trading  trading  suspension  period.  implicitly  the  of  implies  that  the  2 2  suspended s t o c k s  in  s h o u l d not  be s i g n i f i c a n t l y  different  predicts  that  the  NR and  average  ( A . E . T . ) of  Similarly, (A.E.T.)  the  s e c t i o n , H-| and H ( a n d  suspension period zero.  to  Results  this  SR h y p o t h e s e s )  f r o m week w* t o week w where w i s  the  postfrom  average abnormal  re-  suspended s t o c k s over or subsequent to a  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  different  from  zero. The F a m a - F i s h e r - J e n s e n - R o l 1 ( F F J R ) test, of  the  FFJR t e s t ,  the A . E . T .  (and o v e r )  the  consists  and C . A . E . T . trading  simply  series  of  for  suspension for  test.  The  a visual  first  examination  e a c h week r e l a t i v e significant  to  nonzero  behaviour. The FFJR t e s t suspended s t o c k s .  was f i r s t  The e m p i r i c a l  are summarized i n T a b l e rise  by 3 8 . 8 p e r c e n t  applied results  IX and E x h i b i t  during  the  to  the  for  10.  sample of  119  weeks - 4 0 t o  2 3  40 weeks p r i o r  The to  +40  C.A.E.T. the  trading  121 Table  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 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 - 4 0 t o +40 D e l e t e d i n t h e E s t i m a t i o n of P a r a m e t e r s  Trading week i.i  .  -40 -39 -38 -37 -36 -35 -34 -33 -32 -31 -30 -29 -28 -27 -26 -25 -24 -23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -1 3 -12 -1 1 -10 -09 -08 -07 -06 -05 -04 -03 -02 -01 01  A l l 119 I Allegedly ^ . ; . ... . - / % of Sample , •'" f T. F.," E.T. Size -_ c  S^.  0,016 0.021 -0.001 0.010 -0.005 0.005 0.017 -0.014 0.011 -0.002 -00014" 0.004 0.009 -0.002 0.000 0.010 0.007 0.013 0.005 -0.024 0.027 0.014 0.003 0.01 2 0.01 9 0.017 0.002 0.005 0.005 0.046 0.015 0.01 2 0.020 -0.007 0.028 0.018 0.01 0 0.025 0.030 0.022 -0;022  a C  Man  0.01 6 38 52 0.037 55 0.036 0.045 51 48 0.040 0.045 54 0.062 41 0.048 53 42 0.059 47 0.057 0.043 51 0.047 49 48 0.056 0.054 50 0 . 0 5 4 . 52 0.064 49 0.071 49 44 0.084 44 0.089 0.065 52 0.092 40 0.105 41 45 0.109 45 0.120 0.139 46 0.1 57 46 0.158 45 42 0.163 56 0.168 0.214 46 43 0.229 44 0.241 46 0.260 0.254 47 0.282 47 42 0.300 47 0.310 43 0.336 41 0.365 0.388 44 47 0.366  M  97i  98 98 98 99 99 100 101 1 03 103 104 1 04 105 107 110 no 111 111 111 112 11 2 111 111 111 111 11 3 113 113 114 114 11 5 11 5 11 5 116 11 6 115 115 115 11 7 118 119  o  the  Manipulated % o f Sample E.T. Size  P  :. 0003 5 5 0 . 0 3 5 - 0 . 0 1 7 •0.018 0.024 0.006 0.007 -0.017 -0.031 -0.024 0.053 0.029 0.055 0.026 0.059 0.004 0.032 0.090 0.132 0.042 0.002 0.134 0.007 0.141 0.182 0.040 0.025 0.207 - 0 . 0 0 8 • 0.1 98 0.242 0.043 0 . 235 -0.006 0.025 0.261 0.270 0.009 0.226 -0.044 0.034 0.260 0.303 0.043 0.275 -0.028 0.053 . 0.328 0.314 -0.014 0.378 0.064 0.359 -0.019 -0.002 0.356 0.362 0.005 0.044 0.406 0.41 5 0.010 0.026 0.441 0.511 0.069 0.064 0.575 0.601 0.026 0.048 0.649 0.648 -0.001 0.705 0.057 0.028 0.733 -0.018 0.715 -0.474 0.241  Npd  39 54 61 54 61 46 46 46 38 34 55 45 41 41 61 39 44 44 41 59 38 32 48 29 52 31 50 41 53 50 53 44 28 28 47 38 47 34 47 41 73  N  28 28 28 28 28 28 28 28 29 29 29 29 29 29 31 31 32 32 32 32 32 31 31 31 31 32 32 32 32 32 32 32 32 32 32 32 32 32 32 32 33  122 Table All Trading week w  i  02 03 04 05 06 07 08 09 10 11 12 13 14 1 5 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40  The  K -0.027 -0.037 -0.034 -0.007 -0.022 0.006 -0.023 -0.012 -0.000 -0.000 -0.015 -0.011 0.012 -0.007 -0.023 -0.010 -0.013 roco.io 0.007 -0.004 0.004 -0.017 0.015 -0.004 -0.013 -0.000 0.005 ;o:o02 0.005 -0.012 -0.008 -0.005 0.001 -0.009 0.009 -0.011 0 . 005 -0.001 0.003 r  suspension  '<  119 % of E.T. Neg.  0.339 0.301 0.268 0.261 0.238 0.244 0.221 0.210 0.210 0.210 0.195 0.183 0.196 0.189 0.166 0.156 0.143 0.153 0.160 0 . 1 56 0.160 0.143 0 . 1 58 0.154 0.140 0.140 0.145 0.148 0.152 0.140 0 . 1 32 0 . 1 27 0.128 0.119 0.128 0.117 0.122 0.121 0.124 periods  IX  55 57 55 54 58 48 56 53 49 51 57 57 40 52 50 55 52 44 54 53 55 60 50 53 53 50 50 47 53 57 53 57 52 48 48 59 51 51 40 occur  (Cont'd) Allegedly  Sample Size N w 119 119 119 119 119 119 119 119 119 119 118 118 118 118 118 11 7 117 117 117 117 118 118 118 118 118 117 11 6 11 7 117 117 116 11 6 11 5 11 5 115 115 116 116 116 during  w •0.060 •0.056 •0.046 -0.008 -0.017 0.035 -0.020 -0.013 -0.016 0.01 2 -0.013 -0.043 -0.034 -0.020 -0.053 -0.037 -0.023 0.003 0.003 -0.001 0.017 -0.030 .0.010 -b;oi9 -0.007 0.020 0.009 0.014 0.044 -0.020 -0.059 0.011 -0.003 -0.011 -0.017 -0.040 -0.005 0.007 -0.007  the  Manipulated % o f Sample E.T. Size Neg. N w 67 33 0.180 67 33 0.124 0.078 33 61 0.070 33 61 0.053 67 33 0.087 42 33 0.068 33 58 0.055 52 33 0.039 33 58 0.050 33 61 0.038 33 61 -0.006 33 73 -0.039 33 61 -0.059 33 58 -0.113 67 33 - 0 . 1 50 33 70 -0.173 33 64 -0.170 33 52 -0.167 33 55 -0.169 33 55 -0.152 33 55 -0.182 33 58 -0.172 33 48 -0.192 33 58 -0.199 33 48 -0.179 33 58 -0.170 32 56 -0.15-6 32 47 -0.112 32 41 -0.133 32 63 -0.192 32 63 -0.181 32 47 -0.183 31 48 -0.194 31 65 -0.211 31 61 -0.251 31 71 -0.256 32 50 -0.249 32 50 -0.256 32 56  period  -01  to  +01.  Cumulative  Average E r r o r (C.A.E.T.)  Terms  i  o  0-4 CO Co  m  O 8  Co  Ul  1  o +  #  M  a a + s  1  I  fD -J  3  *  9 1  a* *  t  a* t -o + • •i  u Ul Ul  ro O!  ro  3  CU  £Z  4=. 3a O  ro * ru *  < fD -5 Cu IQ  r+ O  ro  * ro * *ru  ru * ru ru U4 U4 Ul  UJ  ru ru * *• ru  * ru ru  m -s -s O  * * * * * * *  rtfD Q.  * * ru  fD  — j .  ~i 3  rt-  —i O  m CO r+  -J.  3  CU  i -1 o  <+  CU  c+ —• I.  o 3 O  s:  fD fD 7T  -h .<<—•  3 fD rtfD -J  CO  * »-* ru* * *  zr —•• ry  3  -s cu  ru * ru * *•»  —1  m X  — C O  -a cu  * ru » «-*  * *- ru  fD  — • -s fD  Ut  ru  + o o fD  » *  -fc -4-  <  —• - J . co O r+ 3 -•• to < fD  •ru  o  o c  c+  1  i  o cr  oo cu  3 -a —' fD  124 s u s p e n s i o n and f a l l quent of  to  the  fully  the  trading  C.A.E.T. reflects  suspension  in  The  not  prices  for  Exhibit  11.  rapidly)  behaviour of  SR h y p o t h e s i s  the  or H  to  C.A.E.T.  (regulators  are  market).  alleged manipulation.  The C . A . E . T . to  the  rise  be c o n s i s t -  The  trading  by 7 1 . 5 p e r c e n t  empirical  C.A.E.T.  with either  or  The  favourable  for  weeks - 4 0 t o +40 f o r  information  T a b l e X and E x h i b i t s  40 weeks p r i o r  the  suspension. *  to  suspension,  is  not  consistent  C.A.E.T. the  rise  unfavourable  trading  unfavourable  by 3 2 . 2 p e r c e n t  suspension, f a l l fall  39 weeks s u b s e q u e n t t o  results  t h e end o f by t h e  informa-  during by  a further  in  22.1  29.6  the  per-  trading  C.A.E.T.  is  H-| o r H ^ .  favourable  by 50.1  the  The e m p i r i c a l  For the  s u s p e n s i o n and t h e n  consistent with either the  40  and  each subsample are summarized  The b e h a v i o u r e x h i b i t e d  2 1  rise  suspensions.  12 and 1 3 .  s u s p e n s i o n s , the  cent during  by 4 7 . 4  trading  was t h e n a p p l i e d to  and  the  the  H^.  FFJR t e s t  over  the  IX and  during  s u s p e n s i o n and f a l l  The b e h a v i o u r o f  C.A.E.T.  suspen-  i n s t a n c e s where  respectively.  For  the  trading  effective).  the  percent  a  appears to  was t h e n a p p l i e d to  market  (a t r a d i n g  2  4 9 . 6 p e r c e n t o v e r and s u b s e q u e n t to  the  (the  weeks - 4 0 t o +40 a r e s u m m a r i z e d i n T a b l e  weeks p r i o r  tion  behaviour  dispersed during  c o n v e y any new i n f o r m a t i o n  FFJR t e s t  The  consistent with either  s t o c k s were s u s p e n d e d f o r results  o v e r and s u b s e -  suspension, respectively.  any new i n f o r m a t i o n  the  ent w i t h the  is  stock  s i o n does n o t Therefore,  by 2 . 2 and 2 4 . 2 p e r c e n t  information  percent  during  s u s p e n s i o n s , the  the  40 weeks p r i o r  to  not  Exhibit  11  Cumulative  A v e r a g e E r r o r Terms - - W e e k l y 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 - 4 0 t o +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  0,733  +  1*  -  1  m  w  *  1 *  22 2 *22*  «•  1*  Z 0,030  *  2  +  -  *  131 * * * 1 3 * *3222 21212* 12 1  21 *3  122 1 *  2 M  * 1 2223*3 22  *3*ft  * ». » >0 , 6 7 3 +« "104',  * 1 * *2  •  -  21 * 1232322*2* * 3* . 1 2*21 * +- - - - « - - - - - + - - - • » - - - - +-w-----».» +-.«----.--- +-«o--l-*«? + *69'. -35, 0, 35. 69, 104,  Trading  Week R e l a t i v e  to  Suspension Period  -- w  126 Table 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 - 4 0 t o +40 D e l e t e d i n t h e E s t i m a t i o n of Parameters  T r a d i ng Week w -40 -39 -38 -37 -36 -35 -34 -33 -32 -31 -30 -29 -28 -27 -26 -25 -24 -23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -13 -12 -11 -10 -09 -08 -07 -06 -05 -04 -03 -02 -01 . 01  K 0.014 -0.001 0.004 0.008 -0.013 0.000 0.032 -0.018 0.006 -0.005 -0.020 0.006 0.021 -0.003 -0.014 0.008 -0.008 0.018 0.007 -0.027 0.050 0.032 -0.010 0.024 -0.000 0.031 -0.004 -0.002 0.004 0.060 0.011 -0.005 0.025 -0.003 0.013 0.033 0.010 0.023 0.029 -0.015 -0.221  Unfavourable % o f Sample Size E.T. i N Neg. w w c  0.014 0.01 3 0.01 7 0.025 0.012 0.01 3 0.044 .0.027 0.033 0.028 0.008 0.014 0.035 0.032 0.018 0.027 0.019 0.036 0.043 0.016 0.066 0.098 0.088 0.112 0.112 0.142 0.138 0.136 0.140 0.200 0.211 0.206 0.231 0.228 0.241 0.274 0.283 0.307 0 . 336 0.322 0.103  43 48 52 52 49 56 42 59 43 46 52 49 46 48 54 54 50 40 40 51 32 37 49 43 46 43 49 43 56 44 47 45 44 47 52 40 50 44 43 48 62  61 62 62 62 63 63 64 64 65 65 65 65 65 67 69 69 70 70 70 71 71 70 70 70 70 72 72 72 73 73 73 73 73 73 73 72 72 72 74 75 76  Favourable % of E.T. i Neg. w C  w  5  0.018 0. 059 -0.009 0.012 0.008 0.014 -0.009 -0.009 0.019 0.002 -0.004 0.001 -0.011 -0.001 0.024 0.014 0.034 0.004 0.001 -0.019 -0.013 -0.017 0.025 -0.008 0.052 -0.006 0.012 0.016 0.007 0.020 0.022 0.042 0.010 -0.013 0.054 -0.007 0.012 0.029 0.030 0.086 0. 331  0.018 0.077 0.068 0.080 0.088 0.102 0.093 0.084 0.103 0.105 0.102 0.103 0.092 0.091 0.115 0.129 0.162 0.166 0.167 0.148 0.135 0.118 0.143 0.135 0.186 0.181 0.192 0.209 0.216 0.236 0.258 0.300 0.310 0.297 0.351 0.344 0.356 0.385 0.415 0.501 0.832  31 58 61 50 47 50 39 43 39 47 49 49 50 55 49 41 46 51 51 54 54 46 39 49 46 51 39 41 56 49 38 43 50 49 37 44 42 42 37 37 21  Sample Size N w 36 36 36 36 36 36 36 37 38 38 39 39 40 40 41 41 41 41 41 41 41 41 41 41 41 41 41 41 41 41 42 42 42 43 43 43 43 43 43 43 43  127 Table  T r a d i ng ek w 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40  e -0. -0. -0. -0. -0. 0. -0. -0. 0. 0. -0. -0. 0. -0. -0. -0. -0. 0. 0. -0. 0. -0. 0. -0. -0. -0. 0. -0. 0. -0. -0. 0. -0. -0. 0. -0. 0. 0. -0.  w 039 058 048 010 022 012 027 021 003 015 014 020 014 001 035 008 025 016 001 006 016 007 008 008 007 004 007 006 019 015 008 000 002 010 006 01 9 002 006 001  X (Cont'd)  Unfavourable % of E.T Neg ec w  Sample Size N w  062 004 044 054 076 064 091 112 109 094 108 128 114 11 5 1 50 158 183 168 167 173 156 163 1 56 164 171 174 167 1 73 154 169 177 177 1 79 190 184 185 201 195 196  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  0. 0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0. -0.  63 62 58 55 61 46 63 59 49 47 57 64 41 51 56 56 55 45 53 55 50 55 53 53 50 52 53 49 48 57 51 50 56 49 51 64 51 47 42  Favourable % of E.T. e ec Neg. w w 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0.  007 002 008 001 023 006 016 005 005 027 016 003 010 017 001 01 3 009 000 017 000 019 036 028 003 025 007 001 017 021 008 008 014 007 006 015 004 011 015 01 1  0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0.  825 823 816 814 792 786 770 774 769 743 727 730 oO. 0 . 740 0 . 722 0 . 721 0 . 708 0. 717 0 . 717 0 . 734 0. 735 0 . 716 0 . 680 0 . 708 0 . 711 0 . 686 0 . 693 0 . 693 0 . 711 0 . 690 0. 682 0 . 674 0 . 660 0 . 667 0 . 661 0 . 676 0. 679 0 . 691 0. 676 0 . 688  42 49 49 51 53 51 44 42 49 58 56 44 37 53 40 52 48 40 55 50 64 69 45 52 60 48 45 43 62 59 55 70 45 45 43 50 50 58 35  Sampl e Size N w 43 43 43 43 43 43 43 43 43 43 43 43 43 43 43 42 42 42 42 42 42 42 42 42 42 42 42 42 42 41 40 40 40 40 40 40 40 40 40  Exhibit  12  Cumulative  A v e r a g e E r r o r Terms W e e k l y Sample o f 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  0,336  +  Unfavourable Parameters  1 *2 i  ** :i i  0 023 B  0.382  **1* 1 2221*2* + 2*1 * * * 1*212**11222 113*1***1 *22* -* *  +•  F* ta  i *  * H  *3 M  2  322322 *21 11* *21* *2  1 3 2* 11221* 1** 22* **3l *  • rm m ^ •» •» • » i  mm m  -69'.  -35, Trading  35'.  0, Week R e l a t i v e  to  69,  Suspension Period  104, -- w  - Exhibit  13  C u m u l a t i v e A v e r a g e E r r o r Terms - - W e e k l y Sample o f 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  0„8?4  Favourable Parameters  *  •  *3  *22 21 1222 12 * 232*2322 13 *2232222 2 *12* * * **  1  m  0  8  H 18  *1 ** **  2  n  *2  •m  ** *2*21 •» 1**32  «io4;  221 1322* A *21** 1 * 121**21213*2  ;  W  35  Trading  r  o; Week R e l a t i v e  35,  69,  ioa.  to Suspension P e r i o d - - w  130 the  trading  ing  to  s u s p e n s i o n and t h e n  their  previous  behaviour of  the  C.A.E.T.  s u s p e n s i o n does n o t It  may, h o w e v e r ,  adjusts  fully  whether  in or  is  not  not  to  tests.  previous  The a b n o r m a l  c a l e n d a r week t o  drawings  the  error  2 5  statistic the  hypothetical  our  is  by a d o p t i n g  invest  for  a policy  of  the  buying the  equally  reinstated)  for the  which  be o v e r s t a t e d . distributed were  terms.  in  2 6  standardized t -  presented in Appendix  for  each c a l e n d a r  suspended s t o c k s to  one week. investor  suspension period.  L weeks a f t e r  in  the s u s p e n s i o n  is  More s p e c i f i c assumed to  i n e a c h s u s p e n d e d s t o c k w h i c h was K to  II,  assumption that a  a portfolio  portfolio  ef-  the dependencies  a p r e d e t e r m i n e d week r e l a t i v e  one d o l l a r  trading  is  zero.  in a given  portfolios  these e r r o r  study  e v e r y c a l e n d a r week t ,  suspended (or the  incorporate  can b u i l d  p e r i o d and k e e p i n g t h a t ally,  determine  from  identically  e s s e n t i a l l y b a s e d on t h e  investor  sample at  to  tested  terms w i l l  e x p l a n a t i o n of  this  market  s u c h as i n d u s t r y  a t-test,  by s t a n d a r d i z i n g  employed i n  procedure  week t  error  produce the  While a d e t a i l e d  market).  A.E.T.)  a test-statistic  to  trading  (the  be c o r r e l a t e d ,  appropriately  terms  the  across s e c u r i t i e s  that are necessary f o r to  is,  the  terms  in order  constructed  to  different  effects,  assumes s u c h an i n d e p e n d e n c e o f Therefore,  (a  returns  s e c t i o n were n e x t  error  The  information.  t h e y were s i g n i f i c a n t l y  can c a u s e t h e  recover-  reinstatement).  consistent with  new  S i n c e common s e c u r i t y fects,  date of  be c o n s i s t e n t w i t h H-| , t h a t  and r a p i d l y  the  (at  before  c o n v e y any new i n f o r m a t i o n  Probability observed  level  drop s l i g h t l y  (or  prior  to)  131 The f o l l o w i n g the  portfolio  (1)  if  three  strategy  examples s h o u l d help to  a d o p t e d by t h e  K = - 1 0 and L = - 1 0 , t h e  investor  p u r c h a s e d i n e a c h c a l e n d a r week t were s u s p e n d e d t e n weeks l a t e r ; investor t  is  assumed t o  a portfolio  if  of  investor  a portfolio  five  different  from  positive  the  the  zero.  in  pre-suspension period for  stock  different  prices  zero.  the  The p o s i t i v e  from  effective  zero. in  (and r e t u r n s )  The l a r g e over  returns  terms  the  a l l e g e d l y manipulated  is  stocks  (3) pur-  which  method to  are presented  negative  from employing  in Table XII.  manipulation  have  exhibited  abnormal  is  the  in in  returns  significantly  This post-suspension period  sented  nificantly  the  not  behaviour  consistent  h^.  The r e s u l t s  the  which  earlier.  p o s t - s u s p e n s i o n p e r i o d are  H-j o r  sample of  of  portfolio  abnormal  the average s t a n d a r d i z e d e r r o r  with either  in  weeks  p r e - s u s p e n s i o n p e r i o d and t h e  the  i s assumed t o  119 s u s p e n d e d s t o c k s )  in  stocks  s u s p e n d e d ; and  sample (the  exhibited  of  the  f r o m one to  Both the  of  have  K = 0 and L = 0 ,  from a p p l y i n g  Table XI. the  if  The r e s u l t s initial  assumed t o  a portfolio  (2)  investor:  have p u r c h a s e d i n e a c h c a l e n d a r week  each c a l e n d a r week t  were r e i n s t a t e d  is  s t o c k s w h i c h were j u s t  K = +1 and L = +5,  chased in  hypothetical  clarify  negative  suspension period  This strongly  portfolio  suspended s t o c k s are abnormal  various This  returns  indicates  the  pre-  are  sig-  clearly  that  upward movement  pre-suspension period.  a v e r a g e abnormal  return  is  different  significantly  suggests that  to  exhibited  portfolios  c a u s i n g abnormal in  method  regulators,  exhibited from  when t h e y  do  Table Probability  Portfolio formation p e r i o d , K:L  XI  T e s t s . o n the Average P o r t f o l i o A l l Suspended S t o c k s  Error  +01:+05  + 01 : + 10  0.007  -0.022  -0.015  0.298  -0.021  -0.223  -0.200  4.507  5.093  -0.166  -3.264  -3.450  224  292  -10:-1 0  -10:-05  -10:-01  0:0  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  Average s t a n d a r d i z e d e r r o r term  0.347  0.301  t-statistic*  2.617  No.  of  57  portfolios  Terms  215  62  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 d e g r e e s o f f r e e d o m (>>100 - - See A p p e n d i x I I ) , t h e 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 t a k e n f r o m a normal p r o b a b i 1 i t y t a b l e ,  Table XII P r o b a b i l i t y T e s t s on t h e A v e r a g e 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 Portfolio fprmaitionosi p e r i o d , K:L  +01:+05  + 01 : + l 0  -0.058  -0.022  -0.013  0 . 505  -1 .362  -0.151  -0.188  5. 933  -4.309  -1 . 3 1 2  -2.192  - 1 0 :-1 0  -10:-05  -10:-01  Average unstandardized e r r o r term  0.043  0.042  0.041  Average s t a n d a r d i z e d e r r o r term  0 . 207  0.491  t-stati sti c  0.802  4 . 583  No.  of  portfolios  15  87  138  0:0  10  75  136  1 33 act,  can d e f l a t e  publicizing  that  Furthermore, abnormal  information  during  statistically  returns  exhibited  in  the market into  The r e s u l t s unfavourable  the  does not  stock  favourable  information  significant  positive  market fully in  unfavourable  during  This  strongly  a  return  the  is  pre-  un-  pre-sus-  negative  average  statistically  in  indicates  the  statistically  in  returns  the  post-  t h a t when  d i s s e m i n a t e d to  suspension that  impound t h i s  method to  s u s p e n s i o n and  information  unfavour-  For the  is  significant  trading  negative  suspensions are  respectively.  average abnormal  a trading  and r a p i d l y  stock  2 7  new  portfolio  n e g a t i v e average abnormal  suspension p e r i o d . nificant  the  suspensions, there  r e t u r n o v e r the  significant  significant  rapidly.  information  pension p e r i o d , a s t a t i s t i c a l l y  by  suspension.  impound t h i s  from a p p l y i n g  and f a v o u r a b l e  stocks  post-suspension period,  prices  i n T a b l e s X I I I and X I V ,  abnormal  a trading  s e r i e s of  information  sented  a l l e g e d l y manipulated  the  suggest that able  p r i c e s of  the market  new u n f a v o u r a b l e  sig-  the  does  not  information  prices. For  the  a statistically date of  favourable  information  significant  near  the  tive  average abnormal  r e t u r n over  significant  sion period.  These r e s u l t s  impounds s i g n i f i c a n t  significant  average abnormal  suspension, a s t a t i s t i c a l l y  statistically  seminated during  positive  suspensions, there  that  in  returns  significant  posi-  the p o s t - s u s p e n -  the market  information  suspension.  abnormal  return  s u s p e n s i o n and no  return  indicate  favourable  a trading  positive  abnormal  the  is  The  when i t  rapidly is  dis-  statistically  n e a r the  s u s p e n s i o n date  Table  XIII  P r o b a b i l i t y T e s t s on the A v e r a g e 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 Portfolio fofmaitcibnon p e r i o d , K:L  +01:+05  +01:+10  0.067  -0.030  -0.013  0.278  0.958  -0.286  -0.179  3.939  4.357  5.419  -3.560  -2.771  173  245  -10:-10  -10:-05  -10:-01-  0:0  Average unstandardized e r r o r term  0.080  0.027  0.017  Average s t a n d a r d i z e d e r r o r term  0.395  0.299  t-stati sti c  2.335  No.  of  35  portfolios  32  1 55  239  +01:+05  +01:+l0  T a b l e XIV P r o b a b i l i t y T e s t s on t h e A v e r a g e P o r t f o l i o E r r o r 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 fofmarthionon p e r i o d , K:L  Terms  -10:-10  -10:-05  -10:-01  0:0  Average unstandardized e r r o r term  0.008  0.013  0.018  0.101  -0.011  -0.008  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-statistic  0.727  1 .327  2.990  5.873  1 .058  -0.012  119  185  No.  of  portfolios  23  31  118  197  1 35 can  be e x p l a i n e d e i t h e r  making  by t h e  unbiased f o r e c a s t s  of  information  t h a t was l a t e r  suspensions  or  able  by t h e  new i n f o r m a t i o n  suspension  next  returns  (via  e x a m i n e d to  in  estimated  a possibility,  the  e.  recalculated,  i ,t  i  Exhibits  14 to  For  the  whether  2 8  as  such  in  favour-  the  pre-  17,  to  In  order in  abnormal  p o s s i b l e measureto  examine  equation  the  (8),  such were  FFJR t e s t  allegedly  information  to  manipulated  suspended s t o c k s  suspended s t o c k s )  s a m p l e , the to  the  C.A.E.T. trading  rise  are  summarized  In this  the  is a smaller  (.22.4 p e r c e n t  l a r g e r f a l l in  post-suspension period  The b e h a v i o u r H, o r  rise  in  H . 0  the  (43.1  C.A.E.T.  fall sus-  results the  pre-  versus 38.8 percent)  of  percent  trading  comparison w i t h the  suspension period  with either  by 2 2 . 4  s u s p e n s i o n and  o v e r and s u b s e q u e n t to  presented p r e v i o u s l y ,  24.2 p e r c e n t ) .  the  data  respectively.  total  the  not  The  follows:  unfavourable  respectively.  consistent  new  trading  alphas.  from a p p l y i n g  information  percent  or  (and a l s o t h e  40 weeks p r i o r  and 43.1  estimated  alphas.  results  suspended s t o c k s , the  pension,  the  in  M, t  119 s u s p e n d e d s t o c k s  favourable  the  1  The e m p i r i c a l  2.1  favourable  the m a r k e t  . s , as s p e c i f i e d  with a. = 0 ,  i ,t  the  to  were s e n s i t i v e  the  during  the  investors  d i s s e m i n a t i o n of  "leaks")  in  in  of  disseminated during  determine  observed e a r l i e r  and t h e  impact  of  period.  ment e r r o r s  all  the  inequitable  Measurement e r r o r s was  sophistication  and a  percent is  still  versus not  E x h i b i t 14 Cumulative  A v e r a g e E r r o r Terms - - T o t a l W e e k l y S a m p l e - - A l l Alphas Set to Zero O b s e r v a t i o n s - 4 0 t o +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,  OD i—  5? Z  > •  I"  * 1 ** 2* **21132121 1 *2* »* * ***32121 *2322312 12312 * w * •+« »  ra  Cn  n3 LU ^tice  **  *0 172 9  <C CJ>  cu >  * * *1 ** 2* 1 * 23* 22 ! *k 22* 22 2  4J 03  3 C_3  w0,566  + 104,  -69;  -35,  . Trading  0.  Week R e l a t i v e  35.  1* *2  ' 22 *2U2 1**21 *i *1 * 122 2*2* 69.  104,  to Suspension P e r i o d - - w CO CM  Exhibit  15  C u m u l a t i v e A v e r a g e E r r o r Terms - - T o t a l W e e k l y S a m p l e 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 - 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 and A l l A l p h a s S e t t o Z e r o 3,608  +  1*  »  •  *1 1  »  *2 •2131*  *  *  ...  2* 13 21 12322 *221 122 * *1313*  • * *104'  e  *69'.  -35,  Trading  0,  Week R e l a t i v e  35',  to  69,  Suspension Period  104.  -- w  Cumulative  Average E r r o r (C.A.E.T.)  t  if O •<»  o  CO CD  o  •#• a  ' 8 9  o  ru  'i s i  %  on  g a g  a a 4 *  I  CT-  9 1 I 9 3  4  CL  a ui  U3  o  C+  .»  •  <  fD  c  -a  Ul Ul  •  fD  3 CO ),  o 3  TD CD S  * ru » »-» ru ui  1 •*•  *  1 3 1 ! 4  ru * ru  »  »  1 cr 8 «  '  + 1 I  9 ru 8 Ul  1 1  ru  9 Ul  4  o •  8£L  8 4 1 4  1  o O-  s:  1 1 1  g  c+ O  CO  +  '  «-* Ul  * *  *  ru ru ru ru ru  * *  *  ui  i  P.:  3  < fD  <  -s CU  cq >--i fD  CU 3 3 c+ - h Cu O O S  3> + 3  —i  -p> cu —• O r+  * ru  > a o —i  fD  -a —• «•  *  t  fD  o  *  Ui  CU  00  ru  Ul  TO CD  r+ i.  1  +*•  *  CO 7T  — J .  co  ru ui  on  — '  < O  ru  fD  M  ui  ru * ru * ru ru ru * ru  &>  -s  Cu c+  co fD  »— * *  *  -s  c:  CU  »—  3  8 - 1 9  3  cr  ru  *  —r.  c  o  o  1  Terms  ru  _..  3  m S -5 O -% — |  (D -5  3  3 " fD C O CO BJ rtC v*> fD i O.T3 I CO fD fD - " • 3 SZ c+ 3 C L fD fD fD r + m CL 7 T O CO —< r+ co<< M —•• c + fD 3 O OO - S Cu O CU O t + 7 T 3 ->. CO •a  o 3  —i fD  O -h  O -h  TD CU  cr  -s  -h  Cu  3 fD  3  eu  <  o  r+  c  -$  CU CT  fD CO  -s  —i fD  X  3"  CD  Cumulative  Average E r r o r (C.A.E.T.)  Terms  3  O  ro  O  cra  g  3  a s  i  9  M  a  -»•  «  I  r> i -£> + » * s  3  ta  •*  i  i a  CU  3  Cu to  »-»  ru  * * * *  3:  i.  o  ru # ru  * »ru  ui  * *  a-a fD  -s i. o  i o -4-  *  9 I I  *  Q-  a ru *  I I  o  ru  i  fD  -b rtO O  ru *  *  *  rtto CL  GO fD r+  —j.  r+ O  m to  M fD  " I < I 8 % t * t  3  ta  ;> a o —) — i fD 3 fD T3 — i -s 3- fD o o 3  * ru  fl  1—I  1  1  fD 3 to  6C L  CU  o  -s o  fD 3  1 1  QS fD fD C u fD  rt-O O —i* 3  to  7T  —l  <•+'-<  O  Cu  o  7C rti, t o  O  00 Cu  3 -a fD  O -h  of  -a  3 to 1  I  c (/)  fD  O  ru *  9 1  00  *  m -s -j 3> + 3 ~s cu o —i c + -s O —  - s • 1 I *  O  —i. <  c+ -j.  CL  o ->  c+  r+  CU  '  *•—>?•  i i  —1 CU  sp  •  *  fD  -s <  +  f—»  I  fD  i  ru-  9  •  *  n ; j  ru • * ru * >-»  9  <  *  3  * i— ru *  ui  fD  *  >-» B  *  i  X>  a  is»  UJ  fD fD  «  * »— *•  i i l i  «  j  * «-» ru * ru  i  a.  »  c:  ver  *  o  cr to  H*  a «  CU  -J  ~4  ru  ~o CU  ~n  -s CU  3 fD  rtfD 1  CU  < o  c -s  cu cr  to  ru  fD  »- *  I  * *  ru *  X 3"  140 For rise  the  a l l e g e d l y manipulated  by 5 1 . 4 p e r c e n t  s u s p e n s i o n and f a l l to  the  trading  during  suspension, respectively.  results  the  pre-suspension period  presented p r e v i o u s l y ,  of a f a l l  over  sus 4 7 . 4 p e r c e n t ) period is  (69.7  a similar  sion  (95.3  the  percent fall  the  the  trading  results  of  sus 22.1  unfavourable during  For rise  the  rise  (17.6  to  the  period the  (29.4  a rise  in  percent),  percent  ver-  Furthermore, trading  this  suspen-  percent). s t o c k s , the  t h e 40 weeks p r i o r  during  percent  suspension period  l e s s of  to  C.A.E.T.  the  trading  comparison a rise  percent), percent  s t o c k s , the  in  the  to  the  a rise  in  trading trading  39 weeks s u b s e -  c o m p a r i s o n to  percent),  percent  ver-  C.A.E.T.  26.9 p e r c e n t over the  l e s s of  the  the p o s t - s u s p e n -  t h e 40 weeks p r i o r  In  in  to  percent).  information  v e r s u s 50.1 (26.9  (18.5  during  33.9 percent  is  In  2 9  versus 32.2  a fall  suspension.  this  is  percent  by a f u r t h e r  trading  this  versus 29.6  favourable  presented e a r l i e r ,  with  the p o s t - s u s p e n s i o n  the  suspension period  percent  s u s p e n s i o n and t h e n f a l l quent  comparison  (35.6  during  information  and more o f  by 2 9 . 4 p e r c e n t  suspension,  trading  1 8 . 5 and 4 8 . 2 p e r c e n t o v e r and s u b s e q u e n t  over the  (48.2  the  versus 71.5  suspension, r e s p e c t i v e l y .  percent)  sion period  percent  a fall  presented e a r l i e r ,  a fall  to  l e s s of  suspension period  versus 97.0  pre-suspension period less  is  versus 49.6 p e r c e n t ) .  by 1 7 . 6 p e r c e n t  the  this  In  o v e r and s u b s e q u e n t t o  s u s p e n s i o n and f a l l to  (51.4  and more o f  percent  For rise  t h e 40 weeks p r i o r  C.A.E.T.  3 5 . 6 and 6 9 . 7 p e r c e n t o v e r and s u b s e q u e n t  the  less  s t o c k s , the  the  results  the p r e - s u s p e n s i o n  l e s s of  v e r s u s 33.1  a rise  percent)  over and  141 more o f  a fall  period  (33.9 In  in  percent  39 weeks s u b s e q u e n t t o versus 14.4  there  for  - 4 0 t o +40,  of  a rise  in  period.  turns in  examined to  the e s t i m a t e d  the with  e-  f  b.j  in  betas.  the  C.A.E.T.  all  prein  estimated betas.  whether  In o r d e r  =  the  to  or  not  The d a t a  the abnormal  to measurement  errors  examine s u c h a (8),  re-  possibility,  were c a l c u l a t e d ,  R. . - a • - R.. . . i ,t i M, t  obtained  results to  were n o t m a t e r i a l l y  equation  from a p p l y i n g  pended s t o c k s a r e p r e s e n t e d  the  (8),  only  FFJR t e s t  (see E x h i b i t  the  to  18)  affected  empirical  all  119  sus-  and d i s c u s s e d i n  section. For  cent during  the  total  to  the  before,  trading  These r e s u l t s  a fall  by 3 5 . 7  of  the  trading  similar  (Those r e s u l t s  2.2 percent  pers  s u s p e n s i o n and  are very  o v e r and s u b s e q u e n t to  respectively.)  rise  o v e r and s u b s e q u e n t to  u s i n g b o t h a^ and b^.  38.8 p e r c e n t ,  24.2 percent pension,  percent  respectively.  those obtained of  s a m p l e , the C . A . E . T .  t h e 40 weeks p r i o r  2 . 7 and 21.1  suspension,  rise  the  in  in  = 1 , as f o l 1 ows :  from such a m o d i f i c a t i o n  fall  the  were s e n s i t i v e  S i n c e the e a r l i e r  this  and  shows t h a t  C.A.E.T. in  ' s , as s p e c i f i e d i n e q u a t i o n  e• . i ,t  results  a fall  determine  observed e a r l i e r  the  with  3 0  Measurement e r r o r s was n e x t  suspension  results,  period  s u s p e n s i o n p e r i o d and more o f post-suspension  the  the  was l e s s  the  percent).  g e n e r a l , a comparison of  w i t h o u t a.j = 0 , cases  the  were a  and a f a l l the  to  trading  of sus-  Exhibit  18  Cumulative  A v e r a g e E r r o r Terms - - T o t a l W e e k l y Sample - - A l l B e t a s S e t t o 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  0 357 f  +  CO  *  CU  »»  * *  *  *"  1 *  ^  ra  *  °  1 1  S-  •  LU -—. cu i—  cn  «i  •  0.151 ^ < o_ cu  > +>  + « « * • »  1  *  *  * 1 1 11 *111* 22**  Z* 3  1  •  2  *2  2  M  *1 1 1** 2* 2 ** 1 * 2 * 1 * 1 2 1 * 1 1 1 1 1 «*2 * ** * 1*1** •104',  »69'„  „35,  Trading  221** * * *2i321 **2* 1* * 1 * *2 * * * l l 11211 2 **22* * 121 * * 1***  0„  Week R e l a t i v e  35,  to  69,  10fl,  Suspension Period - - w  ro  143 Non-stationarity to  determine whether  pute  the A . E . T .  or not  (t)  To t h i s  averaged.  to  b.  . for  the of  c a l e n d a r week t -40,  obtained  for  study,  only  t h e moving a v e r a g e e s t i m a t e d  the  empirical  on.  results  for  (see E x h i b i t  during  the  of  19)  119 s u s p e n d e d s t o c k s may have i n c r e a s e d  risk  3 2  affect  The b e h a v i o u r  3 3  beta s e r i e s  used  returns  d i d not m a t e r i a l l y  119 s u s p e n d e d s t o c k s a r e p r e s e n t e d .  systematic  data  i n c l u s i v e , and so  all  the  the  = - 4 0 were t h e  findings  that  b e t a s was  a g i v e n week t ,  the  gests  estimated  For example, the o b s e r v a t i o n s  3 1  results  this  e n d , a moving  e a c h s u s p e n d e d s t o c k and t h e n c r o s s -  c a l e n d a r weeks - 9 9 t h r o u g h Since  the  examined  b e t a s used to com-  was e s t i m a t e d u s i n g t h e  for  sectionally  for  estimated  More s p e c i f i c a l l y , f o r  through  estimate  the  The d a t a was n e x t  averaged s e r i e s of  e s t i m a t e d b e t a f r o m (8) (t-49)  beta.  were s t a t i o n a r y .  cross-sectionally constructed.  of  sug-  in  pre-suspension period.  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 section  is  the  common one f o r  a s p e c i f i c event prices. cal  if  the  is  following:  the magnitude of  event tion.  not  does not  employed i n  determining  ( s u c h as a t r a d i n g  However, t h e r e  methodology  clude  methodology  what  the  impact,  s u s p e n s i o n ) has on  a r e c i r c u m s t a n c e s when t h i s appropriate.  (1)  if  the event  occur frequently  if  statisti-  events o c c u r ,  important, enough f o r  and (3) parameter  any,  stock  These c i r c u m s t a n c e s  simultaneous is  previous  if  in(2)  the  estima-  Exhibit  19  50 Week M o v i n g A v e r a g e E s t i m a t e d  0,957  +  *  <-  ***  • t m -  *  * 0,6'I6  + » Z *  * * * t  * 11 ***  *  w •  *  1*2  i**  ****  *i i  Weekly  Sample  *  * * 21 1 * * * * * * * * 1 *1 * * * ** * * * * * *  .  m  Beta - - T o t a l  1  1 **  1 2 *  *1 *1  **** 1  2 *1 *  M i l * * * * * * * * 1 *l*tl* * * *  * * *  * 1 1*  * * 1 **  * *  m  0.330  + -50',  *-n- +  -?8 . ?  +  +  -- +--  -1.  25,  51'.  Trading  Week R e l a t i v e  +.-.-_-.-- + 78. 104.  to S u s p e n s i o n P e r i o d - - w  145 Under s u c h c i r c u m s t a n c e s , by c o n s i d e r i n g  the  and s e c u r i t i e s . series tion  data  in  estimation  of  and N e r l o v e .  3  (PCTS) the  the  model  is  is  observations, of  best  both a c r o s s  c r o s s - s e c t i o n and  referred  regression  of  this  the  an e v a l u a t i o n  to  as p o o l e d  analysis.  was t h e  is  by  section  of  the  thesis  application  of  the  PCTS  of  the  If  same)  securities,  all  and i s  the  to  coefficient.  ent  referred  coefficient  effect  the  of  to  the  as n o n - f i r m to  f i r m dependent  and i s  referred  is  ^ where  i  general, of  the  = ^  £  = 1,...,  pended s t o c k s ) ; each c a s e  X_. i s  Balestra  is  to  suspensions.  to  regression  X., . i s  specific.  security,  its is  the  +  variable  regression  not  unique  not If  firm the  (the  depend-  regression V.,  is  specific.  equation  for  the  i-th  I- d . + U . ,  N and N i s T is  the  vector  independent  the  . -in-  number  of  y_. i s  returns) of  (12) total  for  number o f  weekly  cases  T observations  variables; £ is  (sus-  observations  a (T XT) v e c t o r the  3 5  3 6  variable,  as f i r m  pre-  form:  (generally  a (K-jXT)  specific  the  the  (suspended s t o c k ) ;  servations  coefficient  variable,  unique  In  first  regression  trading  uniqueness of  regression  is  security  the  a PCTS r e g r e s s i o n m o d e l , each i n d e p e n d e n t  c l a s s i f i e d according  for  time  One o f  1966 s t u d y  time  cross-sec-  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 In  achieved  h  results  to  all  technique  The p u r p o s e o f sent  of  Such a p o o l i n g  time s e r i e s  applications  total  estimation  dependent for  the  of  for  T ob-  variable; K-j  a (1XK-.) v e c t o r  non-firm of  co-  146 efficients V_. i s  for  a (h^XT)  specific  for  a (1XT) For  tions  non-firm  vector  of  independent  efficients is  the  the  v a r i a b l e s ; dl^ i s  l<2 f i r m - s p e c i f i c  vector  of  can be w r i t t e n  vo  x,  K  0  independent  T observations  for  the  a (lXI^)  variables;  Y.^ f i r m vector  independent  of  co-  variables  and  residuals.  N s e c u r i t i e s , the  *1  specific  system of  PCTS r e g r e s s i o n e q u a -  as:  ....  . ,0  -  1  - _  :  =  +  ** where t h e  terms  The  a r e as d e f i n e d  earlier.  PCTS r e g r e s s i o n model  assumes t h a t  E (0. .)  = 0;  1,1.  cov  (U.  ., 1jt  i,j  = 1,  the  covariance assumption i s  lation fied, and  U.  ) = of. when i Jjs u  2,  N ; and t , s  = j = 1,  and t = s and = 0 , 2,  T.  tenuous.  It  then  the  consistent,  asymptotically The  estimated c o e f f i c i e n t s , w o u l d not  The v a l i d i t y  implies  a c r o s s t i m e and between s e c u r i t i e s .  If  while  zero  it  is  being  data s a m p l e s , the  Model  not  satis-  be minimum V a r i a n c e ( o r ,  in  general,  (c_, d_-j ,  d_^)  in  the  PCTS model  special structure  to  of  the m a t r i x  reduce computational  For (see  difficulties.  large (13)  )'.  3 7  Specification The  a trading model  corre-  efficient).  coefficients  be u t i l i z e d  of  unbiased  a r e 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 ) .  can  otherwise;  effect  of  any new i n f o r m a t i o n  suspension w i l l  s p e c i f i e d with  disseminated  be a n a l y z e d w i t h a PCTS  during  regression  1 dependent v a r i a b l e , y . , f o u r  non-firm  147 specific  variables,  able,  V_j , for n  model  for  X_j  to  n  each suspended s t o c k .  suspended stock  y.  is i  a vector  for  _X_|  stant X^j " 2  1  is  i's  3  term i n  the  a vector  estimated  is  1  = -40 to of  (R  a vector  +  ,  as  for  vari-  of  the  follows: suspended  stock  +40;  ones  (used to  calculate  the  con-  model);  beta t  The e l e m e n t s  3 8  R.  consisting  M  one f i r m s p e c i f i c  can be d e f i n e d  returns,  a vector  the m a r k e t X^ "  i  of  weeks t  is  n  X_C*.\ and  (b^)  of  the  times  weeks t  product  of  the weekly = - 4 0 to  security  return  +40;  on  )  for  of  O ' s , except  for  a 1 for  the  of  O ' s , except  for  a 1 for  a specified  3 9  sus-  pensionperiod; X.J *" 1  1  is  a vector  week i n  the  post-suspension period  (for  e x a m p l e , week  + 2); V_|  is  n  a'vector  efficient a^  and b.  (a.-)  R.j  t  (5),  and +41 and R^  market,  the  t o +104;  and  sion  period.  security a trading  of  i ;"  returns  for  for  for  of  is  a measure o f  returns  of  any "new"  the  i  information  The c o e f f i c i e n t  of  co-  mar-  i  and  to  the  +40. 3 1  and X J * " - , 1  of ^ j  over  immediate  the  weeks - 1 0 4  weeks - 4 0 t o  r e t u r n on s e c u r i t y  alpha  0  security  The c o e f f i c i e n t  It  suspension.  estimated  dummy v a r i a b l e s , X . J  as f o l l o w s .  abnormal  the  coefficients  returns  respectively,  be i n t e r p r e t e d  average weekly  estimated  are the  t  of  suspended stock  using  The c o e f f i c i e n t s can  for  are the  k e t model -41  consisting  3  the  effect  1  1  is  the  suspenon .  disseminated  during  is  abnormal  the  148 r e t u r n on s e c u r i t y sion period  (for  of  the  of  any "new"  i  for  a s p e c i f i e d week i n  example, r e l a t i v e  delayed e f f e c t  on s e c u r i t y  information  the p o s t - s u s p e n -  week + 2 ) . returns  It  i s a measure  (market  disseminated during  inefficienc  a trading  suspen  s i o n. Since period for  the  returns  security  the  r e t u r n over the  the  residual  divided The  the  In  .  Empirical In  this  be  of  ent  from  The  results  the  X/ " 3  the  turns was  non-firm different  for  longer  a s s u m p t i o n , the  security  1  implies  i,  R - -i, S  n  re-  was  that  the  NR and  the e s t i m a t e d  s p e c i f i c v a r i a b l e .X/ *" , s h o u l d 1  from z e r o .  coefficients  of  non-firm  conot  1  Similarly,  the  and . X ^ , s h o u l d n o t  GLS e s t i m a t e s  for  results.  statistically over  this  (and i m p l i c i t l y  are t e s t e d .  along with t h e i r  earlier  satisfy  then  predicts  specific  be s i g n i f i c a n t l y  differ-  zero. The  model,  s . weeks,  4 1  the e s t i m a t e d  variables,  to  for  PCTS r e g r e s s i o n a r e no  s e c t i o n , H-j and  significantly  that  order  the  is  Results  SR h y p o t h e s e s ) efficient  suspension period  suspension period  Js.  by  t h e p r e - and p o s t - s u s p e n s i o n  a r e c a l c u l a t e d on a w e e k l y b a s i s and  v a r i a n c e s of  homoscedastic. turn over  i  for  all  the c o e f f i c i e n t s  t-values,  of  the  a r e s u m m a r i z e d i n T a b l e XV.  Not o n l y  is  there  a positive,  but  a v e r a g e w e e k l y abnormal  s u s p e n s i o n but  the  respectively)  are s t a t i s t i c a l l y  with  not . return  n e g a t i v e abnormal  i n weeks +2 and +3 (one and two weeks a f t e r  reinstated,  PCTS  119 s u s p e n d e d s t o c k s a r e c o n s i s t e n t  significant,  trading  of  re-  trading significant.  T a b l e XV Summary of  Sample All  Manipulated  Unfavourable i n f o r m a t i on  the  PCTS R e g r e s s i o n Runs  X/n Constant Term  Run  xmSuspension Market Period Factor**  1  C o e f f i c i ent t - s t a t i s t i c*  -0.035 -0.869  0.431 5.701  0.006 0.287  2  C o e f f i c i ent t-statistic  -0.035 -0.868  0.438 5.796  0.006 0.285  1  C o e f f i c i ent t-stati sti c  -0.217 -2.405  0.475 3.104  0.019 0.337  2  C o e f f i c i ent t-stati sti c  -0.217 -2.408  0.490 3.198  0.019 0.344  1  Coefficient t - s t a t is tic  0.028 0.496  0.384 3.973  -0.088 -2.663  2  C o e f f i c i ent t-stati sti c  0.028 0.497  0.395 4.090  -0.088 -2.665  xr«n Week +2  Week +3  -0.032 -2.465 -0.035 -2.685 -0.069 -2.785 -0.045 -1.815 -0.044 -2.501 -0.052 -2.967  T a b l e XV Sample  Run  Favourable information  X  m  (Cont'd) X  f 2  ^  X  r 3  ^  1  Coefficient t-statistic  0.059 1.049  0.535 4.516  0.088 3.484  2  Coefficient t-statistic  0.059 1.048  0.536 4.525  0.088 3.487  * S i n c e each t - s t a t i s t i c has a l a r g e number o f d e g r e e s o f s i g n i f i c a n c e l e v e l s can be t a k e n f r o m a normal p r o b a b i l i t y  freedom table.  X/J^_  X  m  -0.012 -0.654 -0.006 -0.301 (>>100), the  one-tailed  * * The e's tiiwateeld c o e f f i c i e n t s f o r t h i s v a r i a b l e a r e not e q u a l t o th e i r - t b e o r e t i ca 1 va 1 ue ^of one b e c a u s e o f measurement e r r o r i n X / \ Measurement e r r o r a r i s e s i n " X / i because t h e b . - ' kincfl uded l ci rieX/H a r e r e g r e s s g o n s e s t i mates "s ubj eetb.to ^samp 1 d n g : e r r o r (Ray Ba 1 1 , T " R i s k , ' R e t u r n and D>i s e q u i 1 i br i um," p. 3 5 0 ) . As a r e s u l t , t h e measurement e r r o r i r i ^ X ' ' ' causes t h e c o e f f i c i e n t of X . ^ 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 n d e p e n d e n t v a r i a b l e t h a t we e x p e c 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 variables t h e n . . . t h e d i r e c t i o n o f b i a s on t h e c o e f f i c i e n t o f t h e v a r i a b l e m e a s u r e d w i t h e r r o r i s unambiguously downwards". See M a u r i c e D. L e v i , " E r r o r s i n t h e V a r i a b l e s B i a s i n t h e P r e s e n c e of C o r r e c t l y M e a s u r e d V a r i a b l e s , " E c o n o m e t r i c a , V o l . 4 1 , N o . 5 ( S e p t e m b e r , 1 9 7 3 ) , p. 9 8 5 . ) The s e n s i t i v i t y of t h e r e s u l t s to t h e m e a s u r e m e n t e r r o r i n X.'' ' was e x a m i n e d by r e - e s t i m a t i n g t h e e i g h t r e g r e s s i o n s w i t h a l l t h e e s t i m a t e d b e t a s 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 / " n e a r 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 ' ' ! and X / ^ . F u r t h e r m o r e , cons t r a i n e d ' r e g r e s s i ons ( c o e f f i c i e n t of^^ ^ 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 / " " a n d ^ X / " - - see A p p e n d i x 1 1 1 . 2  2  1  2  1  r ?  2  1  2  3  1  1  2  3  1  4  1  151 The r e s u l t s not  entirely  a positive, abnormal the  for  the  a l l e g e d l y manipulated  consistent with e a r l i e r but  not  statistically  hand, the  negative  abnormal  weeks + 2 and +3 a r e s t a t i s t i c a l l y with e a r l i e r  results.  the market  information  does not  trading  the  abnormal  weeks a f t e r earlier,  strongly  disseminated  to  the market  unfavourable  fully  new i n f o r m a t i o n  The r e s u l t s  for  during  the  the  trading  significant  s u s p e n s i o n but  weeks +2 and +3 a r e n o t earlier,  these r e s u l t s  have a c c e s s is  to  d i s s e m i n a t e d to  is  the  results.  (one and  during  two  As n o t e d have  which  is  s u s p e n s i o n and  impound t h i s  un-  suspensions  Not o n l y  abnormal  abnormal  that  is  return  (1)  4 2  over in  As n o t e d  regulators  new i n f o r m a t i o n a trading  there  returns  significant.  indicate  favourable  the market  significant  information  negative  strongly  the  prices.  favourable  positive  there  r e t u r n over  regulators  a trading  statistically  significant  suspen-  Notonly  new i n f o r m a t i o n  stock  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 a statistically  (1)  and r a p i d l y  into  new  prices.  respectively).  that  in  conclusion  information  abnormal  On  consistent  stock  i n weeks +2 and +3  the market  and  are a l s o s t a t i s t i c a l l y  indicates  does n o t  into  results.  was r e i n s t a t e d ,  significant  favourable  exhibited  the e a r l i e r  negative  there  returns  trading  this  to  returns  unfavourable  significant  s u s p e n s i o n but  negative  (2)  for  average weekly  impound u n f a v o u r a b l e  are c o n s i s t e n t w i t h e a r l i e r  a statistically  access  rapidly  particular,  suspension.  significant  supports  are  trading  about a l l e g e d m a n i p u l a t i o n  The r e s u l t s sions  This  In  significant,  r e t u r n was a c h i e v e d o v e r t h e  other  that  results.  stocks  which  s u s p e n s i o n and  152 (2)  the market  favourable  does n o t  fully  new i n f o r m a t i o n  in  and r a p i d l y stock  impound t h i s  un-  prices.  SUMMARY In  this  chapter,  the  predictions  h y p o t h e s e s on t h e e f f e c t i v e n e s s formulated ber  of  or  not  and e m p i r i c a l l y  statistical a trading  tests  the market  is  fully  assessed.  s u s p e n s i o n s were  More s p e c i f i c a l l y , a numdetermine  any new i n f o r m a t i o n  impounded i n  the major  _are p r e s e n t e d and t h e  and  t h e NR and SR  whether  s u s p e n s i o n c o n v e y s any new i n f o r m a t i o n  and how r a p i d l y  proved s e c u r i t y  tested.  trading  were e m p l o y e d to  the market  ing c h a p t e r ,  of  of  findings  stock  In  and c o n c l u s i o n s o f  implications  regulation  prices.  conveyed  of  and f u t u r e  to  the  follow-  this  study  these f i n d i n g s r e s e a r c h are  to  for  im-  presented  1 53 FOOTNOTES ^ i v e n F i g u r e 1, t h e f o u r p o s s i b l e m a r k e t r e a c t i o n s i n t h e p o s t - s u s p e n s i o n p e r i o d t o " f a v o u r a b l e new" o r "no new" i n f o r m a t i o n are e a s i l y deduced. 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 l o b e 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 T o r o n t o S t a r , The V a n c o u v e r S u n , The V a n c o u v e r P r o v i n c e , The C a n a d i a n S t o c k Exchange D a i l y R e c o r d , The M o n t r e a l S t o c k E x c h a n g e D a i l y R e c o r d , The T o r o n t o S t o c k Exchange D a i l y R e c o r d and The V a n c o u v e r S t o c k Exchange Daily Bulletin. 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 o f t h e C a n a d i a n , M o n t r e a l , T o r o n t o and V a n c o u v e r S t o c k E x c h a n g e s ; members o f t h e 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 t h e M o n t r e a l and T o r o n t o R . C . M . P . F r a u d S q u a d s . 2  3  detail  in  E a c h type of Chapter 2.  trading  interruption  is  discussed  in  " T h i s r e f l e c t s t h e lla^teer d e l e t i on o f G r a n b y M i n i n g f r o m t h e s a m p l e b e c a u s e no t r a d e s o c c u r r e d w i t h i n i t s d a t a collection period. G e n e r a l l y , i n t e r l i s t e d Canadian stocks t r a d e p r e d o m i n a n t l y on one e x c h a n g e . 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 t h e same s e c u r i t y f o r t h e same t i m e p e r i o d were c o l l e c t e d f r o m t h e e x c h a n g e on which the suspended s t o c k p r e d o m i n a n t l y traded. I t s h o u l d be n o t e d t h a t i n some c a s e s , t h e r e g u l a t o r y body f o u n d i t more c o n v e n i e n t t o g i v e t h e p u b l i c a d i f ferent reason. 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 of p r o v i d i n g proof f o r i t s a l l e g a t i o n . 5  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 b e f o r e and 2 y e a r s a f t e r t h e t r a d i n g s u s p e n s i o n . 6  years  F o r example, S c h o l e s e s t i m a t e d the parameters of t h e m a r k e t model u s i n g "100 days o f r e t u r n d a t a on each s e c u r i t y i n t h e s a m p l e a r o u n d t h e day o f t h e s e c o n d a r y but e x c l u d i n g t h e s i x o b s e r v a t i o n s p r i o r t o t h e s e c o n d a r y and s e v e n o b s e r v a t i o n s i n c l u d i n g and s u b s e q u e n t t o t h e day o f the s e c o n d a r y " . See Myron S . S c h o l e s , "The M a r k e 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 t h e E f f e c t s o f I n f o r m a t i o n on S h a r e 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. 1 8 9 . 7  A v a i l a b l e from the F i n a n c i a l 635 D o r c h e s t e r W . , M o n t r e a l , Q u e b e c . 8  9  See footnote  1 0  footnote  Institute,  2. 2.  A weekly d i v i d e n d y i e l d Index was u n a v a i l a b l e . 11  trial  See  Research  series  for  t h e TSE  Indus-  1 54 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 , R e t u r n 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 ) , p p . 3 4 3 - 5 4 . 1 2  A portfolio is efficient t h e same o r h i g h e r e x p e c t e d r e t u r n a t i o n of r e t u r n . 1 3  i f no o t h e r has a l o w e r  p o r t f o l i o with standard d e v i -  * ^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 A n a l y s i s ^ " Management ' S c i e n c e , ' ( ' J a n u a r y , 19,6.3), pp/. 2 7 7 - g 3 ; '.^Capital Asset-Prix-e;s~r~A;~?h;|or-.y~qf"Market E q u i l i b r i u m u n d e r ^ G Q n ' d ' i t i o n s 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 B 1 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 \ + d i ssertation , "Unirvers i t y o f Chi'cago^ T 9 6 8 ) ' ? ' ' ' " - °'  Pgrtfpjio  0  1  C  u  9  U  w  y  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 et a l . i n d i c a t e t h a t the assumptions of l i n e a r i t y , stationa r i t y , and s e r i a l i n d e p e n d e n c e o f t h e r e s i d u a l s a r e not v i o lated. The e s t i m a t e d r e s i d u a l s , h o w e v e r , a p p e a r 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 o f t h e 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 of l e s s than two. H o w e v e r , 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 o f S y m m e t r i c 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 of the American S t a t i s t i c a l A s s o c i a t i o n , ( S e p t e m b e r , 1 9 6 8 ) ) a n d s i m u l a t i o n s by Fama and B a b i a k (Eugene Fama and H a r v e y 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 h e A m e r i c a n 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"! 1 1 3 2 - 6 1 ) and B l a t t b e r g and S a r g e n t ( R o b e 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 N o n 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 S a m p l i n g 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 ) , p p . 5 0 1 - 1 0 ) 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 t h e mean i s a l m o s t as e f f i c i e n t an e s t i m a t o r o f t h e l o c a t i o n p a r a m e t e r o f t h e d i s t r i b u t i o n as t h e median o r 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 , t h e use o f t h e 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 m e a n s , a p p e a r s to be a p p r o p r i a t e . 1 5  (  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 t h e T h e o r y o f C a p i t a l M a r k e 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 , R e t u r n 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 o f P o l i t i c a l Economy, 71 , 1 973 , p p . 6 0 7 - 3 6 . 1 6  T h e m e t h o d o l o g y i n t h i s s t u d y i s an a d a p t i o n and r e f i n e m e n t o f t h e m e t h o d o l o g y used by Eugene Fama, L a w r e n c e 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 A d j u s t m e n t o f S t o c k P r i c e s t o 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 R e v i ew, 10 ( F e b r u a r y , 1 9 6 9 ) , p p . 1 - 2 1 . Fama e t a l . used t h i s m e t h o d o l o g y to a n a l y z e t h e 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 m e t h o d o l o g y has a l s o been used to a n a l y z e t h e i m p a c t o f institutional trading. See 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 R e p o r t o f t h e 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 ) . 1 7  1 55 B . F . K i n g , " M a r k e t and I n d u s t r y F a c t o r s i n S t o c k 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 II ( J a n u a r y , 1966), pp. 139-90. 1 8  S . L . M e y e r s , "A R e - e x a m i n a t i o n o f M a r k e t and I n d u s t r y Factors i n Stock P r i c e B e h a v i o u r , " Journal of F i n a n c e , V o l . 2 8 , No; 3 (June, 1973), pp. 695-705. 1 9  0 n e s u s p e n d e d s t o c k had t o be e l i m i n a t e d b e c a u s e lacked s u f f i c i e n t data f o r the e s t i m a t i o n p e r i o d . 2 0  it  T h e e r r o r term i s n o t t h e same as t h e r e s i d u a l , s i n c e some o f t h e o b s e r v a t i o n s t o be p r e d i c t e d a r e n o t i n cluded i n the estimation procedure. T h u s , t h e mean v a l u e s o f t h e e r r o r terms a r e u s u a l l y n o n z e r o . 2 1  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 n o t . b e p u r c h a s e d i n r e l a t i v e week w. 2 2  could  stocks  I t s h o u l d be n o t e d t h a t t h e r e s u l t s do n o t a p p e a r to be v e r y s e n s i t i v e t o t h e number o f o b s e r v a t i o n s d e l e t e d . F o r 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 t h e o b s e r v a t i o n s f o r t h e 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 t h e e s t i m a t i o n of (5) . 2 3  For the unfavourable information suspensions other t h a n 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 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 t h e 40 weeks p r i o r t o t h e 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 o v e r t h e s u s p e n s i o n p e r i o d and t h e n f a l l a f u r t h e r 1 5 . 6 p e r c e n t d u r i n g t h e 39 weeks s u b s e q u e n t t o t h e reinstatement of t r a d i n g . 2h  F . B l a c k , M. J e n s e n and M. S c h o l e s , " T h e C a p i t a l P r i c i n g M o d e l , " p. 8 4 . 2 5  Asset  I t s h o u l d be n o t e d t h a t t h e FFJR and t h e 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 . This r e s u l t s e s s e n t i a l l y from t h e 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 m e t h o d . 2 6  F o r the unfavourable information suspensions other t h a n 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 sign i f i c a n t average abnormal r e t u r n i n t h e 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 negative abnormal r e t u r n i n t h e p o s t - s u s p e n s i o n p e r i o d . 2 7  2 8  Since  thl..iitifflitia  R» . was n o t s u b t r a c t e d  liphis  wS^iS  1  from e q u a t i o n ( 5 ) ,  y}8t U SSlfcctgfl td 61 I q u a i  to  zero. F o r the unfavourable for alleged manipulation, d u r i n g t h e 40 weeks p r i o r 2 9  than cent  information suspensions other t h e C . A . E . T . f a l l by 3 3 . 9 p e r t o t h e 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 3 6 . 8 p e r c e n t trading suspension.  over  and s u b s e q u e n t  to  the  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 average o f t h e e s t i m a t e d a l p h a s f o r t h e t o t a l s a m p l e and each s u b s a m p l e was n e g a t i v e . 3 0  It s h o u l d be n o t e d t h a t t h i s i s not a v e r y 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 or not beta i s nonstationary. 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 r e now b e i n g u s e d i n t h e e s t i m a t i o n o f t h e p a r a m e t e r s o f the SFM. 3 1  A n a l t e r n a t e m o v i n g a v e r a g e 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 a r o u n d t h e week o f i n t e r e s t . That i s , t h e a . . and t h e b . f o r (8) c o u l d be e s t i m a t e d f r o m d ata Hr \t-Z5) t h r o u g h ' (t+25) e x e l u d i ng week t . 3 2  i  r  a  s  M o v i ng a v e r a g e a^ and b^ s e r i e s were a.lso used t o " f l S l i c ' a l l t g t h e 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 - e q u a 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 n o t Be p r e s e n t e d b e c a u i i t h e y §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 s e n t e d and d i s c u s s e d . 3 3  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 D a t a i n t h e 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) , p p . 585-61 2 . 3 1 f  I am g r a t e f u l t o S . T u r n b u l l age used t o s o l v e t h e PCTS r e g r e s s i o n s 35  f o r the run f o r  computer p a c k this thesis.  A d i s c u s s i o n o f t h i s m e t h o d o l o g y i s g i v e n i n E. K u h , "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 ) , p p . 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. 585-612. 3 6  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 7  T h e p r o b l e m 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 a r o u n d t h e 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 h a n d l e d by t h e 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 t h e PCTS r e g r e s s i o n m o d e l . 3 8  T h e i n t r o d u c t i o n of t h i s i n s t r u m e n t a l variable i n t o t h e model m i n i m i z e s any p r o b l e m s t h a t can o c c u r b e c a u s e of non-stationarity. 3 9  I f a dummy v a r i a b l e had been u s e d , multicolinearity have e x i s t e d between t h i s v a r i a b l e and t h e c o n s t a n t 4 , 0  would term.  1 57 T h a t t h i s makes t h e can be shown as f o l l o w s : 4 1  o  2  (1-  ^  j  t  )  T  residual  variance  homoscedastic  (I^oJ.  " T h e a v e r a g e w e e k l y a b n o r m a l 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 o f a l l O ' s e x c e p t f o r l ' s f o r weeks +2 and +3. 2  Chapter 4 SUMMARY, MAJOR FINDINGS AND IMPLICATIONS The two b a s i c protection of  the  mainly  the g e n e r a l  individual to  formance relates able  of  aims o f  the  of  regulation  t r e a t m e n t of  all  market  participants.  of  the  public  as a p e n d i n g t a k e o v e r more o f action  behaviour which  example,  if  information  a regulator is  general  A corporate  one o r more m a r k e t a regulatory  action  to  to  participants,  violation  information. 1 58  the  of  a  of  and the (such  one o r  regulatory  the f i r m .  non-public  the m a t e r i a l then  elicit  information  can l e a d t o  suspects that  compelling  both  filing  information  suspension) against  being e x p l o i t e d  is  participants  approach i n c l u d e s  firm-specific  these d i s c l o s u r e p r o v i s i o n s ( s u c h as a t r a d i n g  "con-  statements). which are designed  d i s c l o s u r e of  bid).  equit-  achieve  ( s u c h as t h e m a n d a t o r y  d i s c l o s u r e of  latter  requirements.  d i s c l o s u r e p o l i c i e s which are intended  immediate  to  new and e x i s t i n g  The l a t t e r  financial  regular  the  per-  approaches:  and " d i s c l o s u r e " type of  relates  ensure the  two r e g u l a t o r y  be a c c e p t a b l e f o r  and q u a r t e r l y  to  the  protection  economic  have a t t e m p t e d  approach d e a l s w i t h the  disclosure statutes  elicit  timely  regulations  s e c u r i t i e s market.  general annual  aims t h r o u g h  conduct"  c o n s i d e r e d to the  regulators  the  markets; while  use o f  The f o r m e r  to  security  improve  the  t h e s e two b a s i c  in  to  are  and t h e  The f o r m e r  to  Historically,  trol  regulation  interest  interest.  regulation  (efficiency) mainly  public's  investor's  use o f  securities  For  firm-specific  advantage  the r e g u l a t o r  of  may i s s u e  immediate d i s c l o s u r e of  that  1 59  The m a j o r pirically of  two  security  improving lator  p u r p o s e of  alternative  regulation  the  efficient.  efficiency  security  regulators  The b e l i e f  "insufficient" on a l l to  continue  i n making or  Therefore,  As a r e s u l t ,  to  the  alternate  sample s a t i s f i e d  at  the  and/or 1,  vary  by t h e  suspension,  not  fully  regulais  market,  not an  would  have an  act  inclination  c o n s o n a n t w i t h new  regulation  it  can be to  effective  an  efficient  to  type the  of  Each s u s p e n d e d s t o c k  criteria:  (1)  disseminate requested was l i s t e d  was s u s p e n d e d d u r i n g  trading.  be r e s o l v e d  it  the  was s u s p e n d e d (2)  on t h e C S E , M S E , TSE the  inclusive;  period  and (4)  dispersed during  allegedly manipulated,  in  information;  Since suspension price  information  empiri-  120 s u s p e n d e d s t o c k s was used  hypotheses.  December 3 1 , 1 9 7 3 , for  could only  a sample of  suspension, it  V S E ; (3)  reinstated  is  market  investors  approximation  hypothesis  the f o l l o w i n g  a failure  time of  1967, to  regu-  market.  cally.  because of  not  in  otherwise.  sophisticated  "sophisticated"  security  market  an u n r e g u l a t e d  and w o u l d  efficacy  u n n e c e s s a r y and  an u n r e g u l a t e d  in  a "closer"  The c o m p e t i n g  test  that  the  em-  The n a i v e  is  believing  expectations  the market  perfect  in  that  information  holding  information.  is  number o f  available  regulation  test  suspensions)  stock market.  hypothesis,  states  trading  the  t h a t an u n r e g u l a t e d  are naive  (SR) h y p o t h e s i s ,  efficient.  the  security  The a l t e r n a t i v e tor  of  has been to  concerning  particular  states  Therefore,  thesis  hypotheses  (in  (NR) h y p o t h e s i s  this  the  of it  January was  effects a  later can  trading  unfavourable  infor-  160 m a t i o n and t h e f a v o u r a b l e  information  s a m p l e were a l s o i d e n t i f i e d A c c o r d i n g to hypothesis suspensions reflected" the  may  not  be known to  shares  tests.  terms  of  trading  "fully  not  "fully  be a v a i l a b l e  h a n d , t h e SR h y p o t h e s i s  reflected"  v a l u e to m a t e r i a l l y  in current  affect  the market  s u s p e n d e d s t o c k s were s u b j e c t e d to  The f i r s t s i m p l y of  test,  the  a visual  to  predicts  stock  prices  p r i c e of  the  (and o v e r )  e x a m i n a t i o n of  non-zero  behaviour.  statistically  the  whether  t e r m s were s i g n i f i c a n t l y The  third  test  d e t e r m i n e w h e t h e r o r not  measurement e r r o r s The  fourth  in  the  test  model when a l l  t h e t>.'s  to. d e t e r m i n e w h e t h e r  the  con-  error  e a c h week significant  portfolio  method  the weekly average  on t h e a v e r a g e  the  zero.  single factor This test  error  (and market  was e m p l o y e d  r e s u l t s were s e n s i t i v e  to  estimated alphas.  was a FFJR t e s t  cumulative average) e r r o r  of  from z e r o .  from  t h e ci^ ' s a r e s e t to  terms f o r  used t h e  was a FFJR t e s t terms  the average  suspension for  or not  different  cumulative average) error model when a l l  trading  The s e c o n d t e s t  test  a number  Fama-Fisher-Jensen-Rol1 test,  and t h e c u m u l a t i v e a v e r a g e e r r o r to  to  effect  market  r e g u l a t o r s am-dimay,, when made p u b l i c , be o f  relative  to  the e f f i c i e n t  regulated. The  sisted  form o f  s t o c k p r i c e s would not  On t h e o t h e r  information  sufficient  strong  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 in current  in.the  and a n a l y z e d .  (and t h e NR h y p o t h e s i s ) , t h e  Regulators.  that  the  suspended s t o c k s  on t h e a v e r a g e  terms from the s i n g l e f a c t o r  a r e s e t to o n e .  o r not  the  This test  (and market  was e m p l o y e d  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 The f i n a l (PCTS) into  in  the  test  to  dispersed during  test  for  Dummy v a r i a b l e s were the  a trading  examined i n c l u d e d the in the  betas;.  was a p o o l e d c r o s s - s e c t i o n t i m e  regression analysis.  t h e model  weeks  estimated  effect  of  suspension.  series  introduced  any new  information  The t i m e  periods  s u s p e n s i o n p e r i o d and t h e  first  two  post-suspension period.  MAJOR FINDINGS The m a j o r  findings  of  this  study  can be s u m m a r i z e d  as : (1) participants mation.  The s t u d y  who a p p a r e n t l y  The f i n d i n g s  as h a v i n g a c c e s s new i n f o r m a t i o n prior  to  to  of  is  the  not  able  In  favourable)  is  not  for  unfavourable  stocks, s t a t i s ti c al l y occur  form f o r  cally,  statistically  in  (and e x p l o i t i n g )  and  significant  efficient informaunfavour-  abnormal  the p o s t - s u s p e n s i o n p e r i o d .  favourable  be e f f i c i e n t  new i n f o r m a t i o n .  significant  and o v e r t h e  Deliberately  new p u b l i c  a l l e g e d l y manipulated  The m a r k e t a p p e a r s to  prior  prices  suspension.  strong  (4)  (and  infor-  regulators  F o r t h e s>£:oc"k<s s t u d i ed , t h e m a r k e t  returns  occur only  identify  unfavourable  "fully  to  stock  particular,  (3)  access  in  information  negative  study c l e a r l y  market  reflected"  the s e m i - s t r o n g form f o r  tion.  a new g r o u p o f  has m o n o p o l i s t i c  significant  that  a trading (2)  in  has i d e n t i f i e d  positive  in  the  semi-  More s p e c i f i -  abnormal  returns  suspension period.  pursued s t r a t e g i e s  misinformation  are probably  of  disseminating  profitable.  This  162 is  supported  that  occur  by t h e  in  the  extremely  large positive  abnormal  pre-suspension period for  allegedly  returns manip-  ula-fed' s t o c k s . . (5) sensitive  T e s t s to  determine whether  t o measurement e r r o r s  the  estimated  this  study.  betas did  in  implications  for  of  not m a t e r i a l l y  this  security  study  not  the  findings  are  t h e e s t i m a t e d a l p h a s and  IMPLICATIONS FOR SECURITY The f i n d i n g s  or  affect  the  findings  REGULATION  have a number o f  regulation  of  important  in Canadian c a p i t a l  mar-  kets . Effectiveness  of  Regulatory S u r v e i l l a n c e Techniques  The s t a t i s t i c a l l y exhibited ples  in  (allegedly  favourable the  detection  not  ticated  manipulated,  totally  observation today:  "Even the  devices  at  counts of Regulators market  information  unexpected, given techniques  by Manne i s  its  unfavourable  all  three  This  still  the a p p a r e n t  command, s t i l l  s p e c i f i c events  to  should therefore  use o f  occasionally valid efficient  largely  know where to strive  techniques.  to  the This  unsophis-  The in  that  detect  effective.  by r e g u l a t o r s .  relies  and  suggests to  returns  subsam-  information  a r e not  S E C , w h i c h has q u i t e  surveillance  abnormal  employed by r e g u l a t o r s  monopoly  investigatory  for  are d i s t r e s s i n g .  techniques of  positive  pre-suspension period  information)  exploitation is  the  significant  following Canada  discovery  on n e w s p a p e r a c -  begin a  employ more  search". efficient  1  163 Effectiveness  of  the  Dissemination  The s t a t i s t i c a l l y exhibited lated  in  publicly sion  is  wider,  significant  negative  the p o s t - s u s p e n s i o n p e r i o d  and u n f a v o u r a b l e  c o n c e r n to  Process  information  regulators.  disseminating not  very  allegedly  information  manipu-  the p r o c e d u r e  during  the  Alternative  and p r o b a b l y more e q u i t a b l e , information  returns  s t o c k s s h o u l d a l s o be o f  This suggests that  effective.  new f i r m - s p e c i f i c  for  abnormal  trading  methods o f  public  for  suspenensuring  dissemination  of  s h o u l d be e x a m i n e d .  SUGGESTIONS FOR FURTHER RESEARCH The f i n d i n g s be c o n d u c t e d i n a t Alternative  this  least  Regulatory  Trading actions  of  study  the  following  of  three  research should  areas.  Actions  s u s p e n s i o n s a r e o n l y one o f  e m p l o y e d by r e g u l a t o r s  disclosure  suggest that  firm-specific  to  elicit  four  the  information.  regulatory  immediate  The o t h e r  actions  include delayed openings, trading  d e l a y s and  halts.  It  test  alternate mation  w o u l d be u s e f u l forms  of  a r e more o r  Impact o f  to  empirically  interrupting less  trading  effective  than  such a manner t h a t  are e x p e c t e d to  trading  particular  has a d v a n c e k n o w l e d g e a b o u t  the  impending  performance. dition  for  the  As a r e s u l t , effective  to  trading  these infor-  suspensions.  actions  corporate use o f  not  in  insiders)  the  achieve a superior  a n e c e s s a r y but  use of  whether  use r e g u l a t o r y  (in  t h a t group  trading  Equity  no g r o u p  a c t i o n which a l l o w s  regulatory  to d i s s e m i n a t e  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  Regulators  public  regulatory market  sufficient  suspensions is  con-  that  1 64 insiders mation that  do not  p o s s e s s and p r o f i t a b l y  about a f u t u r e  suspension.  exploit  A priori,  i n s i d e r s may e a r n e x c e s s r e t u r n s  warn t h e  company (and t h e r e f o r e  a trading  suspension.  earn excess r e t u r n s pirically  the  it  would  insiders) or  before not  of  do  Market S u r v e i l l a n c e Techniques  b e h a v i o u r of  in order  investigation  securities  by t h e  to f l a g  abnormal  sion period for effectiveness  situations  of  returns  use o f  to  that  a l l e g e d l y manipulated  monitor  informers  r e q u i r e more  action. occur  in  The  the  and  as " s t o c k - w a t c h "  that  and p o s s i b l e r e g u l a t o r y  positive  studied.  issuing  s u s p e n s i o n s s h o u l d be em-  simple mechanical methods, r e f e r r e d  large  often  insiders  As was d i s c u s s e d i n C h a p t e r 2 , r e g u l a t o r s  grams,  be e x p e c t e d  tested.  Effectiveness  market  infor-  because r e g u l a t o r s  T h e r e f o r e , whether  around t r a d i n g  "private"  pro-  intensive  extremely  the p r e - s u s p e n -  stocks suggest that  these s u r v e i l l a n c e techniques  s h o u l d be  the  165 FOOTNOTES S e e H . A . Marine, E c o n o m i c P o l i c y and t h e R e g u l a t i o n of 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 : American E n t e r p r i s e I n s t i t u t e , 1 969] , p. 1 6 3 . x  BIBLIOGRAPHY A r c h i b a l d , T. R o s s . " S t o c k Market 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 , 1 972) , p p . 2 2 - 3 0 . A r r o w , K . J . " I n s u r a n c e , R i s k and R e s o u r c e 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 of the Theory of R i s k - B e a r i n g ( H e l s i n k i : Yrjo Jahnssoninsaato , 1 963). . "The R o l e o f S e c u r i t i e s i n t h e O p t i m a l A l l o c a t i o n o f R i s k - B e a r i n g , " R e v i e w of E c o n o m i c S t u d i e s , V o l . 31 ( 1 9 6 3 / 1 9 6 4 ) , p p . 91-96. B a i l i e , J . W . "The P r o t e c t i o n o f t h e I n v e s t o r i n O n t a r i o , " Canadian P u b l i c A d m i n i s t r a t i o n ( J u n e , 1965), pp. 172-268. . "The P r o t e c t i o n o f t h e I n v e s t o r i n O n t a r i o , " ' Canadian P u b l i c A d m i n i s t r a t i o n (September, 1965), pp. 432.  325-  B a l e s t r a , P i e t r o and N e r l o v e , M a r c . " 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 t h e 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 , 1966), pp. 585-612. B a l l , R a y . " R i s k , R e t u r n 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 t o 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 n a n c e , V o l . 2 7 , No. 2 (May, 1 9 7 2 ) , p p . 3 4 3 - 5 4 . , and B r o w n , P h i l l i p . "An E m p i r i c a l E v a l u a t i o n o f A c c o u n t i n g Income N u m b e r s , " 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 . , and W a t t s , R. "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 I n c o m e , " 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. 663-81. B a r r e t t , P e t e r . "The day t h e y t o o k t h e l i d o f f security 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 , O c t o b e r 1 2 , 1 9 7 4 , p. C - 8 . B a u m o l , W i l l i a m J . The S t o c k M a r k e t and E c o n o m i c (New Y o r k : Fordham U n i v e r s i t y P r e s s , 1 9 6 5 ) .  Efficiency  B e a v e r , W i l l i a m . J , "The I n f o r m a t i o n C o n t e n t o f E a r n i n g s A n nouncements," E m p i r i c a l Research in 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 , 1 9 6 8 , S u p p l e m e n t t o Volume 7 o f t h e J o u r n a l o f Accounting R e s e a r c h , pp. 6 7 - 9 2 . 166  1 67 , and D u k e s , R. " I n t e r p e r i o d t a x a l l o c a t i o n and t h e b e h a v i o u 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 ew, X L V11 , No. 2 ( 1 9 7 2 ) , p p . 3 2 0 - 3 2 . B e n s t o n , George J . Stock P r i c e s , " S t u d i e s , 1967, Research , pp.  " 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 Empirical Research in Accounting: Selected S u p p l e m e n t to V o l . 5 , J o u r n a l o f A c c o u n t i n g 1-54.  . "The V a l u e o f t h e S E C ' s A c c o u n t i n g 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 , 32.  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"New L i s t i n g s and T h e i r P r i c e J o u r n a l o f F i n a n c e , 25 ( S e p t e m b e r , 1 9 7 0 ) , p p .  Behaviour," 783-94.  V a s i c e k , O l d r i c h A . and McQuown, J o h n A . "The E f f i c i e n t M a r kets M o d e l , " F i n a n c i a l A n a l y s t s Journal (September/Oct o b e r , 1972), pp. 71-84. W a l t e r , James E. and W i l l i a m s o n , J . P e t e r . 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 XV, ( S e p t e m b e r , 1 9 6 0 ) , p p . 3 0 7 - 2 4 .  "Organized S e c u r i of F i n a n c e , V o l .  W a u l d , Roger N. " 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 R e s e r v e D i s c o u n t R a t e C h a n g e s : E v i d e n c e on t h e ' A n n o u n c e m e n t 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 ) , p p . 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 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 t h e ' 3 3 and '34 S e c u r i t i e s A c t s , R e p o r t and Recommendations to t h e S e c u r i t i e s and Exchange Commission from the D i s c l o s u r e P o l i c y Committee ( M a r c h , 1 969). 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 of B r i t i s h Columb i a , Vancouver, 1975. " W h i t e - c o l l a r c r i m e pays too b e r 2 0 , 1 9 7 5 , p. H - l .  well,"  Williamson, J . . Peter. Securities U n i v e r s i t y of Toronto P r e s s ,  The M o n t r e a l  Regulation 1 960 ).  in  • :... S u p p l e m e n t to S e c u r i t i e s R e g u l a t i o n (Ottawa: Queen's P r i n t e r , 1966).  Star,  Canada  Septem(Toronto  i n Canada  175 W o n n a c o t t , R o n a l d J . and W o n n a c o t t , T h o m a s ' H . E c o n o m e t r i c s (New Y o r k : J o h n W i l e y and S o n s , I n c . , 1970T! Wu, H s i u - K w a n g . " 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 t o c k P r i c e M o v e m e n t " (Ph . 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 , 1963). ;  . "An E c o n o m i s t L o o k s a t S e c t i o n 16 o f t h e E x c h a n g e A c t o f 1 9 3 4 , " C o l u m b i a Law R e v i e w , 68 1968), pp. 260-69.  Securities (February,  176 Appendix  I  THE SAMPLE OF STOCKS SUSPENDED BECAUSE OF A FAILURE TO DISSEMINATE REQUESTED INFORMATION 1.  A f r i c a n a M i n i n g C o . L t d . , l i s t e d on t h e CSE as ' A F M . S u s p e n d e d on May 1 3 , 1971 and r e i n s t a t e d on May 1 4 , 1 9 7 1 . Reason: No r e a s o n g i v e n f o r sudden s h a r e p r i c e d r o p . Classification: Favourable Information. (*)  2.  B e l g i u m S t a n d a r d L t d . , l i s t e d on t h e CSE as BLG . S u s p e n d e d on A p r i l 2 5 , 1973 and r e i n s t a t e d on A u g u s t 0 6 , 1 973. Reason: F o r g e t m a i n t a i n e d t h e p r i c e , t h u s c r e a t i n g an artificial market. Classification: Unfavourable information. (*)  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 t h e CSE as BCY . S u s p e n d e d on A p r i l 2 5 , 1973 and r e i n s t a t e d on A u g u s t 2 0 , 1 973. Reason: F o r g e t m a i n t a i n e d t h e p r i c e , t h u s c r e a t i n g an artificial market. Classification: Unfavourable information. (*)  1  1  1  1  1  4.  B i o V i t a I n c . , l i s t e d on t h e CSE as ' BVT . S u s p e n d e d 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. Reason: F o r g e t m a i n t a i n e d t h e p r i c e , t h u s c r e a t i n g an artificial market. Classification: Unfavourable information. (*)  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 t h e CSE as BSP . S u s p e n d e d on December 2 0 , 1972 and r e i n s t a t e d on December 21 , 1 9 7 2 . Reason: P e n d i n g r e l e a s e to be made s h o r t l y (regulatory p r o b l ems).. Classification: Unfavourable Information.  1  1  1  6.  C a n a d i a n G o l d a l e C o r p . L t d . , l i s t e d on t h e CSE as ' CGD ' . S u s p e n d e d on S e p t e m b e r 8 , 1972 and r e i n s t a t e d on S e p t e m ber 1 2 , 1972. Reason: A t r e q u e s t o f company, p e n d i n g 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 . Classification: Favourable information.  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 t h e CSE as ' CAI ' . S u s p e n d e d on O c t o b e r 1 3 , 1970 and r e i n s t a t e d on O c t o b e r 14, 1970. Reason: R e q u e s t o f company, p e n d i n g announcement f r o m company o f i t s a f f a i r s . Classification: F-a vi o U ^ b i ? e " i n f o r ma-t i^n" .on. (*) s  177 Appendix  I  (Cont'd)  8.  C a r b e c M i n e s L t d . , l i s t e d on t h e CSE as ' C R C . S u s p e n d e d on November 1 7 , 1967 and r e i n s t a t e d on March 11, 1968. Reason: P e n d i n g 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 . Classification: Unfavourable information. (*)  9.  C h e s b a r I r o n Powder L t d . , l i s t e d on t h e CSE as ' C B l . S u s p e n d e d on December 2 9 , 1971 and r e i n s t a t e d on A p r i l 2, 1973. Reason: Company r e q u e s t , p e n d i n g u n f a v o u r a b l e s h a r e h o l d e r announcement. Classification: Unfavourable information. (*)  10.  C i n e v i s i o n L t e e , l i s t e d on t h e CSE as ' C V l ' . S u s p e n d e d 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. Reason: Company r e q u e s t , p e n d i n g ( f a v o u r a b l e ) i n f o r m a tion. Classification: Favourable information.  11.  C i n e v i s i o n L t e e , l i s t e d on t h e CSE as ' C V l ' . S u s p e n d e d on A p r i l 2 5 , 1973 and r e i n s t a t e d on A u g u s t 1 3 , 1 973. Reason: F o r g e t m a i n t a i n e d t h e p r i c e , t h u s c r e a t i n g an artificial market. Classification: Unfavourable information. (*)  12.  C o n s o l i d a t e d M a n i t o b a M i n e s L t d . , l i s t e d on t h e CSE as ' CMAN . S u s p e n d e d on S e p t e m b e r 2 6 , 1967 and r e i n s t a t e d on S e p t e m ber 27, 1967. Reason: P e n d i n g 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 o f company affa i rs. Classification: Unfavourable information.  1  1  13.  C u v i e r M i n e s , l i s t e d on t h e CSE as ' C U V ' . S u s p e n d e d on O c t o b e r 2 , 1973 and r e i n s t a t e d on O c t o b e r 3 , 1973. Reason: Pending 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 tock. Classification: Unfavourable information. (*)  14.  D e v i l s Elbow M i n e s , l i s t e d on t h e CSE as ' D E M ' . S u s p e n d e d on J u n e 2 3 , 1967 and r e i n s t a t e d on J u n e 2 6 , 1 967. Reason: P e n d i n g a s t a t e m e n t f r o m t h e company. Classification: Unfavourable information.  15.  Duvan C o p p e r C o . L t d . , l i s t e d on t h e CSE as ' D U V ' . S u s p e n d e d 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. Reason: 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 affairs. Classification: Unfavourable information.  178 Appendix  I  (Cont'd)  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 t h e CSE as ' F G R ' . S u s p e n d e d on A p r i l 2 5 , 1973 and r e i n s t a t e d on December 27, 1973. Reason: F o r g e t m a i n t a i n e d t h e p r i c e , t h u s c r e a t i n g an artificial market. Classification: Unfavourable information. (*)  17.  Gaspe Quebec M i n e s L t d . , l i s t e d on t h e CSE as ' G E Q ' . S u s p e n d e d on November 0 2 , 1972 and r e i n s t a t e d on November 1 7 , 1972. Reason: C l a r i f i c a t i o n o f c o m p a n y ' s r e c e n t l y announced a c q u i s i t i o n of Lennox P a p e r L t d . Classification: Favourable information.  18.  G r e n a c h e I n c . , l i s t e d on t h e CSE as ' GEI ' . S u s p e n d e d on O c t o b e r 3 1 , 1972 and r e i n s t a t e d on November 3, 1972. Reason: P e n d i n g c l a r i f i c a t i o n o f a p u r c h a s e 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 . Classification: Favourable information.  19.  Hambro C o r p . o f Canada L t d . , l i s t e d on t h e CSE as ' H R O ' . S u s p e n d e d on S e p t e m b e r 8 , 1972 and r e i n s t a t e d on S e p t e m ber 1 2 , 1972. Reason: Company r e q u e s t , p e n d i n g p u r c h a s e o f f e r . Classification: Favourable information.  20.  I s e c Canada L t d . , l i s t e d on t h e CSE as ' I S E ' . Suspended on J a n u a r y 1 4 , 1972 and r e i n s t a t e d on S e p t e m ber 2 4 , 1973. Reason: P e n d i n g 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 . Classification: Favourable information.  21.  James Bay M i n i n g C o r p . , l i s t e d on t h e CSE as ' J B M ' . S u s p e n d e d on November 8 , 1968 and r e i n s t a t e d on November 22, 1968. Reason: 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 nated. Classification: Unfavourable information. (*)  22.  K o d i a k P e t r o l e u m s L t d . , l i s t e d on t h e CSE as K P L ' . S u s p e n d e d on J u n e 2 2 , 1967 and r e i n s t a t e d on J u n e 2 6 , 1 967. Reason: P e n d i n g i n f o r m a t i o n r e l e a s e ( t a k e n o v e r by Manhattan C o n t . Dev. C o r p . ) . Classification: Favourable information.  23.  K o n t i k i L e a d & Z i n c M i n e s L t d . , l i s t e d on t h e CSE as ' KTK . S u s p e n d e d 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. Reason: Company r e q u e s t , p e n d i n g announcement r e a f f a i r s Classification: Favourable information.  1  1  Appendix  I  (Cont'd)  24.  L e m i e u x C o p p e r E x p l o r a t i o n s L t d . , l i s t e d on t h e CSE as 'LCX'. S u s p e n d e d 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. Reason: P e n d i n g c l a r i f i c a t i o n o f company a g r e e m e n t on claims. Classification: Unfavourable information.  25.  L e m i e u x C o p p e r E x p l o r a t i o n s L t d . , l i s t e d on t h e CSE as 'LCX ' . S u s p e n d e d on May 1 2 , 1 969 and r e i n s t a t e d on J u l y 1 8 , •. 1 969. Reason: Company r e q u e s t , p e n d i n g a r e o r g a n i z a t i o n to Lemtex D e v e l o p m e n t s L t d . Classification: Favourable information.  26.  M a c D o n a l d M i n e s L t d . , l i s t e d on t h e CSE a s ' M M L ' . S u s p e n d e d on December 2 6 , 1973 and r e i n s t a t e d on December 27, 1973. Reason: P r i c e i n c r e a s e without apparent r e a s o n . Classification: Unfavourable information. (*•)  27.  M a n i x M i n e s L i m i t e d , l i s t e d on t h e CSE as ' M A X . S u s p e n d e d on November 1, 1972 and r e i n s t a t e d on March 21, 1973. Reason: P e n d i n g 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 . Classification: Favourable information.  28.  Matachewan C a n a d i a n G o l d L t d . , l i s t e d on t h e CSE as 'MCG . S u s p e n d e d on November 1 7 , 1967 and r e i n s t a t e d on March 1 1 , 1 968. Reason: P e n d i n g 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 . Classification: Unfavourable information. (*)  29.  Matachewan C a n a d i a n G o l d L t d . , l i s t e d on t h e CSE as MCG' . S u s p e n d e d on S e p t e m b e r 1 8 , 1968 and r e i n s t a t e d on S e p t e m ber 3 0 , 1968. Reason: Company r e q u e s t , p e n d i n g s t a t e m e n t on m e r g e r into Triton Explorations Ltd. Classification: Favourable information.  30.  New Formaque M i n e s L t d . , l i s t e d on t h e CSE as ' N F M . S u s p e n d e d on S e p t e m b e r 1 0 , 1970 and r e i n s t a t e d on F e b r u ary 2, 1971. Reason: QSC i s s u e d o r d e r 5 0 7 , d i s t r i b u t i o n o f e r r o n e o u s i nformati on. Classification: Unfavourable information. (*)  31.  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 . Suspended on F e b r u a r y 4 , 1969 and r e i n s t a t e d on November 17, 1969. Reason: F a i l e d t o 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 ( c h a n g e 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 . ) . Classification: Favourable information.  1  1  1  1  1  180 Appendix  I  (Cont'd)  32.  P a c i f i c N i c k e l M i n e s L t d . , l i s t e d on t h e CSE as ' P N I ' . S u s p e n d e d 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. Reason: P e n d i n g company a n n o u n c e m e n t , u n u s u a l m a r k e t act i vi ty. Classification: Unfavourable information. (*)  33.  P h o e n i x Canada O i l C o . L t d . , l i s t e d on t h e CSE as ' P C O ' . S u s p e n d e d on March 2 , 1973 and r e i n s t a t e d on March 1 9 , 1 973. Reason: P e n d i n g 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 Ecuador p r o d u c t i o n . Classification: Unfavourable information.  34.  P r o b e M i n e s L i m i t e d , l i s t e d on t h e CSE as ' P M X ' . S u s p e n d e d 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 d a t e and a u t h o r e x i s t . Classification: Unfavourable information. (*)  35.  P r o f l e x L i m i t e d , l i s t e d on t h e CSE (and VSE) as ' P F X . S u s p e n d e d on J a n u a r y 1 6 , 1973 and r e i n s t a t e d on S e p t e m ber 4 , 1973. Reason: Share p r i c e i n c r e a s e s w i t h o u t apparent r e a s o n . Classification: Unfavourable information. (*)  36.  P r o n g h o r n P e t r o l e u m C o r p . , l i s t e d on t h e CSE as ' P H P ' . S u s p e n d e d on J u l y 1 6 , 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 , p e n d i n g i n f o r m a t i o n a b o u t p r o posed J a d e p r o p e r t y a c q u i s i t i o n s . Classification: Favourable information.  37.  R e p r o x C o r p o r a t i o n , l i s t e d on the CSE as " R P X . S u s p e n d e d on F e b r u a r y 2 2 , 1973 and r e i n s t a t e d on May 1 1 , 1 973. Reason: Pending exchange i n v e s t i g a t i o n of t r a d i n g . Classification: Unfavourable information. (*)  38.  SMA I n c . , l i s t e d on t h e CSE as ' S M A . S u s p e n d e d on J u n e 1 6 , 1971 and r e i n s t a t e d on J u l y 1 9 , 1971 . Reason: Company r e q u e s t , p e n d i n g u n d e r w r i t i n g a n n o u n c e ment. Classification: Favourable information.  39.  T a l i s m a n M i n e s L i m i t e d , l i s t e d on t h e CSE as ' T M L ' . S u s p e n d e d on S e p t e m b e r 7 , 1968 and r e i n s t a t e d on March 5, 1970. Reason: R e q u e s t o f company, t o p e r m i t f i n a n c i n g . Classification: Favourable information.  1  1  1  181 Appendix  I  (Cont'd)  40.  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 t h e CSE as ' T E L ' S u s p e n d e d on M a r c h 2 6 , 1971 and r e i n s t a t e d on J u n e 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 nformati on. Classification: Unfavourable information.  41.  W h i t e r o c k E s t a t e s D e v e l o p m e n t C o r p . , l i s t e d on t h e CSE as ' W E D ' . S u s p e n d e d on November 1 8 , 1971 and r e i n s t a t e d on November 18, 1971. Reason: Performed in a v o l a t i l e manner. Classification: Unfavourable information.  42.  A c r e s L i m i t e d , l i s t e d on t h e MSE as ' AL D ' . S u s p e n d e d on J u n e 1 1 , 1971 and r e i n s t a t e d on J u n e 1 4 , 1971 . Reason: Pending 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 . Classification: Favourable information.  43.  Bramada R e s o u r c e s L t d . , l i s t e d on t h e MSE as ' B M R ' . S u s p e n d e d 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. Reason: Company r e q u e s t , p e n d i n g announcement on p r o p e r t y negotiations. Classification: Favourable information.  44.  C a n a d i a n J a v e l i n L t d . , l i s t e d on t h e MSE as ' C J V ' . S u s p e n d e d on M a r c h 9 , 1972 and r e i n s t a t e d on J u n e 5 , 1 972. Reason: P e n d i n g j o i n t announcement by company and Newfoundland government. Classification: Favourable information.  45.  C a n a d i a n J a v e l i n L t d . , l i s t e d on t h e MSE (and VSE) as 'CJV' ('CDJ ' ) . S u s p e n d e d on December 2 0 , 1972 and r e i n s t a t e d on December 2 1 , 1972. Reason: P e n d i n g announcement ( u n f a v o u r a b l e p r o p e r t y news). Classification: Unfavourable information.  46.  C a n a d i a n J a v e l i n L t d . , l i s t e d on t h e MSE (and VSE) as 'CJV ('CDJ'). S u s p e n d e d on November 2 8 , 1973 and r e i n s t a t e d on December 10, 1973. Reason: P e n d i n g announcement ( p e n d i n g c l a r i f i c a t i o n o f SECallegations). Classification: Unfavourable information.  1  182 Appendix  I  (Cont'd)  47.  C a n a d i a n R e f r a c t o r i e s L t d . , l i s t e d on t h e MSE as ' C R F ' . S u s p e n d e d on J a n u a r y 3 0 , 1970 and r e i n s t a t e d on November 2 7 , 1 9 7 0 . Reason: P e n d i n g company a n n o u n c e m e n t , a m a l g a m a t i o n w i t h Dresser I n d u s t r i e s . Classification: Favourable information.  48.  C o l u m b i a C e l l u l o s e C o . L t d . , l i s t e d on t h e MSE (and VSE) as ' C E L ' . S u s p e n d e d 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. Reason: P e n d i n g company a n n o u n c e m e n t , B . C . G o v e r n m e n t a c q u i r e d 79 p e r c e n t i n t e r e s t . Classification: Favourable information.  49.  Cygnus C o r p . L t d . , l i s t e d on t h e MSE (and VSE) as ' CYG . S u s p e n d e d on March 1 2 , 1971 and r e i n s t a t e d on March 1 6 , 1971. Reason: O r d e r o f Q S C , 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. Classification: Favourable information.  50.  Home O i l C o . L t d . , l i s t e d on t h e MSE (and VSE) as ' H G ' . S u s p e n d e d on March 1 2 , 1971 and r e i n s t a t e d on M a r c h 1 6 , 1971. Reason: O r d e r o f QSC, l i g h t o f F e d e r a l G o v e r n m e n t a n nounced i n t e r e s t i n Home. Classification: Favourable information.  51.  N i a g a r a W i r e Weaving C o . L t d . , l i s t e d on t h e MSE as ' N W ' . S u s p e n d e d on J a n u a r y 2 6 , 1973 and r e i n s t a t e d on J a n u a r y 30, 1973. Reason: Company r e q u e s t , p e n d i n g c o r p o r a t e announcement ( t a k e o v e r by I v a c o I n d u s t r i e s ) . Classification: Favourable information.  52.  N o r t h w e s 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 t h e MSE as ' NSE ' . S u s p e n d e d on J u n e 1 4 , 1971 and r e i n s t a t e d on J u n e 2 1 , 1971 . Reason: Pending c l a r i f i c a t i o n of a f f a i r s (corporate problem). Classification: Unfavourable information.  53.  S o c i e t e G e n e r a l de F i n a n c e m e n t Q u e b e c , l i s t e d on t h e MSE as 'SGF ' . S u s p e n d e d on A p r i l 2 7 , 1972 and r e i n s t a t e d on S e p t e m b e r 20, 1972. Reason: 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 . Classification: Unfavourable information.  1  183 Appendix  I  (Cont'd)  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 t h e MSE as ,> 'SSL*. Suspended on O c t o b e r 2 6 , 1970 and r e i n s t a t e d on O c t o b e r 27, 1970. Reason: Company r e q u e s t , p e n d i n g announcement ( b o u g h t 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 . ) . Classification: Favourable information.  55.  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 t h e TSE (and CSE) as ' A I K ' . S u s p e n d e d on November 7 , 1967 and r e i n s t a t e d on November 14, 1967. Reason: P e n d i n g announcement on a s s a y s on p r o p e r t y w i t h Kidd Copper M i n e s . Classification: Favourable information.  56.  C h a r t e r O i l Company L t d . , l i s t e d on t h e TSE (and CSE) as ' CHO ' ( ' C H R ' ) . S u s p e n d e d on S e p t e m b e r 8 , 1967 and r e i n s t a t e d on F e b r u ary 22, 1968. Reason: U n s a t i s f a c t o r y f i l i n g statements Classification: Unfavourable information.  57.  C o n - S h a w k e y G o l d M i n e s L i m i t e d , l i s t e d on t h e TSE as •CSH . S u s p e n d e d on March 3 0 , 1967 and r e i n s t a t e d on S e p t e m b e r 5, 1967. Reason: F a i l e d t o a d v i s e e x c h a n g e o f 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 affairs. Classification: Unfavourable information. 1  58.  F i r s t N a t i o n a l U r a n i u m M i n e s L t d . , l i s t e d on t h e TSE (and VSE) as ' FNU ' . S u s p e n d e d on F e b r u a r y 1 8 , 1969 and r e i n s t a t e d on March 17, 1969. Reason: Unusual c o n d i t i o n s in share t r a d i n g . Classification: Unfavourable information. (*)  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 t h e TSE (and MSEt): as 'GWL ' . S u s p e n d e d 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 ary 5, 1969. Reason: OSC ban a t company r e q u e s t . Classification: Favourable information.  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 t h e TSE as 'GW. S u s p e n d e d on J u l y 8 , 1968 and r e i n s t a t e d on S e p t e m b e r 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 t h e 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 . Classification: Favourable information.  184 Appendix  I  (Cont'd)  61.  I . O . S . L t d . , l i s t e d on t h e TSE (and MSE) as ' I O S ' . S u s p e n d e d on J u n e 1 6 , 1970 and r e i n s t a t e d on J u l y 3 , 1 970. Reason: P e n d i n g announcement o f f u l l p a r t i c u l a r s o f loans to o f f i c e r s , e t c . Classification: Unfavourable information.  62.  K i d d C o p p e r M i n e s L t d . , l i s t e d on t h e TSE as ' K D C . S u s p e n d e d on November 7 , 1967 and r e i n s t a t e d on November 14, 1967. Reason: P e n d i n g announcement on a s s a y s on p r o p e r t y held j o i n t l y with A s s o c i a t e d A r c a d i a . Classification: Favourable information.  63.  Meta U r a n i u m M i n e s L t d . , l i s t e d on t h e TSE as ' M E T . S u s p e n d e d on December 1, 1967 and r e i n s t a t e d on F e b r u ary 16, 1968. Reason: 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 trading pattern. Classification: Unfavourable information. (*)  64.  Moneta P o r c u p i n e M i n e s L t d . , l i s t e d on t h e TSE as ' M E ' . S u s p e n d e d 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 ary 22, 1968. Reason: F a i l e d to a d v i s e e x c h a n g e o f m a t e r i a l c h a n g e s i n a f f a i r s o f company. Classification: Unfavourable information.  65.  New D i m e n s i o n R e s o u r c e s L t d . , l i s t e d on the TSE as ' N D R . S u s p e n d e d on November 8 , 1972 and r e i n s t a t e d on December 1, 1 9 7 2 . Reason: P e n d i n g 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 . Classification: Unfavourable information. (*)  66.  N o r t h Rock E x p l o r a t i o n s L t d . , l i s t e d on t h e TSE as ' N R E ' . S u s p e n d e d on November 6 , 1970 and r e i n s t a t e d on November 17, 1970. Reason: Pending 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 . Classification: Unfavourable information. (*)  67.  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 t h e TSE (and VSE) as 'PCA'. S u s p e n d e d on J u n e 3 0 , 1972 and r e i n s t a t e d on J u l y 2 1 , 1 972. Reason: Pending 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 (Playmour C o r p o r a t i o n t r a n s a c t i o n ) . Classification: Favourable information.  68.  Revenue P r o p e r t i e s C o . L t d . , l i s t e d on t h e TSE as ' R P C ' . S u s p e n d e d on O c t o b e r 2 9 , 1969 and r e i n s t a t e d on F e b r u ary 1 1 , 1 974. Reason: P e n d i n g 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 . Classification: Unfavourable information. (*)  1  1  1  185 Appendix  I  (Cont'd)  S c u r r y Rainbow O i l s , l i s t e d on t h e TSE as ' S C R ' . S u s p e n d e d on J u n e 2 2 , 1967 and r e i n s t a t e d on J u n e 2 9 , 1 967. Reason: U n t i l an a d e q u a t e 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 t h e p u b l i c ( r e p o r t f a v o u r a b l e ) . Classification: Favourable information. W a l t e r M. Lowney as ' L O W ' . S u s p e n d e d on May Reason: Pending fer for Classification:  Co. L t d . ,  listed  on t h e TSE (and CSE)  1 3 , 1968 and r e i n s t a t e d on May 1 4 , 1 9 6 8 . d i s c l o s u r e o f f u l l e r d e t a i l s on an o f the company's s h a r e s . Favourable information.  A a b r o M i n i n g & O i l s L t d . , l i s t e d on t h e VSE as ' A A B . S u s p e n d e d 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. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information. 1  Ace M i n i n g Company L t d . , l i s t e d on t h e 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: P e n d i n g c l a r i f i ca t>ion o f company a f f a i r s and BCSC u n d e r S e c t i o n 1 3 7 ( 2 ) ( c ) . Cl 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 t h e VSE as ' A N N . S u s p e n d e d on O c t o b e r 1 2 , 1971 and r e i n s t a t e d on November 10, 1971. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information. 1  A - l S t e e l & I r o n F o u n d r y (Van) L t d . , l i s t e d on t h e VSE as ' A l ' . S u s p e n d e d on March 2 2 , 1973 and r e i n s t a t e d on March 2 7 , 1 973. Reason: P e n d i n g announcement by t h e company. Classification: Unfavourable information. 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 t h e VSE as ' A T T ' . S u s p e n d e d on O c t o b e r 1 0 , 1972 and r e i n s t a t e d on November 10, 1972. Reason: Scheme to m a n i p u l a t e t h e s h a r e s p r i c e , p e n d i n g 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 . Classification: Unfavourable information. (*) 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 t h e VSE as 'BSP'. S u s p e n d e d on November 2 8 , 1973 and r e i n s t a t e d on December 5, 1973. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  186 Appendix  I  (Cont'd)  77.  Bonus R e s o u r c e s L t d . , l i s t e d on t h e VSE as ' B S R ' . S u s p e n d e d on November 7 , 1972 and r e i n s t a t e d on November 14, 1972. Reason: Scheme t o m a n i p u l a t e s h a r e s p r i c e , p e n d i n g completion property n e g o t i a t i o n s . Classification: Unfavourable information. (*)  78.  Bonus R e s o u r c e s L t d . , l i s t e d on t h e VSE as ' B S R ' . S u s p e n d e d 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. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  79.  Brameda R e s o u r c e s L t d . , l i s t e d on t h e VSE as ' B M R ' . S u s p e n d e d on March 6 , 1973 and r e i n s t a t e d on March 8 , 1 973. Reason: Request of company, pending f u r t h e r i n f o r m a t i o n . Classification: Unfavourable information.  80.  B u v a 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 t h e VSE as 'BVL . S u s p e n d e d on O c t o b e r 1 2 , 1971 and r e i n s t a t e d on O c t o b e r 1 8 , 1971 . Reason: Pending c l a r i f i c a t i o n of the company's a f f a i r s . Classification: Unfavourable information. 1  81.  C a l i c o S i l v e r M i n e s L t d . , l i s t e d on t h e VSE as ' C L O ' . S u s p e n d e d on J u n e 2 4 , 1969 and r e i n s t a t e d on J u l y 7 , 1969 Reason: Pending c l a r i f i c a t i o n of company's a f f a i r s . Classification: Unfavourable information.  82.  C a n a d i a n T r i c e n t r a l O i l s L t d . , l i s t e d on t h e V S E . S u s p e n d e d on December 1, 1971 and r e i n s t a t e d on December 2, 1971. Reason: P e n d i n g an i n f o r m a t i o n r e l e a s e by t h e company (takeover offier). Classification: Favourable information.  83.  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 t h e VSE as ' C A I ' . S u s p e n d e d 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. Reason: F a i l e d to submit or r e c e i v e acceptance of a s t a t e m e n t of m a t e r i a l f a c t s . Classification: Unfavourable information.  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 t h e VSE as ' C A I ' . S u s p e n d e d on O c t o b e r 2 1 , 1970 and r e i n s t a t e d on November 5 , 1 9 7 0 . Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  187 Appendix  I  (Cont'd)  85.  C a r o l i n M i n e s L t d . , l i s t e d on t h e VSE as C L L . S u s p e n d e d on May 7 , 1971 and r e i n s t a t e d on May 1 7 , 1 9 7 1 . Reason: Pending c l a r i f i c a t i o n of a f f a i r s . Classification: Unfavourable information.  86.  C o n s o l i d a t e d M a n i t o b a M i n e s L t d . , l i s t e d on t h e VSE as 'CMAN ' . S u s p e n d e d on December 1 5 , 1967 and r e i n s t a t e d on A u g u s t 8, 1968. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  87.  C o p - e x M i n i n g C o r p . L t d . , l i s t e d on t h e VSE as ' C X E ' . S u s p e n d e d on A u g u s t 3 , 1972 and r e i n s t a t e d on A u g u s t 1 4 , 1 972. Reason: P e n d i n g company r e l e a s e o f i n f o r m a t i o n (rapid price increase). Classification: Unfavourable information.  88.  C o p p e r R i d g e M i n e s L t d . , l i s t e d on t h e VSE as ' C P G ' . S u s p e n d e d on March 1 6 , 1972 and r e i n s t a t e d on J u l y 1 2 , 1 972. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  89.  D i c t a t o r M i n e s L t d . , l i s t e d on t h e VSE as ' D T M ' . S u s p e n d e d 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 23, 1972. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information. (*)  90.  D i c t a t o r M i n e s L t d . , l i s t e d on t h e VSE as ' D T M ' . S u s p e n d e d on December 4 , 1972 and r e i n s t a t e d on December 5, 1972; Reason: BCSC o r d e r , p u r s u a n t t o S e c t i o n 77A. Classification: Unfavourable information.  91.  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 t h e VSE as ' E I R ' . S u s p e n d e d on December 2 1 , 1971 and r e i n s t a t e d on December 2 4 , 1 9 7 1 . Reason: P e n d i n g announcement ( f a v o u r a b l e ) to s h a r e holders. Classification: Favourable information.  92.  E q u a t o r i a l R e s o u r c e s L i m i t e d , l i s t e d on t h e VSE as ' E Q R ' . S u s p e n d e d on March 2 7 , 1972 and r e i n s t a t e d on M a r c h 3 0 , 1 972. Reason: Pending c l a r i f i c a t i o n of the company's a f f a i r s . Classification: Favourable information.  1  1  188 Appendix  I  (Cont'd)  93.  E q u a t o r i a l R e s o u r c e s L i m i t e d , l i s t e d on t h e VSE as ' E Q R ' . S u s p e n d e d 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. Reason: R e q u e s 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 n g d r i l l i n g on company c l a i m s . Classification: Unfavourable information.  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 t h e V S E . S u s p e n d e d on S e p t e m b e r 9 , 1973 and r e i n s t a t e d on O c t o b e r 1 1 , 1 973. Reason: R e l e a s e o f i n f o r m a t i o n ( f a v o u r a b l e ) by t h e company. Classification: Favourable information.  95.  4 - F Foods L t d . , l i s t e d on t h e VSE as F F F ' . S u s p e n d e d on S e p t e m b e r 1 8 , 1 970 and r e i n s t a t e d tember 1 9 , 1 9 7 0 . Reason: As a d i s c i p l i n a r y a c t i o n . Classification: Unfavourable information.  96.  F o u r S e a s o n s M a n u f a c t u r i n g L t d . , l i s t e d on t h e VSE as FRN ' . S u s p e n d e d on O c t o b e r 2 3 , 1972 and r e i n s t a t e d on A p r i l 30, 1973. Reason: Pending 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 : . Unfavourable information. (*)  1  on Sep'%  1  97.  G o l d R i v e r M i n e s & E n t e r p r i s e s L t d . , l i s t e d on t h e VSE as GVM ' . S u s p e n d e d on November 2 3 , 1973 and r e i n s t a t e d on J a n u a r y 28, 1974. Reason: Company r e q u e s t , p e n d i n g r e l e a s e o f r e c e n t p r o p e r t y development r e s u l t s . Classification: Unfavourable information. (*) 1  98.  G r a n i s l e C o p p e r L i m i t e d , l i s t e d on t h e VSE as ' G I C . S u s p e n d e d on May 2 9 , 1972 and r e i n s t a t e d on May 3 1 , 1 9 7 2 . Reason: P e n d i n g f u r t h e r i n f o r m a t i o n on a m a l g a m a t i o n w i t h Z a p a t a Canada L t d . Classification: Favourable information.  99.  L u c k y S t r i k e M i n e s L t d . , l i s t e d on t h e VSE as ' L Y S . S u s p e n d e d on A u g u s t 7 , 1970 and r e i n s t a t e d on December 3, 1970. Reason: Pending c l a r i f i c a t i o n of a f f a i r s . Classification: Unfavourable information.  100.  M a v e r i c k M o u n t a i n R e s o u r c e s L t d . , l i s t e d on t h e VSE as ' MMR ' . S u s p e n d e d on November 9 , 1970 and r e i n s t a t e d on J u n e 2 8 , 1971 . Reason: Company r e q u e s t , p e n d i n g c l a r i f i c a t i o n o f p r o b lem r e p r o p e r t y t i t l e . Classification: Unfavourable information.  1  189 Appendix  I  (Cont'd)  101.  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 t h e VSE as ' M E L ' . S u s p e n d e d 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. Reason: P e n d i n g an announcement t o be made by t h e company. Classification: Favourable information.  102.  M o u n t a i n S t a t e s R e s o u r c e s L t d . , l i s t e d on t h e VSE as ' MTN . S u s p e n d e d 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 ary 5, 1 973. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information. (*) 1  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 t h e VSE as ' M A T ' . S u s p e n d e d on J u n e 2 6 , 1972 and r e i n s t a t e d on J u l y 2 1 , 1972. Reason: A t company r e q u e s t , p e n d i n g c o u r t h e a r i n g . Classification: Unfavourable information.  104.  N o r t h a i r M i n e s L t d . , l i s t e d on t h e VSE as ' N R M . S u s p e n d e d on A p r i l 1 0 , 1972 and r e i n s t a t e d on A p r i l 1 972. Reason: P e n d i n g an announcement f r o m t h e company. Classification: Unfavourable information.  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 t h e VSE as ' NTX' . S u s p e n d e d 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 . Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  106.  P i n n a c l e M i n e s L t d . , l i s t e d on S u s p e n d e d on F e b r u a r y 1 5 , 1972 17, 1972. Reason:, Pending c l a r i f i c a t i o n company. Classification: Unfavourable  1  12,  t h e VSE as ' PNM .. and r e i n s t a t e d on A p r i l 1  of.the  affairs  of  the  information.  107.  P i n n a c l e M i n e s L t d . , l i s t e d on the VSE as ' P N M ' . S u s p e n d e d 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. Reason: Pending 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 . Classification: Unfavourable information.  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 t h e VSE as ' P R V . S u s p e n d e d 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 ary 9, 1973. Reason: I n f o r m a t i o n r e q u e s t e d by t h e E x c h a n g e . Classification: Unfavourable information.  190 Appendix 109.  I  (Cont'd)  R a d i a t i o n D e v e l o p m e n t Company L t d . , l i s t e d on t h e VSE as ' RDN . S u s p e n d e d on A u g u s t 2 3 , 1972 and r e i n s t a t e d on A u g u s t 29, 1972. Reason: P e n d i n g an announcement ( f a v o u r a b l e ) w h i c h w i l l be made i n t h e e a r l y p a r t o f n e x t w e e k . Classification: Favourable information. 1  110.  Reco S i l v e r M i n e s L t d . , l i s t e d on t h e VSE as ' R C S ' . S u s p e n d e d on O c t o b e r 2 3 , 1970 and r e i n s t a t e d on November 9, 1970. Reason: P e n d i n g f i l i n g o f m a t e r i a l to c o n f i r m o r c o r rect information in a shareholders' report. Classification: Unfavourable information. (*)  111.  S a b i n a M i n e s L t d . , l i s t e d on t h e VSE as ' S A B ' . Suspended on J u l y 2 2 , 1971 and r e i n s t a t e d on S e p t e m b e r 7, 1971. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information. (*)  112.  S h a s t a M i n e s & O i l s L t d . , l i s t e d on t h e VSE as ' S H A . S u s p e n d e d on May 2 3 , 1969 and r e i n s t a t e d on May 2 8 , 1 9 6 9 . Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  113.  S h a s t a M i n e s & O i l s L t d . , l i s t e d on t h e 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 1 2 , 1971 . Reason: Pending c l a r i f i c a t i o n of a f f a i r s . Classification: Unfavourable information.  114.  S o u t h e r n 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 t h e V S E . S u s p e n d e d on M a r c h 2 3 , 1972 and r e i n s t a t e d on May 1 , 1 972. Reason: P e n d i n g i n f o r m a t i o n on f a v o u r a b l e c o r p o r a t e developments. Classification: Favourable information.  115.  Spa M i n e s L t d . , l i s t e d on t h e VSE as ' S P X ' . S u s p e n d e d on December 2 0 , 1971 and r e i n s t a t e d on May 1, 1 972. Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s (favourable c l a r i f i c a t i o n ) . Classification: Favourable information.  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 t h e VSE as ' S P F ' . S u s p e n d e d on December 1 6 , 1971 and r e i n s t a t e d on J u l y 7, 1972. Reason: BCSC o r d e r 7 7 A . Classification: Unfavourable information.  1  191 Appendix  I  (Cont'd)  117.  T a y l o r ( B r i d g e R i v e r ) M i n e s L t d . , l i s t e d on t h e VSE as 'TB'. S u s p e n d e d on S e p t e m b e r 1 3 , 1968 and r e i n s t a t e d on S e p tember 1 7 , 1 9 6 8 . Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  118.  West C o a s 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 ' . S u s p e n d e d on May 1 7 , 1968 and r e i n s t a t e d on May 2 3 , 1968 Reason: P e n d i n g c l a r i f i c a t i o n o f company a f f a i r s . Classification: Unfavourable information.  119.  W h i t e Pass & Yukon C o r p L t d . , l i s t e d on t h e VSE as 'WPY'. S u s p e n d e d on May 8 , 1973 and r e i n s t a t e d on May 1 1 , 1 9 7 3 . Reason: Request of company, pending i n f o r m a t i o n d i s s e m ination. Classification: Favourable information.  120.  W o o d s r e e f M i n e r a l s L t d . , l i s t e d on t h e VSE as ' W D F ' . S u s p e n d e d on November 2 8 , 1973 and r e i n s t a t e d on December 3, 1973. Reason: P e n d i n g a r e l e a s e o f i n f o r m a t i o n by t h e company Classification: Unfavourable information.  (*)  denotes lated.  ;  that  the  s u s p e n d e d s t o c k was a l l e g e d l y  manipu-  192 Appendix  II  PROBABILITY TESTS ON THE AVERAGE PORTFOLIO ERROR TERMS This ability  testing  procedure average of  appendix w i l l  is  of  the  for  procedure for  the average p o r t f o l i o  will  build  a portfolio  suspended s t o c k s  period r e l a t i v e foilo  the  error  the  terms.  to  the  The  one p e r i o d  c a l e n d a r week t ,  i n our  (however  the  by a d o p t i n g sample a t  a  a policy predetermined  i m p l e m e n t e d as f o l l o w s .  investor  i s assumed t o  For every  have i n v e s t e d  i n e a c h s u s p e n d e d s t o c k w h i c h was s u s p e n d e d ( o r  stated)  during for  period  t-L  a suspended stock  f o r m e d d u r i n g week t  the  port-  defined).  equally  the  '.  s u s p e n s i o n p e r i o d and k e e p i n g t h a t  The p r o c e d u r e i s  words,  prob-  b a s e d on t h e 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  investor  buying  present  to to  t-K,  inclusive.  be i n c l u d e d i n  following  In  the  $1.00  rein-  other portfolio  necessary conditions  must  be s a t i s f i e d : t-L where t .  < t.  is  < t-K,  the  ment)  c a l e n d a r week f o r  of  security  K, L a r e s p e c i f i c  i,  if  the  suspension  (reinstate-  K, L < 0 ( K , L > 0 ) ,  integers  and  where K, L |- 0 and  K < L. The n e x t  step  some h o l d i n g p e r i o d securities  is  (in  in p o r t f o l i o  to c a l c u l a t e the excess r e t u r n this t.  c a s e one week) F o r any h o l d i n g  over a suspension p e r i o d , t h i s forward.  In p a r t i c u l a r ,  average excess calculated  by:  for  r e t u r n on t h e  calculation  for  the  period other is  fairly  a one week h o l d i n g portfolio  each of  over  formed  than  straight-  period,  in period  the t  is  193 Appendix  6  p,t+l  where §^  N  =  is  +  during N^. i s t,  the  e\.  (excess return)  number o f  1 S  the  then  security  i  (t+1),  suspended s e c u r i t i e s  t  n  average e r r o r  e  t,  during  holding  the  term  week  period  in  portfolio  interest  excess r e t u r n over  S i n c e the  in  performance  (excess return)  of  (t+1).  of  each s u s p e n d e d s e c u r i t y .  of  and  If  of  term  calendar period  portfolio  Sj,  (Cont'd)  i,t+l'  §  error  the  the  ++i  period,  "Jf*  t  II  the  is  suspension p e r i o d ,  portfolio  of  all  a suspension  the  t  is  given  portfolios  by is  being  1 , T+ S .j  m e a s u r e d on a w e e k l y  b a s i s , the  in  date of  each p o r t f o l i o  a weekly  at  b a s i s as  §: S".j  period  from  date  each p o r t f o l i o Se  p,t+l  of  i  .  .  t  by 1 s  }  For e x a m p l e , assume t h a t  e i  In  t  for  be e x p r e s s e d on  for  a one week  holding  average excess r e t u r n  on  a  i ,t + s •  help to is  case, will  t h e week o f  clarify  the  above  procedure.  t h e week e n d i n g on J u n e 1 9 , portfolio  include  the  t  (where  t h e week e n d i n g June 2 6 ,  for  1970)  t h e week  gives  t  is  s t o c k s which  J u l y 3 1 , 1970 ( t h a t  The c a l c u l a t e d a v e r a g e e x c e s s r e t u r n is,  security  1  this  June 1 9 , 1970)  suspended d u r i n g  Therefore,  s u s p e n s i o n , the  A few e x a m p l e s w i l l  week e n d i n g  s u s p e n s i o n must  each  , X • S .j  is given = 1 " N .t  K = -6 and L = - 6 .  excess r e t u r n of  the  average  the were  i s , week (t+1)  1970,  t+6).  (that weekly  194 Appendix excess  If  they  investor  is  that  week t+1  19,  week t+1  in r e a l i t y  may s t i l l If  or  many o f  be u n d e r  1970, the  investor  to  case,  portfolio  t  is  portfolio  t  invested  for  stocks  in  this  1970).  portfolio  reinstated  (where  then  during  t h e week e n d i n g J u n e  in a p o r t f o l i o  during  (in  reinstatements).  composed o f  t h e week e n d i n g on May 1 5 ,  week t+1  t will  or  represent  different  an i n v e s t m e n t  from  1 to  portfolio  t  1970, w i l l  statement).  the  sustheir  s t o c k whose  Another  (that  is,  ( J u n e 1 9 , 1970) be c a l c u l a t e d  excess  suspen-  5 weeks  and i t s  (that  is,  excess  a l s o be return  1 week a f t e r  be  return after  s t o c k whose r e i n s t a t e m e n t  t h e week e n d i n g on J u n e 1 2 , 1 9 7 0 , w i l l t  to  5 weeks a f t e r  ( J u n e 1 9 , 1970) and i t s be c a l c u l a t e d  1970)  in  t h e week e n d i n g on May 1 5 , 1 9 7 0 , w i l l  to J u n e 2 6 , 1 9 7 0 , w i l l  in p o r t f o l i o  this  t h e week e n d i n g on  weeks r e l a t i v e  For e x a m p l e , a r e i n s t a t e d  reinstatement).  In  t h e week e n d i n g on J u n e 1 9 ,  particular,  sion occurred during included in  is  (until  Portfolio  stocks during  pension period  t  at  suspension.)  invests  one week  June 2 6 , 1 9 7 0 ) .  26,  case,  t h e week e n d i n g on J u n e 1 2 , 1 9 7 0 , i n c l u s i v e .  invested for  during  the  K = +1 and L = +5,  1970,  its  this  composed o f  t h e week e n d i n g on J u n e 2 6 ,  s t o c k s w h i c h were r e i n s t a t e d  is  In  stocks 6  t h e week e n d i n g J u n e  in a p o r t f o l i o  suspended.  in  them one week h e n c e .  the week e n d i n g on J u n e 1 9 , 1970)  one week ( u n t i l (Note  then d u r i n g  invests  s t o c k s w h i c h were j u s t t  who i n v e s t s  a r e s u s p e n d e d and s e l l s  K = 0 and L = 0 ,  1970, the  (where  (Cont'd)  r e t u r n e a r n e d by an i n v e s t o r  weeks b e f o r e  19,  II  occurred included  to its  June rein-  195 Appendix While t h i s drawings, tributed plish  II  portfolio  (Cont'd)  method p r o d u c e s  the method does n o t  produce the  drawings which are r e q u i r e d  this,  each p o r t f o l i o  error  s t a n d a r d i z e d by some measure o f t h e measure o f  variability  for  term, e  independent  identically a t-test.  p  t  +  ,  1  dis^  To a c c o m -  must be  variability.  In  this  thesis,  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 t h e 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 the e r r o r fifty  terms o f  weeks ( t - 4 9  SD p  z  to  t).*  -l-l  49  1  t  during  the  (e  j =l  t  _  1  '  p  +  50 ,E e 50 k=l  f°  L = 0),  r  l  J  the p o r t f o l i o s  are g r e a t l y  t  '  P  formed at  s t o c k s w h i c h were s u s p e n d e d f o r the  contains  o n l y one s e c u r i t y  p e r i o d from d a t e of portfolio error  term  measure of  t  is a  t  (j_  2  +  ) > is  each s e c u r i t y  k  +  Then, for  formed  a one week  s  ) —1 o i%.  used t o  t +  i )•  For example, in period  t  holding  term  this  contain  for  average  Therefore,  s t a n d a r d i z e the p o r t f o l i o  the error  o v e r s t a t e d w h e n e v e r s-. > 1.  the in  +  terms,  s u s p e n s i o n (K =  more t h a n one week.  2  t  1  portfolios  and t h e v a r i a n c e o f  s  %.  variability  Because of for  +  )> " 2  s u s p e n s i o n , the average e r r o r  is j  t e r m , SD { £ .  date of  s i m p l e c a s e where t h e p o r t f o l i o i.  _  the e r r o r  o v e r s t a t e d whenever the  consider  preceeding  ^  - 1  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 SDp t + i '  of  'Or,'in-notation ,  50  =U  t + 1  '  each p o r t f o l i o  '  variable  length  each p o r t f o l i o  t  of  the  formed  suspension period in the p o s t - s u s -  p e n s i o n p e r i o d , t h e 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  * T h e , c h o i c e i ' o . f L ' 5 . 0 weeks i s  arbitrary.  the. e r r o r  Appendix terms of  these p o r t f o l i o s  proceeding f i f t y chosen f o r the  be e s t i m a t e d f r o m  T h e r e f o r e , the measure of  formed  t  during  the  Dividing error  term f o r  * t+i s  t +  by SDp  portfolio =  Vt+i  The r e s u d t , w h i c h i s ,  1  t,  t  +  for  g i v e s the  1  S D P  or  1 if 0 if  by i t s e l f ,  N is  the  a portfolio a portfolio  t+50).  standardized  a t-statistic, of  suspended  is  no more  (reinstated)  t.  for for  term  is  then g i v e n  by:  c a l e n d a r week t was f o r m e d c a l e n d a r week t was not  number o f  were-formed,  to  each  ,t+r  each c a l e n d a r week  is  t  terms o f  weeks (t+1  The a v e r a g e s t a n d a r d i z e d e r r o r  where D  variability  or  t h a n one s t a n d a r d i z e d p o r t f o l i o stocks  the e r r o r  subsequent f i f t y  -|  the  i n t h e p o s t - s u s p e n s i o n p e r i o d was  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  portfolio  1 96  (Cont'd)  c o u l d not  weeks.  portfolios  II  c a l e n d a r weeks d u r i n g Y that i s , N = E D., t =X  which  formed,  portfolios  z  X,  Y a r e t h e weeks e n d i n g on J a n u a r y 6 , 13,  1 9 7 4 , r e s p e c t i v e l y , and  ES|^ ^ i s across  the average weekly s t a n d a r d i z e d e r r o r all  The t - t e s t weekly  by  term  N portfolios. is  t h e n used to  standardized error  different  1967 and M a r c h  from z e r o .  terms,  test  ifS^ ^ ,  The r e q u i r e d  whether are  the  average  significantly  t-statistic  is.given  Appendix where  t„ ,  is  all  a t-statistic  t  Sp i s  II  for  an e s t i m a t e  error  terms  terms  for  above,  for  a specific  of  of  the  the  value of  deviation  portfolios.  S  t  is  formed  over  and  standard  each p o r t f o l i o  the  portfolios  K and L ,  these  197  ( C g n t '.d).  of  ( S i n c e the  have been  the error  standardized  by c o n s t r u c t i o n  equal  to  one). S i n c e each o f distributed  each p o r t f o l i o  all  N portfolios, large  N standardized  with f o r t y - n i n e  of  this  the  has a l s o f o r t y - n i n e the  number o f  degrees of  distribution  significance  of  the  F o r each d i f f e r e n t standardized  be c a l c u l a t e d . presented  in  the  A summary o f body o f  the  degrees of  it  is  is  t-  t-value  freedom.  a r e 49 x N.  when c h e c k i n g  For  Due  to  appropriate the  level  to  of  t-values.  s e t of  portfolio  freedom,  freedom,  table  calculated  terms  freedom  degrees of  use a normal  weekly  degrees of  error  K and L v a l u e s , an  error some o f  Chapter  3.  average  t e r m and t - s t a t i s t i c these  calculations  can is  Appendix  III  SUMMARY OF THE CONSTRAINED PCTS REGRESSION RUNS ( C o e f f i c i e n t o f X / ^ C o n s t r a i n e d t o One) 2  .  Sample  -0.034 -0.843  0.006 0.303  „ - .; t T s t a t i s t i c  -0.034 -0.841  0.006 0.300  1  C o s C o e f f i c i ent t L-tastatistic  -0.222 -2.458  0.023 0.418  2  CciCoeff*G*ent t-s t s s t a t i sti c  -0.222 -2.459  0.024 0.422  1  c.r s C o e f f i c i e n t t-stastati-stic  0.026 0.446  -0.085 -2.580  2  C" ; C o e f f i c i ent tstsstatistic  0.026 0.449  -0.085 -2.586  1  C o e f f i c i ent t-stati sti c  0.064 1 .130  0.087 3.432  2  C o e f f i c i ent t-stati sti c  0.064 1 .129  0.087 3.435  1  All  2 Mani p u 1 a t e d  Unfavourable i n f o r m a t i on  Favourable i n f o r m a t i on  *  Cons t a n t Term  Run  Suspension Period  ; -Coefficient t-stastatistic* . o  r  e C 6 e f fi:o i e n t  x m  xr«n  Week +2  Week +3  -0.031 -2.327 -0.037 -2.820 -0.068 - 2 . 743 -0.048 -1.940 -0.041 -2.348 -0.054 -3.082 -0.012 -0.627  S i n c e each t - s t a t i s t i c has a l a r g e number o f d e g r e e s o f f r e e d o m ( > > 1 0 0 ) , s i g n i f i c a n c e l e v e l s can be t a k e n f r o m a normal p r o b a b i l i t y table.  -0.007 -0.371 the  one-tailed  

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