OSC Tribunal Okays Hedging Scheme In Cormark Decision (For Now)

Overview

The Ontario's Capital Markets Tribunal's recent decision in Cormark Securities Inc (Re),2024 ONCMT 26, provides important guidance on hedging transactions made concurrently with a private placement. The OSC impugned the bona fides of a multi-step trading strategy where an investor used borrowed freely tradeable shares to cover a short sale that was made concurrently with the investor pledging as collateral the same amount of shares received in a private placement. The Tribunal rejected Staff's allegations that an illegal distribution had occurred. It remains to be seen whether this type of strategy with different facts would withstand scrutiny on other grounds.

Facts