What is a cease trade order?
A cease trade order (“CTO”) is a decision rendered by a provincial or territorial securities regulatory authority against a company or an individual. There are two distinct categories, but some CTOs may fall under both categories simultaneously.
In the first, a CTO may ban trading in securities of a reporting issuer or a non-reporting issuer, regardless of whether the CTO resulted from a continuous disclosure default, an enforcement action or other. In the second, a CTO may ban trading by certain individuals and/or companies, regardless of whether the CTO resulted from a continuous disclosure default of the company, an enforcement action or other.
Only securities regulatory authorities have authority to issue CTOs. These authorities oversee securities regulation in their respective provinces or territories and require publicly-traded companies to disclose material information to the public within delays set by regulation. For example, publicly-traded companies must file copies of quarterly and annual financial statements with provincial and territorial securities regulatory authorities. Companies must also disclose material events or developments (such as mergers and acquisitions) which may affect the value of the company’s shares. In Quebec, both the Tribunal administratif des marchés financiers and the Autorité des Marchés Financiers have the authority, depending on the situation at hand, to order CTOs[1].
When a company fails to fulfill its disclosure requirements, securities regulatory authorities may issue a CTO (i) banning trading in the securities of the company, and/or (ii) banning certain individuals and/or companies from trading in securities of the company.
A CTO may be issued with a specific expiry date or for an indefinite period of time. When a CTO is issued, it will remain in effect until either its expiry date is reached or, if there is no expiry date, until the decision is revoked by the regulator, if and when the company or individual corrects the deficiencies or meets certain conditions which caused the CTO to be issued in the first place.
How do I know which companies have CTOs issued against them?
You may research publicly-traded companies on SEDAR+’s online CTO database, available on SEDAR’s website (www.sedarplus.ca). If there is an issued CTO for the researched company, you will see the date of issuance, the supporting documents of the issuing securities regulator, the ban trading type, the ban trading status and the issuing jurisdiction.
What happens if I own shares in a company that has a CTO issued against it?
The Canadian Securities Administrators recommends contacting the company to understand what measures it is taking to remedy the situation. Failing that, you may contact the securities regulator which issued the CTO for more information on the CTO itself[2].
It must be noted that the issuing securities regulator may allow shareholders to sell their shares under certain circumstances, which would be detailed in the supporting documents available on SEDAR+.
If no particular circumstances apply to your situation, the Canadian Securities Administrators explain that there are only two options:
- Keep your shares in case the CTO is revoked, after which you will be free to sell them; or
- Consider claiming a capital loss on your income taxes[3].
[1] See s. 265 of the Securities Act, ch. V-1.1
[2] https://www.securities-administrators.ca/enforcement/cease-trade-orders-overview/
[3] Id.
