By Thien Hoang
Welcome back to Friday Finds! This week, we will be discussing the GameStop short squeeze, proposed regulatory changes for Ontario’s energy sector, and new COVID-19 business support programs.
Last week, the American video game retailer GameStop saw a meteoric rise in its share price as a result of a short squeeze social media campaign on Reddit. GameStop shares, which were trading at less than $20/share just a few weeks prior, peaked as high as $483/share on January 28, 2021. To put it briefly, short-selling involves an investor borrowing shares and immediately selling them. This is done in the hopes that the share price will fall in the short-term, and the investor will be able to generate a profit by repurchasing and returning the shares they borrowed at a lower price. A major risk of short-selling is its unlimited loss potential. Theoretically, share prices have no upper limit and can increase indefinitely. Thus, short-sellers may be forced to repurchase shares at an infinitely higher price than what they sold them for. While the GameStop share price has slowly returned to its pre-boom trade value, various hedge funds and short sellers saw major financial consequences as a result of the Reddit campaign. The U.S. Securities and Exchange Commission (SEC) is currently looking through social media platforms and message boards for indications of fraud that contributed to the rise in GameStop and similar companies with high short floats (the percentage of total shares that are shorted). The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have also issued warnings about manipulative trading. In a joint statement released on Monday, the CSA and IIROC noted they “will take appropriate regulatory action to protect investors” against “abusive or manipulative trading”. To that effect, regulators will continue to face questions concerning the use of social media to manipulate stock trading, and the disclosure requirements companies must adhere to in light of such developments.
On January 28, 2021, the Ontario Ministry of Energy, Northern Development and Mines (Ministry) proposed two changes to Ontario’s leave to construct requirements under the Ontario Energy Board Act, 1998 (Act). The Ministry’s first proposal (ERO number 019-3041) seeks to increase the cost threshold requiring leave to construct approvals for a hydrocarbon pipeline under section 90 of the Act from $2 million to $10 million. If approved, this proposal could have significant implications for Indigenous communities. The Ministry’s second proposal (ERO number 019-3038) seeks to exempt the following electricity transmission projects from seeking leave to construct under section 92 of the Act: (1) projects funded by transmission-connected commercial and industrial load customers such as mines, auto manufacturers and data centers; (2) projects funded by transmission-connected generator customers; (3) projects funded by transmission-connected load or generator customers that are operating as storage facilities; and (4) projects funded by distribution-connected commercial & industrial load customers and generators, including storage facilities. The proposals seek to reduce the regulatory burdens and costs associated with obtaining leave to construct under the Act.
On February 1, 2021, the Business Development Bank of Canada (BDC), the Office of the Superintendent of Financial Institutions (OSFI), and several Canadian banks launched the Highly Affected Sectors Credit Availability Program (HASCAP). The HASCAP is designed to provide financial support to businesses hit hardest by the COVID-19 pandemic. To that end, the BDC will guarantee 100% of the value of loans distributed under the program, which can range anywhere from $25,000 to $1,000,000. However, the guaranteed loan can only be used to continue or resume operations, rather than pay off existing debt or engage in miscellaneous investment activities. To qualify, businesses must already be receiving the government funded Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS). Alternatively, businesses must show a 50% decrease in revenue for at least three of the previous eight months. While the HASCAP was created to support the industries most impacted by the COVID-19 pandemic, including the hospitality and tourism sectors, there are ongoing concerns that introducing additional debt will inevitably push these businesses into bankruptcy or insolvency.
That wraps up this week’s Friday Finds! Thanks for reading and be sure to check back next week for more business law news stories.