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An overview of cease trade orders in the context of OSC enforcement proceedings

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A cease trade order prohibits the subject of the order from trading. It can be a narrow ban or a complete ban on trading. These orders are made in the context of an OSC enforcement proceeding.

Where Enforcement staff (the investigative branch of the Ontario Securities Commission (OSC)) believe that a company’s or individual’s actions are an immediate and ongoing threat to either the public or the capital markets, it can apply to the Commission of the OSC for a temporary cease trade order. These applications are made ex parte, which means the intended subject of the order is not notified of the application for the temporary cease trade order. Though these orders are typically sought before any formal proceedings have been initiated by Enforcement staff, they may also be sought and issued even during a proceeding.

This initial cease trade order has a maximum lifespan of 15 days, after which Enforcement staff may apply for it to be extended. However, at that point, notice to the subject of the order is required and a hearing to determine whether it is appropriate to extend the cease trade order must be held. This hearing must take place within 15 days of the granting of the original cease trade order. It is at this hearing that the subject of the order has an opportunity to argue against the order.

In determining whether or not the order should be extended, the Commission will consider evidence from Enforcement staff regarding alleged contraventions of the Ontario Securities Act, whether an extension is necessary to protect the public, evidence produced by the subject of the cease trade order (or respondent), the period of time for which the extension is being sought (based on a consideration of the length of time required to complete the investigation and conduct a hearing on the merits), the scope of the cease trade order, and other relevant evidence. Keep in mind that this hearing is not a hearing on the merits of the case but is only a hearing to determine the issue of whether the cease trade order should be extended.

Although this is only an interim proceeding, the outcome can have a significant and devastating impact upon the respondent. Therefore, anyone facing this situation should obtain proper legal advice from a qualified lawyer.

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