The holders of Sino-Forest put contracts did so when the issuer was in good standing, and were essentially buying insurance against the current situation, say Glen Johnson and James C. Tory in Toronto Star and Financial Post

OSC lifts part of Sino-Forest trade ban

September 15, 2011

The Ontario Securities Commission (OSC) has partly lifted its ban on trading in controversial timber company Sino-Forest to allow the completion of several options trades.

The Canadian Derivatives Clearing Corporation (CDCC) had asked the OSC to allow the completion of almost 9,000 "put" contracts which had been purchased before trading in Sino-Forest was halted in late August. "We have . . . concluded that the issue of this order, to the extent reasonably possible, balances a number of competing interests in all the circumstances, and achieves the objective of preserving the integrity of the capital markets," the OSC said in its order allowing the CDCC request.

A put is a contract giving the owner the right to sell shares in a given company at a pre-agreed price. They're often used as insurance against the possibility of a company's share price dropping. The holders of the put options have a right to sell their shares for "substantially" more than the company's last closing share price.

"The holders and sellers of the put contracts made their respective investment decisions at a time when Sino-Forest Corporation was, to their knowledge, a reporting issuer in good standing," wrote Glen Johnson.

"The holder was buying insurance against the situation that has arisen," said James C. Tory, who is representing the CDCC. The OSC cease-traded shares of Sino-Forest on Aug. 26 after finding evidence of potential fraud, and extended the cease-trade order to late January at a hearing last week.

Read the full Toronto Star article here.

This article is no longer available on the Financial Post website.


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