September 14, 2011 / 3:18 PM / 6 years ago

UPDATE 1-Canada OSC to rule Thurs on Sino-Forest trade halt

TORONTO, Sept 14 (Reuters) - Canada’s top securities regulator said it will rule on Thursday whether to ease a cease trade order on shares of Chinese forest plantation operator Sino-Forest TRE.TO, which has been mired in fraud allegations for months.

“The panel will be ready to issue its decision in the early afternoon tomorrow,” Ontario Securities Commission Vice-Chair Mary Condon said on Wednesday at a hearing.

The Canadian Derivatives Clearing Corp has asked the commission to partially lift its cease trade order on Sino-Forest shares so that holders of put contracts can close out their positions.

“Holders of the put contracts are unable to exercise their rights of sale and sellers of the put contracts are unable to perform their obligations to purchase, as long at the cease trade order ... remains in place,” law firm Torys LLP said in a letter filed to the OSC, on behalf of the CDCC.

Sino-Forest stock has slumped since short-seller Muddy Waters accused it of fraud. The company denies the claims.

CDCC, which acts as the central clearing counterparty for exchange-traded derivative products in Canada, is a subsidiary of Canadian exchange operator TMX Group Inc (X.TO).

Many investors who bought into Sino-Forest recently also bought put options to protect themselves in the event the allegations against the company proved to have merit. The Chinese forest plantation operator has been defending itself against fraud allegations for months and the OSC has cease traded its shares until Jan. 25.

There are nearly 9,000 outstanding put contracts that entitle holders to sell nearly 900,000 Sino-Forest shares at prices substantially above current values, CDCC said in its application.

The CDCC says the order it is seeking will not apply to option holders like short-sellers, who would have to source shares from a third-party to close out their positions. (Reporting by Euan Rocha and Pav Jordan; editing by Janet Guttsman)

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