The Short Rort - a stockmarket emergency
On Monday October 21st, the SMH published an article on the trading of WiseTech shares.
The article misses the point.
On Monday October 21 there were 21,981 WiseTech trades between 10:09:04am and 10.55.39am. Thats 45 minutes of trading. That’s about 7.9 trades a second!! Thats the real story. This could only happen in Australia where the Australian Government is asleep and the stock market is run for the benefit of certain traders to the detriment of the listed companies and their real share holders.
The trades in WiseTech shares seems to be a combination of Algorithm trading and short selling by predatory hedge funds. According to the ASX there were 677,729 short sales on October 21 out of a turnover of 2,420,679 shares, in 45minutes. The average daily number of WTC trades over the last 12 months is 933,756.
Both short selling and algorithm trading should be illegal. Wisetech should be protected from such assaults.
The way in which covered short selling works in Australia in the post GFC era was sklllfully designed by the finance industry to allow them to prey on ASX listed companies owned by retail shareholders and unwitting super fund members.
Short selling is by itself self fulfilling. It succeeds by destabilising the balance between supply and demand for shares. The basics of the business are irrelevant. Shorters simply keep selling until they drive the price down.
The current arrangement of covered short selling requires that the shorter borrows a share to short. Borrowed shorting dramatically reduces the risk to the shorter, particularly if the shorter is a related entity to the lender of the shares.
The actual cost of shorting can be a lot less than making a take over bid. Does the owner (lender) of the WiseTech shares that were shorted have a commercial interest in a competitor of WiseTech??
If Government does not do something to curb shorting and algorithm trading there is a risk of market collapse. The market needs to be returned to a place where companies can go to raise capital to create businesses that employ people. A stable share price is essential for commercial and financial health of a company.
Hedge fund shorting stocks are most likely stripping cash from Super balances. If you go to ASIC you can download data on short sales. The numbers are very large and you have to ask who in their right mind would lend a share to someone who will try to drive its value down.
The Australian Government has learnt nothing from the destruction of about $3Billion of mum and dad shareholder value with the collapse of Arrium.
On 18/2/14 Arrium’s share price closed at $1.745. The short sellers started to attack Arrium.
In September 2014 Arrium announced a capital raising. The day before (15/9/14) Arrium closed at $0.65. The capital raising was to offer existing share holders, one new share per existing share at $0.48 per share.
Arrium was ruthlessly shorted during the period of the retail offer. On the day the retail offer closed (8/10/14) the share price was $0.345 and short sales were 31.32% of volume, 40.94% the next day and 50.84% the day after.
During the attempt to raise capital the share price was never close to the offer price. The underwriter would have taken up the shortfall and then probably dumped the stock which would have further boosted the short sellers actions.
The momentum was for the share price to fall as they shorted Arrium with greater vigour up to and just prior to Arrium being forced into a trading halt on 14th March 2016.
On 20th of May 2015 Allan Gray Aust Pty. Ltd released a Form 604, notice of change of interest in Arrium Ltd. They held 15.57% at that time. Allan Gray held the shares on behalf of the well known Australian super funds listed in their form 604.
On 9th February 2016 Allan Gray Aust Pty. Ltd. published a Form 604 where they stated they held 16.57% of Arrium’s shares. Allan Gray were a long standing substantial holder of Arrium stock and a retail investor could reasonably conclude they had faith in Arrium’s future.
In the 18 months prior to share trading halt in April 2016, the value of 15% of Arrium’s shares would have reduced from about $450Million to almost $0.
The destruction of Arrium did take the heat off steel exporters in Asia who were dumping steel in Australia. If a foreign government was trying to destroy Australia’s ability to make steel they would have found that Australia’s laws facilitated that process. Shorting a company to death is a much cheaper option than invading the country.
These short sellers and algorithm traders are not folk heroes; they are theives.
This was an email from Peter Lang to his local MP Jason Falinski and AFR journalist Colin Kruger. Peter has been writing to journalists and politicians ever since his investments in Arrium and AMP were destroyed by short sellers. The AFR at best does not reveal the criminal aspects of short selling and at worst actually glorifies short sellers even though short selling should be banned.
Ben.pauley@gmail.com