To follow up on my earlier question about Uniform Practice Code Regulation 11830, here's the situation...
Gunn Allen Financial is a broker/dealer that holds approximately 4 million shares of GUMM in long customer accounts. They are very bullish on GumTech and make a market in the stock. Within the past few days, Gunn Allen changed clearing firms from RPR to Schroeder. I heard that RPR holds about 600,000 of the 900,000 share short position in GUMM although I haven't been able to confirm the exact number. Apparently RPR used some of Gunn Allen's margined stock to loan to short sellers, and when Gunn Allen moved to Schroeder, RPR no longer had enough stock to cover the short position.
It is my understanding that Regulation 11830 applies and RPR must call in all or most of the short stock that they are holding. This has created the potential for a short squeeze in GUMM. The company's fundamentals are improving with revenue up over 100% from 1998 to 1999, and short sellers will probably have competition for the stock with new longs.
If this plays out like I'm thinking, the volume, volatility, and price of GUMM should all increase over the next few days. It's one to keep an eye on, IMO. The average daily volume is only about 50,000 and the stock was up 1/2 today on about 50,000 shares. What will happen to the price of GUMM if shorts have to buy another 400,000 shares in the next 8 or 9 days?
Comments are welcome. I want to make sure that I understand the implication of Regulation 11830 on this particular scenario.
Thanks,
Dan |
