Bryon,the follwing post on si's sun gold thread is a good explaination of why th MM are toying with the price of FTEL. These MM will be holding the price back all the way up to $30 trying to cover their shorting of shares they don't own, until stronger hands ,shareholder in control of their shares, dictate otherwise.
I hope you enjoy reading the following edited post as much as I did. This strategy also gives us way to fight back and to deliver a heavy blow to all would be shorters.
Subject: SUN GOLD GAMING
From: Mayer Tchelebon
Reply #37 of 47
The way short-selling works is as follows:
1. Lets say I own 1000 SGI, which are in my account with Brokerage
firm A.
2. You are an investor with Brokerage firm B, and you wish to sell
short 1000 SGI. Lets say that SGI is selling for $13.00 when
you want to do this.
3. You will have to "borrow" 1000 SGI in order to do this. Firm B
will attempt to borrow the shares from another client of firm B
who owns 1000 SGI. If they cannot find anyone who owns SGI,
they will phone other firms. So they phone firm A, and
borrow 1000 SGI from firm A, which are the 1000 I own myself.
So, in effect, I lent you 1000 shares so that you can sell them.
4. You receive $13,000 from the sale, but you cannot touch thi
money. You have to keep it in the account, and, in addition,
put up another $13,000 cash of your own to meet the margin
requirements of 200% of market value.
5. If SGI goes down in the same afternoon by $1.00, you can
repurchase them and close the short position. You make $1,000
profit. If SGI goes up by $1.00, you have a paper loss of
$1,000, but, what is even worse, you have to deposit another
$2,000 into your account to meet the 200% margin requirement.
If SGI goes up by several dollars, things can get really ugly
if you are short, as you will either have to buy back higher,
or keep depositing 200% of your loss into your account on
the spot.
6. Now comes the interesting part: if I ask my broker at firm A to
arrange to give me a stock certificate, then you have to
"return" my 1000 shares to me. Your broker at firm
B will have phone around to find someone else to lend you 1000
shares. All this happens in the background and if your broker
found someone else to lend the shares to you, you will never
know what happened. However, if your broker cannot find
anyone else who owns SGI shares which can be lent out (see #8
below), you will be forced to buy them back, right then and
there, at whatever price SGI is trading at that time; probably
a nasty surprise, to say the least.
7. Now imagine that instead of you and me, it is a firm with $
millions of capital who is shorting, say, 100,000 SGI. As
firms, they are NOT subject to a 200% margin requirement but
a more lenient requirement. In some cases, they do not tell
the VSE that it is a short, so as to avoid the margin requirement
altogether. But they still have to borrow the shares from
individuals like us. Borrowing 100,000 shares can be difficult,
but not impossible in SGI's case; they just get a little
from every small investor.
8. The following shares CANNOT be lent out:
- Shares in self-directed RRSPs (due to legislation)
- Shares issued in certificate form
The following shares CAN be lent out:
- Shares in your brokers (street) name in a non-RRSP account
Note: I believe that when you open a margin account with the
broker you agree to allow your broker to lend out any shares
you are long in your account and which are registered in
street name. So your broker does not need your permission
to do this, since you have already agreed to it in the
account agreement when you opened your account. Only by having
the shares registered in your own name your shares would
become non-lendable.
9. If everyone who has non-RRSP shares in their broker's account
were to call their broker tomorrow and ask for their share
certificate, all of a sudden the shorts would have the rug
pulled from under them, as they would have to return their
borrowed shares. Of course, getting your share certificate
could mean a small service charge and having to put in in
your safety deposit box. Also, if your broker has given your
50% margin when you bought SGI (most brokers do not), you will
have to pay back the margin before the broker will deliver
you a certificate. Someone owning under 1,000 SGI would not
want the inconvenience; but large shareholders in this
situation would be greatly advised to take delivery of their
shares. I see it as a small inconvenience for a noble cause.
I assume that the management of SGI has made sure that their SGI
shares (about 40% of the total) could not be lent out. Everyone
who has SGI in their RRSP is OK too.
Everyone else's is fair game for the shorts to borrow.
Anyway, a significant portion of the investment firm's profit is
derived from trading stocks for their own account. They can go
either long or short in any stock; whatever strategy works for
them. Shorting works very well for some firms who specialize
in this technique, and SGI, with its daily 10% fluctuations,
is a perfect candiidate (right now) for daily profits from
fluctuations. They can also cause a stock to go down and then
buy it back lower; they become both the cause and effect: a
self-fulfilling prophecy.
However, you and I and everyone else can stop this by taking
delivery of our non-RRSP shares.
My shares are in a self-directed RRSP with my discount broker;
they cannot be lent out to shorts. By the same token, because
there is a broker involved, I have to wait until the broker
receives SGI's annual report/proxy materials and then sends
it to me, so I will receive it after everyone else has. I do
understand that we will get to vote on a proposed 3-1 split
on or before the Annual Meeting of February 11th.
We will know the result of the vote on February 11.
You can assume that the shorts know everything that you and I know
about SGI, and probably more. They too talk to the company and read
the Internet, and there are aware of SGI's projects and the stock
split. That gives them, at least in theory, a limited window of
opportunity to feast themselves further. I am sure they have
calculated that risk and are, or will be, acting accordingly.
Shorts are very smart individuals; they have to be for their own
sake, and they are not easily defeated. If they see threat to them
in the horizon, they will close their position in the least painful
way to them. Knowing that we can do our bit to scare them away (by
taking delivery of our shares) helps, though.
reply: Gene, thank you for sending us Mayer's note on shorting.
So how can we beat shorters. Well a serious shorter are stock
brokerage houses themselves. Are they smart? Absolutely. Remember,
in most cases they would have brought a company public and know
where most of the stock is. It is in their vaults. And they use
it against that company. That in my opinion that is immoral and
should be outlawed. But you won't see that outlawed because the
brokerage houses control the SEC and the laws. So what else can be
done. I would like to see a discount brokerage house have a no lend
policy instituted, unless the borrower is willing to notify the
stock owners and are willing to pay the stock owners a rent or
option fee. If that were the case, there would be a lot less
shorting... |
