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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: ANANT who wrote (2758)	6/26/1998 7:34:00 AM
From: SDR-SI	Read Replies (1) \| Respond to of 11568

Your comments are correct and are the indication of why the reported short figures cannot be relied upon as a comment of sentiment on the a stock involved in a disclosed merger or acquisition. The deal you described is one of the arbitrage elements resulting in shorting (taking advantage of the risk-discounted market prices of the two stocks involved). As the closing date of the deal gets closer and it is definitely a "done deal", no longer dependent on the whims (sorry, make that "careful consideration") of regulators or even the votes of stockholders, another type of arbitrage begins to have huge effects on shorting: Big, big institutional players begin performing non-risk arbitrage trades that take advantage of the most minute anomalies in relative pricing of the two stocks and can produce absolutely guaranteed profits by picking the right moment to short the surviving company's stock and buy the stock of the company being acquired, or vice versa, depending on the direction of the momentary pricing irregularity. Such procedures are generally only successful for very large institutions that can move both sides of the trades very quickly and can generally trade without commission and without administrative fees for the exchange of shares on the distribution/proration date. They result in profits which are small percentage-wise, but are absolutely guaranteed. The above can result in huge short positions as the closing date nears. Steve