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Short sellers paying up as Snap hype fades
09 March 2017
Short sellers being charged anywhere between 15-25% in order to borrow shares
Traders betting against Snap are willing to pay up to go
short on shares according to data from IHS Markit.
Short sellers are being charged in the region of 15-25% to
borrow shares in the owner of the Snapchat messaging app.
It follows sharp falls for the stock during
Tuesday’s trading session following a $3.4 billion
public listing last week.
"Early indications from the stock borrow market indicate
that short sellers are willing to pay what would be considered
extortionate fees in order get a hold of Snap Inc shares to
short,’ said IHS Markit analyst Simon Colvin.
"Few things inspire short sellers more than a social media
IPO owing to their tempting combination of sky high valuations
and early trading "pops" from investors rushing to grab a piece
of these highly publicized deals.
"Both these events have been seen in recent
Snap’s IPO which has resulted in short sellers
being charged anywhere between 15-25% in order to borrow
IHS Markit’s figures are based on the initial
$155 million worth of trades that settled on Tuesday, the first
day Snap shares became available in the securities lending
Despite the early nature of trading, inventory levels are
starting to fill up as $430m of Snap shares have made their way
to lending programs in less than a week.
This represents 4.4% of Snap’s float. Colvin
adds that the supply is pretty evenly distributed as 14 lenders
now have Snap shares available to lend of which eight have made
loans in the opening day of trading.
Snap’s two closest competitors, Facebook and
Twitter, commanded fees of 45% and 19% respectively on their
securities lending trading debuts.
All three are still way off of the 105% that short sellers
were willing to pay to short Groupon shares immediately after
its trading debut which saw the firm’s shares
surge by over 80% on their debut.
"It’s impossible to foresee where Snap shares
will trade in the securities lending market going forward,"
"The borrow fee commanded by IPO shares tends to fall in the
days immediately following their securities lending trading
debut as more shares make their way to lending programs.
"In fact over half of recent social media IPOs see their
fees fall in the subsequent week."