Jonathan Raa | Photo only | Getty Images
Trump media makes a point of telling its shareholders how to prevent their shares from being lent to short sellers – who bet that the stock price will fall.
The tips for preventing short selling, posted on Trump Media’s website on Wednesday, come at a time when DJT stock has fallen sharply in price since it went public on March 26 – and as short sellers have shown great interest in the owner of the Truth Social app despite relatively high fees to finance such deals.
Trump Media’s stock price rose sharply on Wednesday, up more than 15%, with its closing price of $26.40 still a whopping 63% lower than its opening price on March 26.
Last week alone, the stock plunged 20%, then fell more than 18% on Monday and another 14% on Tuesday.
The stock price on Wednesday was nearly 46% below its closing price on April 1, the same day that Trump Media said it had posted a loss of $58 million for 2023 on revenue of just 4.1 million US dollars for this year.
Former President Donald Trump is by far the largest shareholder in Trump Media, with almost 60% of the shares. And its 78.75 million shares could soon grow by 36 million shares if DJT’s price stays above $17 per share in the coming days due to an earnout provision in the merger agreement that took the company public.
But Trump, the presumptive Republican presidential nominee, and Trump Media have seen billions of dollars in stock values lost in share price declines since late March.
On Wednesday, after two straight days of sharp price declines, the company posted an addition to its list of frequently asked questions on its website, which it detailed in an 8-K filing Thursday morning with the Securities and Exchange Commission.
The addendum contains detailed instructions for shareholders on the following topics: “How do I prevent my shares from being loaned out for a short interest position?”
Short selling is the act of borrowing shares of a company and then selling those shares quickly for a certain amount of money. The short seller then waits in the hope that the stock price will decline over time so that he can then buy back the same number of shares and return them to the lender, pocketing the difference between the price for which he originally sold the shares Profit after paying brokerage fees.
“To long-term shareholders who believe in the company’s future, the company highlights the following actions you can take with your brokerage firm to prevent your shares from being borrowed for short selling,” Trump Media said in its addition to its FAQ on Wednesday .
Tips include holding DJT shares in a cash account at a brokerage firm as opposed to a margin account, “opting out of securities lending programs,” transferring Trump Media shares to the company’s designated transfer agent, and transferring shares to a bank and “Keep them in your retirement account.
Read more about CNBC’s politics coverage
The instructions include a helpful form letter that shareholders can send to their brokers.
The letter states: “Please accept this written instruction to ensure that the following securities are held only in my cash account and, accordingly, are not available for stock lending activities.”
“I hereby expressly opt out of any securities lending programs and instruct you not to borrow any of my shares,” the letter reads, before a section that the sender can fill out with the number of shares he has.
A spokeswoman for Trump Media did not immediately respond to a request for comment on the new instructions to prevent short selling.
Short selling is particularly risky because it is quite different from a “long position” in a stock – where a person can only lose the amount of money they paid for shares if their price falls to zero.
In contrast, the price of a short position in a stock can theoretically rise continuously, leaving the short seller responsible for paying exponentially more money to buy back the shares and return them to the lender.
Trump Media highlighted this risk in its updated FAQ, noting that brokerage firms lend stocks “to sophisticated and institutional investors” for short selling purposes. Brokers often insist that clients who short sell with them are experienced investors and have enough cash or collateral to ensure they can cover their losses if the short sell fails.
Trump Media also noted that lending stocks to short sellers could provide brokerage firms with “an alternative source of income.”
“If the stock price actually goes down, then the brokerage firm and the sophisticated and institutional investors have made a profit, while the ultimate retail investor has made no profit,” Trump Media told shareholders.
Of the company’s more than 136 million shares, only about 5 million DJT shares were available for short selling. And much of the 5 million shares were already locked in short positions earlier this month.
But Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told CNBC in early April, “What I’m hearing on the street is that if.” [an amount] inventory becomes available, short sellers take it.
Source link
2024-04-18 12:29:59
www.cnbc.com
