S3: Wirecard short sellers suffer costly time-out
22 February 2019 New York
Image: Shutterstock
The German financial regulator, Federal Financial Supervisory Authority (BaFin), has put Wirecard AG short sellers in a costly time-out, according to Ihor Dusaniwsky, managing director predictive analytics, S3 Partners.
Recently, BaFin halted short selling on Wirecard because its falling share price caused uncertainty in the market.
Dusaniwsky noted in his research that BaFin’s short sale prohibition turned the tables on short sellers, with no opportunity for them to continue beating down Wirecard’s stock price.
Meanwhile, unopposed long shareholders were able to drive up Wirecard’s stock price by 21.25 percent in just two days.
According to the research, the price move cost Wirecard short sellers most of their February profits, down $450 million in mark‐to‐market losses on the 18th and 19th.
Shorts are now up only $20 million in mark‐to‐market profits in February, $17 million year‐to‐date.
Depending on the Wirecard news over the next two months, Dusaniwsky said that we may see upward price pressure due to short covering and long buying.
This will be followed by even more of the same after 18 April if Wirecard’s accounting scandal proves to be a red herring, or an even greater wave of short selling if the accounting scandal is substantiated, he added.
Dusaniwsky cited: “BaFin might have stabilised the German market, and Wirecard in particular,
over the short term, or they may have just closed the pressure valves and created the possibility of a flood of short selling in two months.”
“To add another twist, BaFin may choose to lift the Wirecard short selling ban early and leave both long and short‐side traders scrambling to execute their strategies.”
Recently, BaFin halted short selling on Wirecard because its falling share price caused uncertainty in the market.
Dusaniwsky noted in his research that BaFin’s short sale prohibition turned the tables on short sellers, with no opportunity for them to continue beating down Wirecard’s stock price.
Meanwhile, unopposed long shareholders were able to drive up Wirecard’s stock price by 21.25 percent in just two days.
According to the research, the price move cost Wirecard short sellers most of their February profits, down $450 million in mark‐to‐market losses on the 18th and 19th.
Shorts are now up only $20 million in mark‐to‐market profits in February, $17 million year‐to‐date.
Depending on the Wirecard news over the next two months, Dusaniwsky said that we may see upward price pressure due to short covering and long buying.
This will be followed by even more of the same after 18 April if Wirecard’s accounting scandal proves to be a red herring, or an even greater wave of short selling if the accounting scandal is substantiated, he added.
Dusaniwsky cited: “BaFin might have stabilised the German market, and Wirecard in particular,
over the short term, or they may have just closed the pressure valves and created the possibility of a flood of short selling in two months.”
“To add another twist, BaFin may choose to lift the Wirecard short selling ban early and leave both long and short‐side traders scrambling to execute their strategies.”
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