Multiple Topics Pt. 3A – Short Interest and Arbitrage
While I hope you all do not group me in the same category as �Wacky Patty� (Overstock dot com) with regards to naked short selling but I believe there are some illegal activities going on which should be investigated.
First, here are the past twelve months of short interest as reported by NASDAQ:
Jan 12, 2007 26,357,292 Dec 15, 2006 22,837,670 Nov 15, 2006 19,606,098 Oct 13, 2006 16,314,117 Sep 15, 2006 15,523,394 Aug 15, 2006 14,637,026 Jul 14, 2006 15,212,303 Jun 15, 2006 13,581,796 May 15, 2006 10,437,958 Apr 13, 2006 10,982,836 Mar 15, 2006 9,049,661
Take note that only one month in the last 12 months has the short interest gone down, yet the price of the stock from March 13, 2006 $81.30 to Jun 13, 2006 $49.98 back to Jan 12, 2007 $105.31. Quite some price swings � hence a high Beta for options players!
The total shares outstanding at the time of the Archipelago merger were reported in the S-1 at 155,501,605 shares. Today the shares outstanding are reported at 156,233,000, only about 750K shares more than at the time of the Archipelago merger. This tells me that there has to be some significant reason for people to think that NYX is not worth the high price since it appears more people betting on the price going down with the intent of covering at a lower price.
Some on this board have mentioned arbitrage with the shares of Euronext. How can that be. The tender offer for Euronext is .98 share of NYX + 21.32 Euro per share of Euronext. At todays closing price of NYX $97 ($1 USD = .7685 Euro) that tender equals $97 * .7685 Euro + 21.32 Euro = 95.8645 Euro. Today, Euronext is trading for 91.55 Euro on Euronext. Per the people who speculate an arbitrage play, you would sell NYX with the intent of NYX price going down to match the lower value of the NXT stock. One flaw with this theory is we currently have 26M shares shorted and NXT only trades on average about 500K shares per day. The arbitrage theory would require about 52 trading days of 100% NXT volume being devoted to arbitragers buying NXT with intent of price rising to meet the falling NYX share value. I don�t think this is realistic.
The next post will show how naked shorting may be the reason for falling price.
I have sent numerous letters to the SEC enforcement division and also I posted on this board a copy of an email I sent to a number of NYSE board members and the NYSE enforcement. Naked shorting is a big problem and while some companies are very heavily shorted for valid reasons, there should be no stock driven down by the illegal naked shorting activity. So far, it is difficult to prove willful activity regarding this practice and the SEC and the SRO's have not elected to make this activity more public.