By Ben Turney | Sunday 14 June 2015
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
If New World Oil & Gas’ (NEW) board of directors gets its way and saves the skin of the naked shorters, then this group could stand to make at least £5million from this fiasco. As disgusting as this figure it, what is most troubling about it is that the group of naked shorters must include a number of regulated firms, who have acted incredibly recklessly and irresponsibly. Will the London Stock Exchange and Financial Conduct Authority stand by and allow this to happen?
From a regulatory perspective, the most pressing concern surrounding the New World fiasco is why the stock was permitted to continue trading. Between April 29th, the day New World announced its unconfirmed placement, and the close on May 1st over 3.3billion New World shares changed hand. This was nearly four (4) times the company’s issued share capital. How anyone could have viewed this as an orderly market is almost beyond belief.
But New World was allowed to continue trading and the suspicion was that the naked short position grew and grew. Thursday’s announcement from New World seems to have confirmed this.
In announcing its plan to offer clawback on 3,888,873,028 shares, New World’s board has suggested how large it believes the naked short position in its stock could be. After all, what possible other reason could there be to offer clawback on such a large number of shares?
The fact that New World’s board went on to say if even this allocation isn’t enough to deal with the “settlement issues in its Ordinary shares”, causing it to take further steps with Cornhill Capital to “deal with such settlement issues”, this suggests the true figure could be even higher. The maths certainly support this argument.
Let’s start with some assumptions:
Accepting these assumptions generates the following results:
Given that the architects of the New World forward selling fiasco are regulated market participants, how can it possibly be acceptable that these firms stand to make as much as £5million from the havoc they caused?
It will be most revealing how the authorities ultimately respond to this question.
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