Patience Patience Patience !!! Excellent articl
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Posted On: 07/20/2015 3:31:43 PM
Re: SIObserver #520
Patience Patience Patience !!!
Excellent article for your learning experience. Passed along to Pope to review as well for not only us but all the companies he is working with.
http://www.hawkassociates.com/ir/white/shorts.cfm
In particular this excerpt for companies from the CEO's perspective:
What to do if you think you may be targeted.
Above all else, be discrete with your public accusations. A well-intentioned CEO can fulfill his own prophecy by going public with accusations of naked shorting. Investors may flee the stock, further lowering the share price. Meanwhile, other funds may hover, waiting for an uptick to begin shorting your company themselves.
Watch your trading volume. If you're seeing four or five times your company's float trade hands in an otherwise ordinary day, and you have no large share overhangs, pay attention. Start documenting those patterns.
Keep your focus on operations. Your stock price is not declining exclusively due to naked shorting. Weakness in the business, industry, model, communications or management team exists well before naked shorting begins and allows it to continue. In most cases, the best deterrent for shorts of any kind is consistent execution and credible communications with your shareholders.
Always surprise on the upside. By maintaining absolute secrecy before good news, you give yourself the best chance to catch the shorts of guard and maybe even squeeze them. Be conscious of unintended signals you may send when in public appearances, conference calls and analyst meetings before a particularly good quarter or other surprising good news. Keep your cards close to your chest and save those glowing press releases for the middle of the trading day.
Maintain a steady stream of news. By communicating with your investors as often as possible, you remove some of the mystery surrounding a company that a naked shorter typically targets. In the absence of news, a continuously dropping stock price is the only communication your investors are hearing. Sales of stock by legitimate owners are sure to follow.
Put floors on your convertibles. A floorless convertible bond (also known as a "convertible death spiral"
is an open invitation for its owners to short the stock as aggressively as possible. A constant decline in share price means the convertible owners will get more shares because the initial rate of conversion will change. While the original shareholders may very well lose their entire stake in the company, the convertible owners can continue to short the stock until they can effectively cover the original short with new shares created by a new rate. Should those convertibles be held offshore where naked shorting is not illegal, the potential for price depression becomes even greater. Ensuring you have a floor on those converts will prevent the worst case scenario.
Monitor small international exchanges. If your firm unexpectedly turns up on the Berlin-Bremen stock exchange and you, the CEO, did not request a listing there, that might be a sign of a problem. Request the removal of your company from that exchange immediately, and keep asking until it's done.
Realize your choice of financing vehicle may attract naked shorting interest. In addition to floorless convertibles, PIPEs may also attract undue attention from potential funders. Since shares in a PIPE are sold for below market price, the provider could short the stock down to that level with no risk of capital loss on his part. When issuing warrants with the deal, you're also effectively pushing the price lower through increased dilution of existing shareholders. While it's true that sometimes beggars can't be choosers when it comes to raising funds, go into those negotiations with your eyes wide open.
Check the Threshold Security lists . Links to the lists at each exchange are below. Keep in mind that inclusion on that list does not mean naked shorting or any other improper activity is occurring, just that some shares meet the three requirements mentioned above. An extended presence on the Threshold list, however, in combination with some other signals mentioned above may be an important sign.
Don't read the message boards. You'll drive yourself nuts, waste a ton of time and eventually convince yourself you're a victim of someone's ill wishes, naked shorts or otherwise. If you're that compelled to monitor the boards, ask your IR team to send you weekly summaries of any cogent posts.
Know your IR company. Consider your choice of an investor relations firm as your first line of defense. Does the company have expertise in dealing with naked shorting? Does the price of your stock mysteriously rise or fall between the time you send your draft press releases and when they hit the wires? Do they have long-term clients willing to vouch for their integrity? And do they have processes in place to handle sensitive information?
Know your transfer agent. Given that the process of naked shorting begins at the brokerage level, there's not much your company's transfer agent can do with regards to those shares. The responsibility for tracking them lies with the brokerage. It is theoretically possible, however, for a corrupt transfer agent to conceal the true float and otherwise manipulate the shares themselves.
Both your transfer agent and IR firm should be able to advise you on the effectiveness of combating naked shorts by changing CUSIP numbers, reverse mergers, and/or reverse splits. Although the long-term effectiveness of these strategies is questionable, it may be useful as part of a larger strategy to deter naked shorting. After changing your company's CUSIP number, for instance, all existing stock certificates must be exchanged for new ones. All issued and outstanding certificates from old shares will no longer represent an interest in the company until exchanged. This may be more trouble than it's worth, however. Once the new shares are in circulation, there's nothing to stop a new round of naked shorting by determined parties. Such tactics may represent a small part of an overall strategy to reduce naked shorting interest in your company.
Excellent article for your learning experience. Passed along to Pope to review as well for not only us but all the companies he is working with.
http://www.hawkassociates.com/ir/white/shorts.cfm
In particular this excerpt for companies from the CEO's perspective:
What to do if you think you may be targeted.
Above all else, be discrete with your public accusations. A well-intentioned CEO can fulfill his own prophecy by going public with accusations of naked shorting. Investors may flee the stock, further lowering the share price. Meanwhile, other funds may hover, waiting for an uptick to begin shorting your company themselves.
Watch your trading volume. If you're seeing four or five times your company's float trade hands in an otherwise ordinary day, and you have no large share overhangs, pay attention. Start documenting those patterns.
Keep your focus on operations. Your stock price is not declining exclusively due to naked shorting. Weakness in the business, industry, model, communications or management team exists well before naked shorting begins and allows it to continue. In most cases, the best deterrent for shorts of any kind is consistent execution and credible communications with your shareholders.
Always surprise on the upside. By maintaining absolute secrecy before good news, you give yourself the best chance to catch the shorts of guard and maybe even squeeze them. Be conscious of unintended signals you may send when in public appearances, conference calls and analyst meetings before a particularly good quarter or other surprising good news. Keep your cards close to your chest and save those glowing press releases for the middle of the trading day.
Maintain a steady stream of news. By communicating with your investors as often as possible, you remove some of the mystery surrounding a company that a naked shorter typically targets. In the absence of news, a continuously dropping stock price is the only communication your investors are hearing. Sales of stock by legitimate owners are sure to follow.
Put floors on your convertibles. A floorless convertible bond (also known as a "convertible death spiral"
is an open invitation for its owners to short the stock as aggressively as possible. A constant decline in share price means the convertible owners will get more shares because the initial rate of conversion will change. While the original shareholders may very well lose their entire stake in the company, the convertible owners can continue to short the stock until they can effectively cover the original short with new shares created by a new rate. Should those convertibles be held offshore where naked shorting is not illegal, the potential for price depression becomes even greater. Ensuring you have a floor on those converts will prevent the worst case scenario. Monitor small international exchanges. If your firm unexpectedly turns up on the Berlin-Bremen stock exchange and you, the CEO, did not request a listing there, that might be a sign of a problem. Request the removal of your company from that exchange immediately, and keep asking until it's done.
Realize your choice of financing vehicle may attract naked shorting interest. In addition to floorless convertibles, PIPEs may also attract undue attention from potential funders. Since shares in a PIPE are sold for below market price, the provider could short the stock down to that level with no risk of capital loss on his part. When issuing warrants with the deal, you're also effectively pushing the price lower through increased dilution of existing shareholders. While it's true that sometimes beggars can't be choosers when it comes to raising funds, go into those negotiations with your eyes wide open.
Check the Threshold Security lists . Links to the lists at each exchange are below. Keep in mind that inclusion on that list does not mean naked shorting or any other improper activity is occurring, just that some shares meet the three requirements mentioned above. An extended presence on the Threshold list, however, in combination with some other signals mentioned above may be an important sign.
Don't read the message boards. You'll drive yourself nuts, waste a ton of time and eventually convince yourself you're a victim of someone's ill wishes, naked shorts or otherwise. If you're that compelled to monitor the boards, ask your IR team to send you weekly summaries of any cogent posts.
Know your IR company. Consider your choice of an investor relations firm as your first line of defense. Does the company have expertise in dealing with naked shorting? Does the price of your stock mysteriously rise or fall between the time you send your draft press releases and when they hit the wires? Do they have long-term clients willing to vouch for their integrity? And do they have processes in place to handle sensitive information?
Know your transfer agent. Given that the process of naked shorting begins at the brokerage level, there's not much your company's transfer agent can do with regards to those shares. The responsibility for tracking them lies with the brokerage. It is theoretically possible, however, for a corrupt transfer agent to conceal the true float and otherwise manipulate the shares themselves.
Both your transfer agent and IR firm should be able to advise you on the effectiveness of combating naked shorts by changing CUSIP numbers, reverse mergers, and/or reverse splits. Although the long-term effectiveness of these strategies is questionable, it may be useful as part of a larger strategy to deter naked shorting. After changing your company's CUSIP number, for instance, all existing stock certificates must be exchanged for new ones. All issued and outstanding certificates from old shares will no longer represent an interest in the company until exchanged. This may be more trouble than it's worth, however. Once the new shares are in circulation, there's nothing to stop a new round of naked shorting by determined parties. Such tactics may represent a small part of an overall strategy to reduce naked shorting interest in your company.
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