The Short Report

Weekly Reports | Sep 13 2018

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage UIKeyInputLeftArrowamounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending September 6, 2018

Well this is embarrassing.

In last week’s Report I marvelled over a sea of green in the 5% plus shorted table that suggested a widespread reduction in short positions – some by less than one percentage point, some by one or more and a few by 2ppt. I suggested that with the results season now over, short players were reducing positions and potentially starting anew.

Well, last week just about every stock (not quite all) which saw a reduction the week before saw an increase last week. Moreover, the quantum of increase in almost every case matches, fairly closely, the same quantum of reduction the week before.

Regular readers of this Report are aware that every now and again I become suspicious of a particularly notable change in the short position of stock which has no immediate explanation, and suggest it might be an ASIC data blip. Very often I’m right, and that stock’s short position returns to where it was the week before.

Sometimes I provide a perfectly reasonable explanation for a change in short position, only to be left red-faced when, again, that move reverses the next week.

Well in this case, we are not simply talking about one stock. We are talking about more than a dozen. A bit suspicious? I’d say so.

Do we blame ASIC?

It’s a bit difficult as we are reminded that ASIC depends on the obligation of traders to report, at the end of a session, which sell-trades are to close a long position and which are to open a short position. The regulator otherwise has no means of knowing. It’s a legally binding obligation but it’s quite common for traders to be a bit tardy in their reporting.

Was there just too much activity going on around the end of results season? I really don’t know. Maybe something did dimply go wrong with ASIC’s system last week. Either way, we’ll have to wait till next week to re-establish what hopefully will be a more reliable table.

I’d like to say I apologise, but there’s really not much I can do about it. I once queried ASIC on such an occasion and was met with a shrug. I haven’t bothered again since.

Weekly short positions as a percentage of market cap:

10%+

SYR    20.3
JBH     19.5
GXY   16.3
ORE    16.3
DMP   14.1
MTS    12.6
ING     12.3
MYR   11.2
GXL    10.5
HVN   10.4

In: HVN, GXL                                              

9.0-9.9

GEM, IGO, VOC, IFL, NWS

In: GEM, NWS                       Out: HVN, GXL
                                                                                               
8.0-8.9%

CSR, NUF, IVC, NAN

In: NUF, IVC, NAN              Out: NWS, GEM, AAC                    

7.0-7.9%

AAC, SUL, BWX, NEC, GMA

In: AAC, BWX, NEC, GMA             Out: NUF, IVC, SFR

6.0-6.9%

PLS, MLX, MOC, SFR, TNE, BIN, NWL, SEK, GNC, KAR, MYO, RSG, BEN

In: SFR, MOC, TNE, NWL, RSG                 Out: NAN, BWX, SIG, HT1

5.0-5.9%

HT1, MND, SIG, BGA, CAB, FLT, BLA, IPD, MSB, CCP

In: HT1, SIG, BGA, BLA                 

Out: NEC, GMA, TNE, NWL, RSG, MOC

                       
Movers & Shakers

See above.

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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