Trump Media tells DJT shareholders how to block short sellers
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Trump Media’s stock price rose sharply on Wednesday, by more than 15 percent, its closing price of $26.40 was still 63 percent lower than the March 26 opening price.
The stock fell 20% last week alone, then fell more than 18% on Monday and more than 14% on Tuesday.
The stock price on Wednesday was almost 46% below its April 1 closing price, the same day Trump Media revealed it had posted a $58 million loss for 2023, with just 4, $1 million in revenue for that year.
Former President Donald Trump is by far the largest shareholder in Trump Media, owning nearly 60% of its shares. And its 78.75 million shares could soon increase by 36 million shares if DJT’s price remains above $17 per share in the coming days due to an earnout clause in the merger agreement who took the company public.
But Trump, who is the presumptive Republican presidential nominee, and Trump Media since late March have seen billions of dollars of value evaporate because of falling stock prices.
On Wednesday, after two straight days of sharp price declines, the company included a supplement to its list of frequently asked questions on its website, which it detailed in an 8-K filing Thursday morning with the Securities and Exchange Commission .
The supplement adds a significant number of instructions to what was originally posted in the FAQ on Wednesday, under the title: “How do I prevent my shares from being loaned to a short interest position?”
Short selling is the practice of borrowing shares of a company and then quickly selling those shares for a certain amount of money. The short seller then waits, hoping that the stock price will fall over time, so that he can then repurchase the same number of shares and return them to the lender, thereby pocketing the difference between the price at which he initially sold the shares. profit after paying brokers’ fees.
“For long-term shareholders who believe in the future of the company, the company highlights the following steps you can take with your brokerage firm to prevent your shares from being loaned for short selling purposes,” a Trump Media said in its FAQ supplement Wednesday.
The advice includes holding DJT stock in a cash account with a brokerage firm rather than a margin account, “opting out of any securities lending program,” transferring Trump Media stock to transfer agent appointed by the company and transfer the shares to a bank and “keep them in your retirement account.
The instructions include a helpful form letter that shareholders can send to their brokers.
The letter states: “Please accept this written instruction to ensure that the following securities are held only in my cash account and therefore are not available for stock lending activities. »
“I hereby expressly opt out of any securities lending program and request that you do not lend any of my shares,” the letter states, before a section the sender can fill out with their number of shares.
The detailed instructions contrast with the much simpler instructions initially posted Wednesday in the FAQ, which simply said: “To prevent stocks from being lent for a short interest position, contact your brokerage to place restrictions on lending your shares to short sellers. »
A Trump Media spokeswoman did not immediately respond to a request for comment on the new guidance on preventing short sales.
Short selling is particularly risky because it is very different from going “long” in a stock – in which a person can only lose the amount they paid for the shares if their price falls to zero.
In contrast, a short position in a stock can theoretically see its price rise continuously, leaving the short seller responsible for paying exponentially more money to buy back the shares and return them to the lender.
Trump Media, in its updated FAQ, highlighted this risk by pointing out that brokerage firms lend stocks “to sophisticated and institutional investors” to engage in short sales. Brokers often insist that clients who engage in short sales with them are experienced investors and have enough liquidity or collateral to ensure that if the short trade goes bad, they will be able to cover their losses.
Trump Media also pointed out that lending stocks to short sellers can provide brokerage firms “an alternative source of revenue.”
“If the stock price actually declines, then the brokerage firm and the institutional and sophisticated investors will have made a profit, while the ultimate retail investor will not have made a profit,” Trump Media told its shareholders .
Only about 5 million shares of DJT were available to short out of the company’s more than 136 million shares. And a large portion of the 5 million shares were already stuck in short positions at the start of the month.
But Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told CNBC in early April: “What I’m hearing on the street is that if (a quantity of) stock becomes available, sales at discovered make it lower. »
News Source : www.cnbc.com
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