Trying to Make Sense Bursa Investments
Top Glove Short Position: More Odd Happenings
A couple of weeks ago I wrote about some odd happenings around the gigantic short position on Top Glove's stock. You can read the full post here. A reminder in case you do not want to read the whole article - the two things that happened at that time were:
- Datuk Muhamad Umar Swift, the CEO of Bursa Malaysia Berhad said that the net short position limit on any stock on Bursa is 3%. The official information says 4%, and it was later confirmed by Bursa that it was indeed 4%.
- Bursa released the daily net short position data, excluding data for Top Glove. An updated file was uploaded several hours later.
Both of these odd events happened on February 2, coinciding with the time when there was by far the most interest in how the short position was moving. Since then Bursa stopped releasing the daily net short position data files around midnight on the same day, and began releasing them the next morning, before opening of trade.
Today another rather puzzling event took place. According to Bursa's net short position report for 11 February (see here), the net short position on Top Glove's stock decreased by 27.6 million shares from what it should have been. In other words, the short seller had supposedly bought back 27.6 million shares. As mentioned before (see here), this net short position data comes 1 day late, i.e. the report dated February 11 actually shows the position as it stood at closing of trade on February 10. Thus, this covering of short positions (buying back of shares) has taken place on February 10. Additionally, we know that on February 10, Top Glove bought back 600,700 of its own shares (source). The total transaction volume from these two transactions alone is therefore 28,200,700 shares.
It may then come as a surprise that the total daily volume on February 10 was only 20,317,300. The only way this discrepancy could be explained is with the transaction having taken place over the counter. The short seller has found a willing counterparty that would sell their shares to the short seller at an undisclosed price in an off-market direct transaction. And since it's an over-the-counter transaction, it would technically not affect the market price of the shares.
This is not the first time the short seller has done over-the-counter transactions in order to avoid disturbing the market price of the shares. On January 21 and January 22, the short seller returned previously borrowed shares to EPF (see here). However, these shares were not bought via open market transactions, so they were either borrowed shares, or shares bought in off-market (over-the-counter) transactions.
The short positions opened on Top Glove's stock since January 4 reached a total value of RM1.5 billion on Wednesday (February 10). This represents 51% of the entire value of all short positions opened throughout this period on the stock of any company listed on Bursa Malaysia. At the closing market price from Thursday (February 11), the short seller's mark-to-market loss on the Top Glove short position alone exceeds RM100 million (not counting any closing of short positions as we do not know the price at which they have been closed; additionally not counting any borrowing fees, transaction fees, brokerage fees, operational costs, etc, as we do not have information on those).
Update: 17 February 2021
Today we got the data on what exactly has taken place on Monday (15 February). You can review the latest net short position data here. Apparently, additional short positions have been closed:
- On Top Glove: 17,680,000 shares
- On Hartalega: 3,000,000 shares
- On Kossan: 644,000 shares
The closing of positions on Top Glove and on Hartalega has most certainly been done in off-market deals as the volume of these transactions alone exceeds (or in the case of Hartalega - is equal to) the entire daily volume of market transactions on Monday.
All of this poses the question - is it a fair practice for a short seller to dump massive, market-breaking amounts of shares via the open market on the sell side, thereby causing significant downward pressure, and subsequently closing these short positions via off-market transactions thus not triggering corresponding upward movement.
Important disclaimer: Any views expressed are for informational and discussion purposes only. None of this information is intended as, and must not be understood as, a source of advice. It is imperative that you always do your own research and that you make any decisions based on your personal situation and your own personal understanding.
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Discussions
6 people like this. Showing 18 of 18 comments
Yong Ken, thank you for your comment.
Bursa, like other underdeveloped markets, exemplifies severe inefficiencies in market valuations. As a fundamentalist, I like this very much, because it provides for incredible arbitrage opportunities even with regards to KLCI constituent companies.
The problem, and why most people are unable to do well on Bursa, is because everyone's investment horizon is very short. This is of course partially a function of the fact that there is no capital gains tax or dividend tax in the country, which leads to short-termism and gambling-like behavior.
2021-02-15 18:04
Thanks @Ben Tan for the update & alert of this abnormally. Hmm.. transactions over-the-counter would probably be a good alternative to save face for jpm. How can they allow Ben to make public their realized losses?? hehe
Just wondering why would the paper loss to date still be so much given the fact that the price is now so near to Jan 4th price?
Btw TG prices are getting more pathetic by the day. The highest generating profit company in Msia just clocked, as of today, the 8th consecutive red candle. Blatant manipulation. How are the IBs gonna unashamedly press down for another 10 more days till end Feb?
2021-02-15 18:35
CJkenho, thank you for your comment.
The largest part of the short positions opened since the beginning of the year took place on January 4 itself at average price far below RM6. The average price at which shares of Top Glove have been shorted is therefore RM5.79. So this is the minimal break-even price for the short seller, even if we discount any extra costs, such as borrowing fees, brokerage fees, and so on.
2021-02-15 18:52
HI BEN, I’M GLAD THAT YOU HAVE TAKEN THE TROUBLE TO CHECK OUT THE NITTY GRITTY DETAILS OF SUSPICIOUS TRADING ACTIVITIES AND RECORDS.
I USUALLY HAVE SERIOUS DOUBTS ABOUT PEOPLE WHO HOLD HIGH POSITIONS, BUT LACK THE KNOWLEDGE OF SIMPLE FACTS. IS THERE A HIGHER AUTHORITY TO ALERT TO ON THE “OVERSIGHTS” THAT APPEAR TO BE TROUBLING MALAYSIAN INVESTORS? I AM NOT SURE ALL IS WELL
2021-02-16 15:29
Thanks Ben for the insightful info. I didn't know that Shorties can do overthecounter deals to square their short positions that were done in the open market. This is really something most retailers will not apprehend. Is this a fair market?
2021-02-16 22:43
The fact is, hype of glove is fading rapidly.
Only one with an insane mind would think glove is important in diagnosing pandemic.
Those who insist on hugging gloves stock, I wish you good luck!
Achieving past glory is unattainable target.
2021-02-16 22:49
dusti, bpsiah, thank you for your comments.
dusti, the highest authority is supposed to be the Securities Commission in this case. However, bear in mind that according to my (limited) research, this is all acceptable, i.e. it technically doesn't go against the rules of Bursa. Thus, the rules would have to first be amended to place everyone in a level-playing field before potentially a complaint could be lodged.
bpsiah, it is certainly not a fair practice, especially when market-moving amounts of capital are poured into shorting the stock. However, bear in mind that this also means that there is a willing seller of the shares the short-seller has bought in the off-market transaction. Also bear in mind that whatever price the short-seller has paid is likely to have been higher (probably substantially higher) than the market price, which means they are cutting losses currently.
2021-02-16 22:54
HI Ben, same thing happened again on 15-Feb. Also, the same probably happened to Harta. Thx.
2021-02-17 09:48
Short sellers covered back 44 480 lots of TopGlove over 3 days by end of business day on 15th Feb. But while the supplies of RSS were duly transacted on market, exerting pressure on prices , the demand for short covering were done via off market transaction. In my simple mind, that is an uneven playing field. I would suggest a email to be forwarded to Bursa Malaysia to seek clarification if any trading rules may have been infringed.
2021-02-17 11:20
cpchuan, Michael Teng, thank you for your comments.
Yes, on Monday the short seller has covered some significant short positions:
- 17,680,000 on Top Glove
- 3,000,000 on Hartalega
- 644,000 on Kossan
The Top Glove and Hartalega closing has most certainly been done off-market. This is not a level playing field, and it would definitely be great if Bursa is checked on that. Please feel free to share this article with Bursa if you write to them. I will update the post to reflect the latest changes.
2021-02-17 11:44
I have casually checked on OFF Market trades on TopGloves over the last 10 days, and failed to locate significant transactions that are shown on Bursa records. Hence, that beg the question how those short covering may have been done.
2021-02-17 12:03
Here is something that was recently posted elsewhere: https://imgur.com/pgXMgOU
2021-02-17 12:06
@Ben
Based on Bursa reply, it looks like for all we know Short sellers could have bought back all their shorted shares, just pending to return to lenders in one shot.
2021-02-17 12:25
Why shorties don’t return as they covered their shorts? Interest charges is based on day to day basis? So no sense to return after accumulating for they got to pay interest!
2021-02-17 12:38
lkoky and Seek, thank you for your comments.
I will probably write a completely separate post on this, but yes - a number of things don't add up. There is no immediately obvious logic in the short seller returning the shares all at once, as they continue to incur borrowing fees when they hold the shares.
Additionally, the explanation of several days of trading doesn't hold water. I will explain in a separate post why.
2021-02-17 13:32
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Yong Ken
Apparently, Bursa is a magician. There has no fair game here. Suggest topglove quickly list in Hong Kong... i believe it will be good to us and the Tan Sri.
2021-02-15 17:55