Short sellers paying up as Snap hype fades

Short sellers paying up as Snap hype fades

Traders betting against Snap are willing to pay up to go short on shares according to data from IHS Markit.

Short sellers are being charged in the region of 15-25% to borrow shares in the owner of the Snapchat messaging app.

It follows sharp falls for the stock during Tuesday’s trading session following a $3.4 billion public listing last week.

"Early indications from the stock borrow market indicate that short sellers are willing to pay what would be considered extortionate fees in order get a hold of Snap Inc shares to short,’ said IHS Markit analyst Simon Colvin.

“Few things inspire short sellers more than a social media IPO owing to their tempting combination of sky high valuations and early trading “pops” from investors rushing to grab a piece of these highly publicized deals.

“Both these events have been seen in recent Snap’s IPO which has resulted in short sellers being charged anywhere between 15-25% in order to borrow shares.”

IHS Markit’s figures are based on the initial $155 million worth of trades that settled on Tuesday, the first day Snap shares became available in the securities lending market.

Despite the early nature of trading, inventory levels are starting to fill up as $430m of Snap shares have made their way to lending programs in less than a week.

This represents 4.4% of Snap’s float. Colvin adds that the supply is pretty evenly distributed as 14 lenders now have Snap shares available to lend of which eight have made loans in the opening day of trading.

Snap’s two closest competitors, Facebook and Twitter, commanded fees of 45% and 19% respectively on their securities lending trading debuts.

All three are still way off of the 105% that short sellers were willing to pay to short Groupon shares immediately after its trading debut which saw the firm’s shares surge by over 80% on their debut.

“It’s impossible to foresee where Snap shares will trade in the securities lending market going forward,” Colvin said. 

“The borrow fee commanded by IPO shares tends to fall in the days immediately following their securities lending trading debut as more shares make their way to lending programs.

“In fact over half of recent social media IPOs see their fees fall in the subsequent week.”

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