Short Sales On The TSX

Thanks to Larry MacDonald for quoting me in his latest piece, Short sales on the TSX: What bearish investors are betting against:

The relative stability of ZPR’s short position in volatile stock markets suggests that it was put in place mainly for hedging purposes. Jeffrey S. Herold, CEO of investment firm J. Zechner Associates Inc. confirms this when he says, “Dealers hedging individual preferred holdings, derivatives and structured notes account for the majority of the shorts”

James Hymas, President of Hymas Investment Management Inc., reinforces this view, declaring that the “shorts are probably market makers.” He says retail investors like to buy ZPR more than individual preferred shares, so there are forces pushing ZPR to a premium over its basket of preferred shares. With market makers often selling short to fulfill investors’ buy orders, ZPR’s market makers may not want to cover their shorts with purchases of ZPR (as units become available) but seek a better spread through hedging with a basket of individual preferred shares.

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