What was hopeless about it was they they had not been complying with their disclosure obligations (since Oct last year!) and had to play catch-up.
The shares were borrowed from Merrill Lynch, not BNY Mellon (BNYM is Lumyna's nominee custodian, which is something different). Merrill's relationship with Lumyna should hopefully be made clearer with what comes next...
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(This next bit is for everyone.)
Finally(!), I think we now have a
plausible explanation of what has been going on with these periodic changes in substantial holder notices that involved BAML and now Lumyna. The key was in the new information contained in the recent Lumyna disclosures.
Firstly, there has been
zero evidence of
ongoing meaningful shorting of POS,
as reported via Shortman or via source ASIC data files which are freely available, which I have checked. It's hasn't been shorting activity in any meaningful way, imo, but I'm always happy to be proven wrong, with clear supporting evidence/substantiation.
It looks very much like it's related to Repo trading activity. That is, trading (unregulated) collateralized lending derivatives (Repos) whereby synthetic POS Repos are being traded. The derivative instrument being traded here is a Reverse Purchase Agreement ('Reverse Repo') that is collateralized by an underlying shareholding in POS that's underpins it (i.e. in much the same way that physical Ni tonnage held at LME warehouses is the underlying collateral for LME-traded Ni futures contracts). The repo market is essentially an over-the-counter market that packages existing securities into synthetic tradable instruments calls Repos. Trading doesn't occur on a regulated exchange like a stock exchange or futures exchange - hence the term 'over-the-counter'. Large brokerage houses have their own Repo desks that act as market makers. In this instance, it's Merrill Lynch (part of the BAML family - more on this shortly) who is the counter-party that Lumyna appears to be trading with. Anyone wanting a primer on repos can read
this and
this, for starters. Let the headaches begin! (lol)
Supporting Evidence (all from the recent Lumyna disclosures):
1) All the agreements shown in the various Annexure B's are clearly disclosed as
Reverse Purchase Agreements between Lumyna (purchaser/borrower) and Merrill Lynch (seller/lender).
2) Note the price per security for every trade disclosed by Lumyna. You'll need to perform manual calcs (i.e. Consideration (USD) / Number of Securities = Price Paid/Received per Security when either purchased or sold). In almost all instances the prices paid per security have been a
fraction of the USD-equivalent of the underlying POS share price. By this, I mean the Repos are trading at fractions of cents (eg: 0.3c, 0.22c, 0.17c). Note that these are
fractions of the traded prices of the underlying POS FPO shares on the ASX/Chi-X. (These Repos also appear to be traded USD, as evidenced by today's disclosure which clearly showed USD Consideration for the first time).
In Short: It appears Merrill Lynch is making an over-the-counter market for synthetic POS Repos that Lumyna is trading. This explains why none of the implied trading activity contained in these substantial holder notices (long or short) (from Lumyna or BAML - more on this shortly) is showing up on ASX/Chi-X volume data or the ASIC short-sale data. It's all happening (in a very limited way, judging by the disclosed volumes) off-market in the unregulated synthetic Repo space.
To get a fuller appreciation of the likely linkages and logic flow it might help to also bring the BAML substantial holder notices into the mix. From all this it appears that:
1) Regal Funds Management as Trustee of Atlantic Absolute Return Fund (who first showed up immediately after the large 2018 CR) is the beneficial owner of most, if not all, of the underlying POS shares that Merrill is using as collateral for the synthetic POS Repos it is making a market for.
2) Merrill has an International Prime Brokerage Agreement with Regal/Atlantic Absolute whereby Merrill borrows the underlying POS FPO scrip - presumably with the intention of creating a synthetic POS Repo, collateralized by the underlying POS shares it has borrowed from Regal/Atlantic Absolute (for an undisclosed fee).
3) Merrill makes a synthetic Repo product which it markets directly in which it sells/lends Repos (collateralized with the POS shares borrowed from Regal/Atlantic Absolute) to Lumyna who is the Repo purchaser. In Merrill's shoes (as seller) the agreement that governs this is called a Repo Agreement. In Lumyna's shoes (as buyer) the same agreement is known as a Reverse Repo Agreement.
4) Lumyna periodically buys these Reverse Repos from and sells them back to Merrill (the consistent counter-party).
5) Since Merrill appears to be making this synthetic market, it has probably developed a pricing sale/repurchase mechanism that moves around, (presumably) based on the underlying USD-denominated price of underlying POS shares that are physically traded on the Australian markets (ASX & Chi-X), along with some interest rate inputs, which are probably also subject to market movement.
6) The logic is that Lumyna is trading these synthetic Repos with Merrill with the intention of making a bit of coin here and there. All told, the dollar values aren't anything to write home about (i.e. max buy/sell Repo transaction values ranging from ~US$13k to ~US$55k volumes). My spreadsheet that I quickly knocked up to follow to money suggests a total profit for Lumyna on closed-out Repo positions of ~US$18k.
7) It looks like Lumyna only needs to disclose their interest in POS by virtue of holding the underlying shares that form the collateral for the Repo securities, rather than because they directly hold POS FPOs.
8) With the piece of the information puzzle gleaned from the Lumyna disclosures it also helps put into context BAMLs role and why they periodically borrow/return shares (from/to Atlantic Absolute Return).
And breathe...
Z
(20min delay)