Ann: Release of Shares from Voluntary Escrow, page-16

Madamswer am I correct in saying that if MSB were to go to all share holders for a capital raise those that have lent their shares wouldn't be allowed to participate unless MSB announced a x date in which the lender could call the shorter and demand his shares back before the x date? This I think coud be a problem for shorters. Has SI got the joker in his hand?

In theory, yes that is correct.

But it overlooks the innate resourcefulness of the investment banking and stockbroking fraternities, for which financial creativity knows almost no limits, as well as the rat cunning of hedge fund managers who put on these sorts of short-dated event arbitrage trades.

In reality there are a number of ways that the operators involved in this sort of arrangement can circumvent the need to have to physically buy stock on-market in the event of an entitlement offer in order to return the rights to the lender of the stock (that's if the prime brokerage agreement in place expressly provides for it, which is not always the case).

Stock lending agreements sometimes (the ones that I've seen this has been the case in the minority of cases, maybe 10% of them) make no express provision for entitlement rights to be returned to the lender of the stock; and even when the lender has a contractual claim over entitlement rights that might come into existence during the tenure of the stock loan agreement, there are a number of ways around that, including provision in the stock loan agreement for any such entitlement rights to be transferred to the lender at par value. And in some cases, where there is sufficiently liquid trade in the rights they have simply been acquired on-market by the shorter as a means to cover the outstanding short position.


Make no mistake, there are a great number of ways to skin the cat in capital markets, and the offices in the world's financial capitals are filled with multitudes of very smart people who spend 60 hours a week, and more, doing nothing other than thinking up new ways.

So to think that SI has somehow got the "joker in his hand" reflects an element of wishful naivety.

Besides, this kind of stuff should not impact the intrinsic value of a business, so why so many people spend a great deal of their waking days thinking, fretting and speculating about it, is a bit lost on me.
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