Interesting Volume Proposition

While I am sure that the company's management have contingency plans in place to whatever the final recommendations of the Royal Commission on IOOF's business will be, the ultimate outworking on the company's earnings can't be known.

But what is readily observable is the following:

A little over 10% of the company's issued capital is currently loaned out for the purposes of short-selling.
As such, there some 35m shares have been borrowed and shorted.

For context, average daily trade in IFL over the past 12 months has averaged around 1.4m shares per day.

Should those who have sold short at some stage seek to neutralise their positions, for whatever reason, even a very active buying limit of 40% [*] of Average Daily Volume would require in excess of 60 trading days to neutralise the net short position, so the better part of 3 months.

Moreover, the next two months are characterised by significantly lower seasonal volumes, with obvious implications.


Maybe those who are short are of the view that a capital raising by the company will provide the liquidity event for them to close out their stock loan liabilities.  But I think the chances of that happening are close to zero.

So, it's going to be an interesting movie to watch over the next three to five months around the Royal Commission's findings.


[*] And participating in 40% of the trade day-in, day-out for 60 successive days would be no mean feat and, for practical purposes, would be very difficult to achieve without a meaningful impact on the share price.  For context,  10% to 20% of ADV is what institutional brokers are typically mandated to do by their institutional clients when it comes to on-market buying or selling, depending on the stock in question.