As a theoretical, if someone incredibly rich 90% shorted a small companies shares on issue, what would the expected result be?
Ha! Back in the Rene Rivkin and chalkies days, exactly that happened, but it was about 105%, not 90%. It was a small mining company, Fijian Antimony Nickel, and the market became aware of the situation. All hell broke loose.
At one stage during the 1970 Posiedon boom, the price of a Poseidon share reached $280 but a number of investors shorted on Poseidon when the share price rose from $1 to $5 and were thus faced with a potential loss of $275 per share.
By 19th March, 1971 the directors held 51 percent of the shares, Barton had 44. per cent and other small shareholders accounted for 10 per cent, which meant that the efforts of the short sellers had resulted in the shares being sold 105 per cent. To further complicate matters, Barton had reached an agreement with the directors of Antimony Nickel NL that they would not sell any of their holdings without first informing Barton. This meant that the short sellers could only cover their positions by obtaining scrip from either the small shareholders or Barton's group. Eventually the Sydney Stock Exchange stepped in and suspended trading in Antimony Nickel NL shares on the basis that the market was not orderly.
I remember the story well, and the drama surrounding it. Suspension is a shorter's nightmare, because it does not absolve them from delivering their shorted shares. They either have to buy them somewhere or make up the difference.
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