Hi kmuirhead,"Why on earth would an index fund commission a...

Hi kmuirhead,

"Why on earth would an index fund commission a third party to do the short selling so the third party could borrow shares and sell these shares to the index fund?"

I think the following logic underlies this:

• An index fund must reflect the inclusion of STX in an index (e.g. ASX 200) in proportionately in a certain time.
• Therefore, the fundmust acquire a correspondingly large quantity of STX shares. The index fundtherefore creates - from its point of view - an “artificial” and large demand.
• If the index fund were to buy the required Strike shares on the market, this would lead to a significant increase in the share price.

• However,an index fund wants to avoid this, as a fall in the share price after coveringits own requirements would have a direct negative impact on the fund value.
  

• Shortselling therefore provides the necessary liquidity: the index fund can coverthe necessary demand immediately - without moving the share price.

That is theanswer to your question...

I expect that we will see an enormously high volume tomorrow in the closing auction andon Friday an ASIC report on an equally high short selling volume.

Let's see...