top 20 update, page-31

Ciggys...

Scenario 1:

Smyth gets on the phone, tells HSBC he needs about $1.3m...and can do it for tham at 17.5c (7.5m shares).

HSBC say fine...give us 24 hours.

Meanwhile, price is 20c...so they pump it, then generate exit churn...effectively collecting the money needed from the market by selling any shares they have (borrowed if need be from clients)...or perhaps even selling short shares not yet in their account.

But it is not technically short selling now is it?

Definitely not...lol...as has been revealed with many of the recent falls from grace of late such as AFG, CNP, ABS, etc...whilst the stock is not physically in their accounts, they do actually have legal posession, matters not whether it is borrowed or otherwise contractually promised...as such the shares they are selling are in fact their own.

lol...how to short stock without actually shorting stock!

In the end, legal ownership of stock in such cases is really just a timing technicality!

Anyway...they sell and achieve an average of say 22c.

Next day, the cash is transferred to CVI...and HSBC get the replacement stock at 17.5c.

They subsequently distribute the stock back into the accounts they borrrowed it from, or indeed simply replace the stock that was effectively created from thin air when they sold that which was not yet in their accounts...physically speaking of course..

Everyone is happy.


Scenario 2:

Same as above, except this time no pump and dump, just HSBC take on the shares as per their agreement with CVI...and dutifully distribute to their clients.

Some of these clients will sell given the placement was cheeper than current prices...some will not.

Any stock HSBC get stuck with, that was not taken up by cients, simply get sold back into our market.

All the while of course, HSBC are skimming profits...probably a small margin on the stock they hand-ball to their clients...and obviously on any differences between the placements prices and selling prices for stock they let go.

Meanwhile, the stock price is held down for two key reasons...

1. The placement price is attractive to their clients, resulting in high take-up and;

2. A decent margin exists between placement price and true underlying value of each share should the proverbial hit the fan and HSBC get stuck with stock they do not want.

The stink of it all...HSBC probably also charge us a "fee" for the deal...lol...for the priveledge of making money from us.

Margins for error everywhere!

The good news for us of course is the fact each placements has been forced out at what HSBC deem a level that provides a significant margin on the underlying value. On this basis, when the last one goes though...and the incentive to hold it down miraculously ends...we can expect to a period of natural appreciation, to a level the market can decide for once.

Whilst such placement deals are not an attractive look...this is exactly the sort of deal virtually every such placement, to almost every other small cap results in...so best to just get over it.

The good thing for CVI I guess is that they have had access to quick cash when needed, potentially enabling them to match "opportunity" with the appropriate level of commitment when needed.

It will be a bloody good day however when this is all finally over with.

Cheers!