Proactive Investors - Eric Sprott has called for Canada’s short selling regulations to be changed as alleged illegal short selling is having a widespread negative impact on Canadian-listed junior mining companies.
During a webinar on Friday titled “Defend Your Investments: Black Friday Short Selling Emergency Session,” the Canadian billionaire known for his sizeable investments in the mining sector, said short selling, even when legal, “can create havoc so fast.”
Short selling occurs when a trader borrows shares and sells them on the market, hoping the price will decrease so they can repurchase the shares at a cheaper price.
“The people doing the shorting have way more money than the average guy on the bidding floor of the exchange at the moment, so they can make anything happen,” Sprott said. “I don’t think there’s any doubt there’s a major problem here.”
Sprott said during the webinar that the downtick rule or the “tick test”, which only allows short selling when the most recent trade price is lower than the prior trade price to prevent a downward spiral in a declining market, should be reinstated in Canada. The “tick test” was repealed by the Investment Industry Regulatory Organization of Canada (IIROC) in March 2012.
He also called on the CEOs of junior mining companies to take action on this issue.
“I beg anyone who’s looking at their shares which are sucking, why don’t you wake up and do something about it?” Sprott said.
Power Nickel files complaint against alleged illegal short selling
The webinar was hosted by Terry Lynch, CEO of Canadian junior resource firm Power Nickel and founder of Save Canadian Mining, an organization that aims to unify Canada’s junior mining sector in requesting regulatory changes in Canada’s capital markets.
Power Nickel Inc (TSXV:PNPN) on Friday announced it was filing an official complaint about significant and persistent position imbalances for its stock that it alleges could indicate potential naked short selling and other actions designed to drive down share prices.
The company is working with ShareIntel - Shareholder Intelligence Services, a firm that gathers data on suspicious stock trading activity.
ShareIntel CEO David Wenger said during the webinar that its role is to capture data belonging to the company to identify markers of likely abuse or illegal naked short selling.
It collects the data in a way that rules out temporary or legitimate explanations for imbalances, such as waiting for an opinion of counsel, Wenger said.
“We want to rule those temporary things out so we can circle in on what we believe are the markers of illegal naked short selling,” he said.
“When you hire ShareIntel as a CEO today, you’re going to get a leg up because you’re going to let the Street know that you’ve turned on a security camera and more importantly you’ve hit the record button.”
Power Nickel CEO Terry Lynch said during the webinar that the company has invested about $50,000 so far in its efforts to address the potential illegal short selling activity impacting its shares.
“Not that we have a lot of $50,000s to throw away in junior mining these days, but it’s a doable number,” he said, addressing CEOs viewing the webinar.
“What’s your alternative if you’re dying? If you don’t do anything you’re going to die. Eric Sprott is telling you to wake up. I’m telling you to wake up.”
Retail traders have changed short selling environment
Several of the webinar panel members noted that never before has there been as much attention on short selling from companies, regulators, politicians and the market.
The CEO of BUYINS Thomas Ronk, whose company aims to help companies fight illegal short selling by tracking every short sale from across the 14 United States stock exchanges, said retail investors have changed the short selling environment.
“Retail activism is one major change, with 15 to 20 million retail investors using datasets to focus on companies that they believe have been wrongly shorted to wipe out the shorts,” he said during the webinar.
Ronk also pointed to new legal precedence as another tailwind for companies seeking to fight the potential illegal short selling of their shares.
“I recommend companies have two different strategies that run in parallel,” he said.
“One that’s very public addressing that’s addressing these activist retail investors that are sizeable based on what they’ve done with GameStop Corp (NYSE:NYSE:GME), AMC Entertainment Holdings (NYSE:AMC) and others. These are the biggest entities in the world that we’re going up against so you have to crowdsource. Then in the background have a legal strategy.”