Trump Media & Technology Group told the Nasdaq exchange that its stock, which trades under the ticker DJT after former President Donald Trump's initials, has been the victim of “potential market manipulation” from short-selling activity. It warns that this is a possibility.
The letter, sent Thursday to Nasdaq CEO Adena T. Friedman, suggests that some traders may be involved in so-called “naked” short sales, where investors sell stocks short without first borrowing them. It is argued that it depends on The practice is effectively prohibited in the United States, where regulators require trading firms to ensure that traders have the securities on hand to complete short sales.
The complaint comes as Trump Media's stock price has soared since it went public on the Nasdaq exchange last month. The stock has lost two-thirds of its value since its original peak and has been sliced. worth billions It is independent from its fledgling media business and its main asset is social media service Truth Social.
Trump Media gained 28% this week, regaining some of its lost ground, but some investors complained on Truth Social that short sellers were contributing to the decline.
“As of April 3, 2024, DJT was “by far'' the “most expensive U.S. stock to sell short,'' according to the report, meaning that brokers have a significant financial incentive to lend out stocks that don't exist.'' It means we have,” Trump Media CEO Devin Nunes said. The former Republican congressman from California wrote in a letter to the Nasdaq CEO on April 18th.
Nunes asked Nasdaq to “advise what steps it can take to promote transparency and compliance by ensuring market makers comply with” regulations that prevent naked short selling.
Trump Media stock rose $3.19, or 9.6%, to $36.38 on Friday.
Agencies that regulate naked short selling include the Securities and Exchange Commission and FINRA, the financial industry regulator that oversees broker-dealers. This is because the latter companies are those that execute short sale transactions on behalf of their customers.
In a statement to CBS MoneyWatch, the exchange said Nasdaq is “committed to the principles of liquidity, transparency and integrity in all of our markets.”
“We have long advocated for transparency in short selling and have actively supported the SEC's rules and enforcement efforts aimed at monitoring and prohibiting naked short selling,” it added.
Comparison of short selling and “naked” short selling
Short selling is legal and occurs when a trader borrows shares of a stock that they think will decline in value and immediately sells the stock on the market for cash. If the stock price then declines, the trader buys the stock at a lower price and returns the stock to the trading company from which it was originally borrowed.
The short seller's goal is to buy the stock at a lower price than the stock he borrowed and pocket the difference in value.
But “naked” short selling is illegal in the U.S. when done intentionally, and results in investors selling stocks they don't own because they bypass the step of borrowing stocks by traders. According to law firm Cohn Cohn & Colapinto, naked shorts can not only lead to a significant drop in the target company's stock price, but also erode market confidence.
There is currently not enough stock available to borrow to short sell Trump Media stock, Ihor Dusaniowski, managing director of predictive analytics at S3 Partners, wrote on CBS MoneyWatch. Short selling of the stock has increased this year, he added, but recently there has also been an increase in short covering, where traders buy stocks to cover trades.
Still, he added, it's impossible to determine from public data whether naked short selling is occurring. That's because so-called “delivery failure” data, which tracks when investors who participated in a trading contract failed to make a profit, can be related not only to short sales but also to long positions, he said. pointed out.
