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Astec Analytics, a division of SunGard Data Systems, provides investors with short selling market color using data from the securities lending market.
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  • Increase in Conn's share price in April due in part to short sellers covering their positions 0 comments
    May 18, 2011 9:24 AM | about stocks: CONN

    Just as the securities lending market provides signals about stocks that short sellers are borrowing in order to sell short, it also provides information on stocks that short sellers are buying back in the market and returning to lenders to cover their short positions.

    As shown in the chart below, the number of shares of Conn's borrowed in the securities lending market decreased from 6.5 million to 5 million in April 2011.  With average trading volume of 200,000 per day, purchasing 1.5 million shares over the course of a month had a noticeable effect on Conn's share price.

    As a confirmation of what we were seeing in the securities lending market, short interest in Conn's declined from 6.2 million at the start of April to 5.2 million at the end of April.

    Another thing to notice in the chart below is that the cost-to-borrow decreased right along with the decline in number of shares borrowed.  This is an indication that the decline in shares borrowed is due to short sellers returning shares of their own accord, versus lenders demanding those shares be returned.  If the latter were the case, the cost-to-borrow would increase as prime brokers would scramble to find substitute shares to continue to cover their short seller clients' positions.  Nevertheless, this latter case could still lead to a short squeeze if brokers were not able to find additional shares and short sellers were forced to buy in the market and break their trade.

    Stocks: CONN
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