Double agents of the stock market

Double agents of the stock marketep ricardo curras dia y amando sanchez

Having a large investor in the shareholding is not always synonymous with tranquility and confidence for a listed company. On the contrary, it can be a source of instability. Many are ‘double agents’ who earn money whether the stock goes up or when it goes down . Ask the DIA distribution chain, which is listed on the stock exchange with the sword of Damocles that means having 20% ​​of its capital in the hands of bearish investors. It is an unprecedented photo in any company listed on the Spanish stock exchange.

Despite the tumult and closing of shorts caused at the end of July by the Russian Mikhail Fridman, who declared 10% of DIA’s capital, bearish investors continue to dominate the capital of the Spanish company directed by Ricardo Currás, despite having reduced the 24.5% to 20% its percentage declared before the CNMV the first week of August.

The alignment of ‘hedge funds’ with positions against DIA seems endless: Marshall Wace (3.5%), GLG Partners (0.6%), the fund of George Soros SFK UK Management (0.5%); Canada Pension Plan Investment Board (0.67%); Highbridge (0.47%), UBS Asset Management (1.48%); Worldquant (0.5%) Darsana Capital Partners (1.23%), Dalton (0.5%), Delores Holdings , with 3.3% … And up to twenty funds have participated in recent months in the dance of bearish positions that DIA lives.


These investors bet in short on the share of DIA through derivatives or, directly, the sale of shares that they have borrowed previously. Your benefit occurs if the quote falls and you can buy them cheaper before returning them to their owner .

The usual thing is to resort to depositaries or funds that go long term with large amounts of shares in exchange for the payment of a rent. That additional income is added to the dividend payment of the company and the guarantee of recovering the shares within an agreed period, which forces the bearish investor to buy them back on the stock exchange.


What they hide this list of names is the origin of the actions with which these funds have been put down on DIA. According to the documentation sent to the CNMV, it is the institutions themselves with relevant positions in the shareholding and supposedly bullish who are lending their shares to the aforementioned funds. The last to confess this ‘sin’ is Goldman Sachs, the all-powerful Wall Street investment bank. The company broke into DIA with 3.9% of the company, although in a matter of days it dropped to 2.8% and it keeps on loan a part of its titles: 0.3%.

It’s not the only one. Blackrock , the world’s largest fund manager, holds a 6.5% position in the capital of DIA, but 2.5% of this package in loan position. The investment bank Morgan Stanley declares 4.1% of the Spanish company, but 3.1% is food for the bears. Even Norges Bank , the custodian of the Norwegian sovereign fund, has loaned 2% of the 3% it holds in DIA. Together, these four large investors have loaned 8% of the capital of 16% they claim to own.

Why lend to your enemy? In the case of the four large funds mentioned, their shares end up on loan among themselves seeking to maximize their profits in the usual long-short strategies among hedge funds. It is a way to get extra profitability. For example, a fund with shares of DIA will collect its dividends, it will benefit from a potential increase in shares, but meanwhile, if it lends those securities, it will obtain the payment of a ‘rent’ on the part of the bearish investor.

In this strange ‘win-win’ all win … except the small minority shareholders who attend as guests of stone to this swing . On paper, investment funds based in Spain are also foreign to these operations as they can not lend their shares. It is one of the pending claims of the collective investment industry in Spain, which requires a reform to compete on equal terms.

However, these restrictions can be avoided thanks to the large custodian banks of shares such as Goldman Sachs, BNY Mellon or Chase Nominess , which include in their custody contracts the possibility of operating on a loan with these securities. Many of these securities, in fact, belong to the securities accounts of small investors who, without knowing it for sure, have signed a contract with their usual broker that allows it.

Behind this type of situation, however, there are large loopholes in regulation and a larger debate: Should the securities lending be prohibited by the reference shareholders of a company? Their access to the management team, decision-making and even the board of directors of a company allows them to know in advance when things are going to go wrong or for a listed company. Their status as major shareholders puts them in a position of domination and influence on the price. A power that implies a great responsibility. Should Amancio Ortega be able to lend his shares for a season? Or the Del Pino, Villar Mir, Florentino Pérez?

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