Tuesday, January 29, 2019

Forced To Close Off My UMS Positions

In the spirit of being transparent, I thought I should give an update on my positions on UMS. 

Based on the last portfolio update in Jan earlier this month, I have provided an overview on my portfolio that I am holding a rather large short position in UMS of 325,000 shares. 

This was accumulated over time since my earlier position back in Nov 18 when I started to short from 66 cents, all the way down to 59 cents. 

My average price on this position was somewhere around 63 cents I think (before the interests). 

My plan was to continue to hold this short position until somewhere in mid-February when they had to announce their full year results before closing off the positions. 

With the revised 2019 negative guidance from the Wafer Fabrication Equipment (WFE) latest research paper, I was pretty confident holding on to this until I received a call this afternoon from an unexpected caller. 

It was a call from the brokerage I had used to short this position. 

In the call, she mentioned that the company has stopped issuing all borrowed shares to the brokers and that the brokerage is no longer able to continue to take my positions on a large amount. 

I wasn’t exactly quite sure what was happening at that time so I get my friends to check on other brokerage platform that they are using and the results were the same. 

In essence, I was given no choice but to force close the position by end of the day because there were no more stocks to short, or they will force close it on behalf. 

Either way, there were only one option. 

At around 4pm, I had to close all my position at 62 cents, and given the number of weeks I have held this position, I assume the interests are going to add up by quite a bit. 

I wasn’t too happy with the way this was handled, in particular with the short notice given to me and also the fact that I am already inside the position means the brokerage could have honoured and taken the market maker role in it, but I think they wouldn’t as a company. 

I have escalated the matter to see if I can get some sort of compensation in the form of interests or commissions waiver so they’ll get back to me about that. 

I think this is definitely a new learning platform for me because this is something that I definitely wasn’t expecting when I took on the position. 

All these time I was focusing on my margin risk and didn’t expect that an external factor like this can make or break the strategy with a single blow. 

With the covering of the position, it means I suddenly have a large pool of warchest back into my disposal (large by my standard as I don’t usually keep a lot of cash) which I will need to find the right company to allocate over time.

Thanks for reading.

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  1. Recall Risk

    Shares could be recalled by the lender at short notice

    1. Not stated in their FAQ on Recall Risk?

    2. CW,

      Give chance.

      B sharing his "crash got sound" learning from his newbie shorting experience lah!

      Nobody bothers with the fine print until it bites ;)

      I've lent out some of my stocks to my broker under the Securities Borrowing and Lending scheme to earn some extra pocket money.

      Of course I can recall back the stocks I've lent out anytime I want ;)

      The other party on the opposite side cannot be too happy...

      So don't complain about shortists. They got many things against them from the get go ;)

      P.S. Not all brokers are created equal.

    3. Most likely counterparty risk. Their counterparty does not have shares outstanding to lend to you

    4. Yeah it is counterparty risk. If there are no shares to be loaned out, then there's no way one can borrow to short it.

  2. I've used City Index before, and other CFD brokers extensively in the past. Let's just say I'm no longer using CFDs anymore lol!

  3. Hi B,

    Can I enquire whether UMS is a thinly traded security? Brokers running out of securities to short is indeed unusual! It might mean that the share lenders have simultaneously tried to recall their shares, or short interest is so strong they ran out of stocks.

    It will be great if you can shares your findings on your case.

    1. Hi INTJ

      My understanding from my broker is UMS has issued a stop lending issuance of their shares (don't know if this is legal or not) because suddenly liquidity dries up to borrow its shares, when previously this does not happen. I don't know if this is legal or not but definitely an interesting observation. Last I head Noble did the same thing when there are so many short position against them.

  4. Hahaha good lesson learnt. Sux to be you.

  5. blessing in disguised now,brokerage saved you a ton of money :P

    1. Haha must wait till their full year results then can make the conclusion. Daily price changes are not conclusive of what is to come.


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