A Demerger Quirk Has Led To A Wild Overstatement Of Shorted News Corp Stock In Australia

Rupert MurdochPhoto: Getty

The short reports from ASIC are worth an occasional browse to see what stocks investors believe are overvalued and possibly due for a bath.

They don’t change all that much from week to week and the big retailers like Myer and DJs are among the fixtures in the most-shorted list.

A stock being aggressively shorted – where there’s a big bet that the share price will fall – might have around 15% of its stock in short positions at any one time.

The latest ASIC reports show 60% of a certain News Corp security are short on the ASX. Specifically, they’re the Class A Non-Voting CDIs that remain on the ASX after Rupert Murdoch’s company was split into News Corporation and 21st Century Fox in June.

It’s extremely weird, and turns out it’s due to some of the process of the split and changes to how the company is traded.

(Disclosure: I worked for News Corp for 10 years.)

As the listing changes proceeded under the split, the number of shorts reported remained roughly the same but the number of shares on the ASX is now a fraction of what it used to be.

There are just over four million of these CDIs – which allow Australian investors to hold an interest in the overseas stock – now on the ASX. In total, News Corp has 578.8 million shares on issue, so we’re dealing with a tiny amount of the stock.

The Aussie shorts were last reported at 2.46 million shares, worth around $46 million at the close yesterday.

In September, before the listing changes were completed, the number of shorts was in the same ballpark but the proportion of News Corp shares this represented was less than 1%. Again, since the listing changes the number of shorts has stayed about the same, but the number of shares on issue is now a tiny fraction of what it was, so there’s a blow-out in the percentage number being published.

While what ASIC’s reporting is strictly correct for the securities on the Australian exchange, the picture changes when you wrap the short interests into the whole of News’s market cap. (Besides, the market actually quite likes the company and the stock has continued to climb since the split.)

A more sensible way of looking at it: take the ASX shorts (2.46 million) plus the NASDAQ shorts (12.5 million), as a proportion of the shares on issue (578.8 million) and you come out with a much more reasonable 2.6% short.

In recent weeks the shorts in Australia have decreased from around 67% to 60%. Although it remains an exceedingly weird number the regulator says the reporting method will remain.

An ASIC spokesman said: “ASIC has reviewed the current procedures and given we are satisfied the figures accurately reflect the net short positions for Australian listed securities, we do not propose to make any changes to reporting system infrastructure.”

So the weird number could be in there for a while yet if the short-sellers hold those positions.

You can look it up here – the code is NWSLV.

News Corp had no comment.

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