Trump Media is making a point of telling its shareholders how to prevent their stock from being loaned to short sellers — who bet the price of the shares will drop.
The short-selling-prevention tips posted Wednesday on Trump Media’s website come as its DJT stock has sharply fallen in price since it began being public trading on March 26 — and as short sellers have taken a keen interest in the owner of the Truth Social app despite relatively high fees to finance such trades.
Trump Media’s share price rose sharply on Wednesday, by more than 15%, its closing price of $26.40 was still a whopping 63% lower than the price it opened at on March 26.
The stock slumped by 20% last week alone, and then plummeted by more than 18% on Monday and another more than 14% on Tuesday.
The share price Wednesday was nearly 46% lower than its closing price on April 1, the same day Trump Media disclosed it had booked a $58 million loss for 2023, with just $4.1 million in revenue for that year.
Former President Donald Trump is by far the biggest shareholder in Trump Media, owning nearly 60% of its shares. And his 78.75 million shares could soon grow by 36 million shares if DJT’s price stays above $17 per share in the coming days due to an earnout provision in the merger deal that took the company public.
But Trump, who is the presumptive Republican presidential nominee, and Trump Media since late March seen billions of dollars in share value evaporate from share price declines.
On Wednesday, following two straight days of sharp price drops, the company included a supplement to its frequently asked questions list on its website, which it detailed in an 8-K filing on Thursday morning with the Securities and Exchange Commission.
The supplement offers detailed instructions to shareholders on: ” How do I prevent my shares from being loaned for a short interest position?”
Short selling is the practice of borrowing shares of a company’s stock, and then quickly selling those shares for a certain amount of money. The short seller then waits, hoping that the share price will drop over some period of time, so that they can then repurchase the same number of shares and give them back to the lender, pocketing the difference between what they first sold the shares for as profit after paying brokers’ fees.
“For long-term shareholders who believe in the Company’s future, the Company is highlighting the following actions you can take with your brokerage firm to prevent the lending of your shares for short selling,” Trump Media said in its supplement to its FAQ Wednesday.
The tips include holding DJT shares in a cash account at a brokerage firm as opposed to a margin account, “opting out of any securities lending program,” moving Trump Media shares to the company’s designated transfer agent, and transferring shares to a bank and “holding them in your retirement account.”
The instructions include a helpful form letter that shareholder can send to their brokers.
The letter says: “Please accept this written instruction to make sure that the following securities are held in my cash account only and accordingly are not available for any stock loan activities.”
“I hereby expressly opt-out of any securities lending programs and instruct you to not loan out any of my shares,” the letter says, before a section that the sender can fill out with their number of shares.
A spokeswoman for Trump Media did not immediately respond to a request for comment on the new instructions regarding preventing short selling.
Short selling is particularly risky because it is markedly different than a “long position” in a stock — in which a person can only lose the amount of money they paid for shares if their price falls to zero.
In contrast, a short position in a stock can in theory see its price rise without stopping, leaving the short seller responsible for paying exponentially more money to buy back the shares to return to the lender.
Trump Media in its update FAQ nodded to that risk in noting that brokerage firms loan shares “to sophisticated and institutional investors” to do short sales. Brokers often insist that customers who do short sales with them are experienced investors, and have sufficient cash or collateral on hand that can insure that if the short trade goes bad they can cover their losses.
Trump Media also pointed out that lending shares to short sellers can earn brokerage firms “an alternative source of revenue.”
“If the price of the stock in fact decreases, then the brokerage firm and the sophisticated and institutional investors will have made a profit, while the ultimate retail investor has not,” Trump Media told its shareholders.”
Only about 5 million shares of DJT have been available to short out of more than 136 million company shares. And much of the 5 million shares were already locked up in short positions earlier this month.
But Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told CNBC in early April, “What I’m hearing on the Street is that if [an amount] of stock becomes available, shorts are taking it down.”
