According to Trump Media’s CEO, DJT shares are allegedly influenced by illegal practices by short sellers.
- Devin Nunes, CEO of Trump Media & Technology Group, alleged potential market manipulation of DJT shares due to concerns about naked short selling and DJT’s presence on Nasdaq’s Reg SHO threshold list.
- DJT’s stock performance has been volatile, with sharp declines and rebounds, driven by high demand for trading, exorbitant borrowing fees, and a scarcity of shares for shorting.
- The significant increase in failures to deliver (FTDs) surrounding DJT shares has raised concerns and led to the company’s placement on the Reg SHO list. This has prompted scrutiny of its trading performance and potential market manipulation.
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Trump Media’s CEO Draws Attention to Naked Shorting
In a recent letter published by Devin Nunes, CEO of Trump Media & Technology Group DJT 52,51 -0,89 -1,67%, it was alleged that illegal trading practices, such as naked short selling may have influenced the recent high volatility in DJT’s share trading performance.
“April 18, 2024
Adena T. Friedman
Chair and Chief Executive Officer
Nasdaq, Inc.
Via Electronic Mail
Dear Ms. Friedman,
I write to bring your attention to potential market manipulation of the stock of Trump Media & Technology Group Corp. (“TMTG”), which operates the Truth Social platform and has traded on the Nasdaq Stock Market under the ticker “DJT” since March 26, 2024.
As you know, “naked” short selling—selling shares of a stock without first borrowing the shares of stock deemed difficult to locate—is generally illegal pursuant to Securities and Exchange Commission (“SEC”) Regulation SHO. As of April 17, 2024, DJT appears on Nasdaq’s “Reg SHO threshold list,”1 which is indicative of unlawful trading activity. This is particularly troubling given that “naked” short selling often entails sophisticated market participants profiting at the expense of retail investors.
Reports indicate that, as of April 3, 2024, DJT was “by far” “the most expensive U.S. stock to short,” meaning that brokers have a significant financial incentive to lend non-existent shares.2 Data made available to us indicate that just four market participants have been responsible for over 60% of the extraordinary volume of DJT shares traded: Citadel Securities, VIRTU Americas, G1 Execution Services, and Jane Street Capital.
In light of the foregoing, and Nasdaq’s obligation and commitment to protect the interests of retail investors,3 please advise what steps you can take to foster transparency and compliance by ensuring market makers are adhering to Reg SHO, requiring brokers to disclose their “Net Short” positions, and preventing the lending of shares that do not exist.
TMTG looks forward to assisting your efforts.
Sincerely,
Devin Nunes
Chief Executive Officer”
Key Points About DJT’s Trading Performance
The media company founded by Donald Trump, Trump Media & Technology Group’s has experienced significant volatility in its stock price performance since debuting on the stock market following the merger with SPAC.
After reaching $66.2 per share in its IPO on April 26, shares plummeted by 65% in the subsequent two weeks but have since rebounded by 60% from their low of $22.84 per share on April 16.
Due to speculation rather than business fundamentals largely influencing DJT’s share performance, there has been a high demand for stock trading, with many market participants viewing Trump Media as a short-selling target.
This demand for shorting is evident in the cost of borrowing fees associated with DJT. Short sellers are required to pay fees of over 215% to borrow Trump Media shares for shorting. This high percentage is attributed to both the high demand and the scarcity of DJT shares available for borrowing, given that only around 20% of the company’s float is available for trading by the general public.
Another indicator drawing attention to possible illegal trading practices is the significant number of failures to deliver surrounding DJT’s shares. Failures to deliver occur when a trader is unable to deliver the shares they have sold short within the established timeframe.
Failures to deliver have historically originated from various causes, including naked short selling, liquidity problems, market manipulation, and system failures. Since Trump Media’s debut on the stock market, failures to deliver have totaled 740 million, more than double the average for Trump Media shares before the merger. This substantial increase in FTDs over the last few weeks has led to DJT being placed on the Reg SHO list, where regulators tend to scrutinize the stock’s trading performance.
This issue is not new among highly popular stocks among traders and retail investors. So-called “meme stocks” such as AMC Entertainment AMC 5,19 +2,28 +78,35% are perhaps the most notorious cases. Shareholders have claimed that shares in the movie theater chain were constantly manipulated by illegal trading practices such as naked short selling due to the very high number of FTDs and instances of being placed on the Reg SHO list. However, nothing has yet been proven regarding any illegal practices involving the stock.
Other retail-favorite stocks, such as Mullen Automotive (MULN), have also alleged that they have been targeted by naked short selling. Nevertheless, regulatory bodies have not yet provided evidence of this practice.
The Bottom Line
In situations of high trading volume, there may be increased instances of naked short selling, where sellers sell shares they don’t actually own. If these sellers fail to cover their positions by acquiring the shares before the settlement date, it can result in FTDs.
While high trading volume can potentially contribute to an increase in FTD numbers, the volume typically isn’t the direct cause of the failure. Instead, it’s often related to the processes and systems to handle the trading volume. For example, if a brokerage firm or clearinghouse experiences a surge in trading activity that overwhelms its capacity to settle trades promptly, it could lead to delays and ultimately result in FTDs.
In the case of DJT, it is possible that the significant popularity and trading volume surrounding its stock in recent weeks have caused a kind of “overload” in clearinghouses rather than any illegal trading practice harming the stock price.
However, Trump Media has the right to question the regulators responsible due to the rapid increase in failure to deliver, indicating that there has been some unconventional trading activity around the stock recently.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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