To note on
@MitchJi conclusion that recalling shares is "illegal", I do not understand what it is based on. Before I started monitoring the shares available to short and the interest using my Fidelity account, I needed to acknowledge the securities lending agreement which as far as I recall included statement that securities can be recalled by FMR for any reason at any time. This contradicts the MitchJi conclusion that it is "illegal" to recall shares for voting.
Corrected below, it was based on what I was told by TD Ameritrade's corporate governance.
Edit: The Following is Exagerated!
I believe that I can officially declare that there won't be a squeeze triggered by shorts being forced to return their shares due to the merger.
Edit: The Following is Correct.
Background it's obvious to me that the major institutions are buying shares so that they can vote without calling in their shares.
Edit: The Following is Incorrect!
That made me think that this might be a legal requirement, so I called TD Ameritrade and asked "if I sell Tesla short, and the owner of the shares wants them returned to vote on the merger, can the shares I sold short be legally recalled?"
The man I talked to checked with me, to be sure he understood my question, then put me on hold while he checked with corporate governance. When he returned to the line he said "that's impossible".
I said "legally impossible"?
He said "yes".
I did some further research and TD Ameritrade's corporate governance representative was incorrect:
Selling Short-Fidelity
Any stock can theoretically be sold short, as long as it can be borrowed. Availability, or how easy it will be for your broker to locate shares, should be an important part of your decision. Not only could it impact the interest rate you may have to pay on your “loan,” shorting hard to borrow stocks increases the likelihood that you will be bought in. In the case of a buy in, you’re forced to cover your short if the lender pulls back the shares that your broker is borrowing, which makes those shares unavailable.
But I still believe that the major institutions are buying shares so that they can vote without calling in their shares. One reason I believe that is Fidelity told
@vgrinshpun that they don't intend to call in shares in order to vote.
If their funds own one million shares and they have loaned out 500k shares they need to obtain 500k shares to vote the one million votes. Their are four options (or combinations of options) available to obtain the 500k shares:
1. They can purchase shares, which they have been doing.
WOW! (Take #2). Price T. Rowe upped their stake in TSLA by 42.6%, or 3,139,231 shares! So just five largest institutional shareowners collectively increased their TSLA position in Q2 by 9.5M shares!
2. They can stop loaning out more shares which they have also been doing. They are buying shares, the short interest is declining
and they have 0 shares available. Why else would that happen?
Fidelity:
Lend TSLA: 8.5%
Short TSLA: 16.5%, 0 shares available to short
Lend SCTY: 29.5%
Short SCTY: 52.0%, 0 shares available to short
3. They could try to do some trading (float?) which obviously would not be sufficient.
4. They could call in shares which would probably not work completely either, because a substantial portion of their clients would not be able to cover.
Background information:
Tesla Motors, Inc. (TSLA) Short Interest
Code:
Settlement Short Avg Daily Days To Cover
Date Interest Share
Volume
7/29/2016 26,963,483 3,240,977 8.319554
7/15/2016 29,325,178 4,179,943 7.015688
6/30/2016 30,951,082 7,170,311 4.316561
6/15/2016 28,641,261 3,897,515 7.348595
The SP easily handled a 3 million share reduction in short interest even with the added pressure of the large institutional accumulations. And I believe it's safe to assume that the major institutions will not be calling in shares to vote. Two things that could have and impact on this is the current when the record date is announced, an the number of days between the announcement and the record date. Unless there are ten million or more shares held by smaller institutions,
and the announcement record date window is two weeks or less I think its safe to assume that any recall to vote impact on the SP will be minor.
OTOH between now and the record date any catalysts could produce a bigger than expected result, possibly even a squeeze, due to the fact that the number of shares available to purchase is very low. But I believe that due to Tesla's expected high OpEx and CapEx plus the unfounded skepticism surrounding the M3 ramp and the SCTY merger reduce the chances of a large surge, and make the chances of a substantial squeeze very unlikely.
After the record date I believe (particularly if the SP is up) that the institutions will sell the shares that were purchased in order to vote, possibly making just before the record date a good time to buy puts.
