Just as each generation believes they are the first to discover sex, so the spectre of paying margin debt unto eternity on halted shorts must be learned afresh in each market cycle.
From Bloomberg:
Investors who bet against ETFs tracking Russian assets in the build up to the Ukraine invasion made the right call -- and they’ve been paying the price ever since.
Stocks linked to Russia plunged following the outbreak of war and subsequent economic punishment meted out to the country, vindicating bearish wagers. But sanctions also made trading Russian securities almost impossible, leaving short sellers unable to exit their positions.
The result? Investors who shorted -- sold borrowed shares with the intention of buying them back more cheaply before returning them -- are still borrowing, paying the associated fees indefinitely.
The short-selling world is notoriously opaque and dominated by institutions who rarely disclose their bets. But based on available data, technology and analytics firm S3 Partners estimates short sellers of Russia-focused exchange-traded funds have paid around $2.6 million in borrow fees since the products were halted in early March.
“Short sellers are in a position where they’re effectively halted or frozen right now,” said Jacob Rappaport, head of equities at trading house StoneX. “It’s a difficult position to be in when there’s no resolution in sight.”
Of course, all the investors in funds like the VanEck Russia ETF (ticker RSX) and the iShares MSCI Russia ETF (ERUS) are effectively stuck after U.S. exchanges halted trading and issuers ceased creating and redeeming shares because underlying assets had become untradable. But generally, most fees on the vehicles have been waived so holders aren’t bleeding cash.
Short sellers, on the other hand, are usually paying a daily market rate for the shares they borrowed. The average rate for the ETFs has jumped this year to about 16% from 1%, according to S3. And while short interest in the ETFs was decreasing before they stopped trading, over $96 million worth of shares in the funds remain on loan, according to S3.
Ian Bezek, a Colombia-based investor and financial writer, has a $10,800 short position on ERUS. The 33-year-old is now paying an annualized borrow rate hovering at around 60%.
“If the borrow fees were like 5% or 10%, then not a problem. But at 60%, it’s definitely a major aggravation,” he said. “I have no idea of when the situation will change. It’s very frustrating.”....
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