(Kitco News) - In the mining sector, a colossal $40 billion is said to have been liquidated, primarily due to naked short selling. Terry Lynch CEO of Power Nickel and the face behind Save Canadian Mining, is calling to reform naked short selling. "Save Canadian Mining is not against short selling. What we're against is when you do that and you don't disclose it's a short selling, and you base the market as a long sale... it's now reached epidemic proportions, and it's probably vaporized $40 billion worth of capital." This form of market manipulation, where shares are sold without being owned or borrowed, has cast a long shadow, particularly affecting companies like Pilbara Minerals. Despite its profitability and owning Australia's largest hard rock lithium mine, the miner faced a significant increase in short-selling activity, with the percentage of its shorted shares rising from 1% to 16% within a year. This occurred during a global rush for lithium, driven by the electric vehicle market's demand, highlighting a stark contrast between the company's operational success and market betting behaviors.
Algorithmic Aggression: Ban the Bots
Lynch's concern extends to digital trading, where algorithmic bots engage in short exempt status trading, further destabilizing the market. "We're going to be focusing on a program called Ban the Bots. The bots that are trading under short exempt status, which is absolutely insane," Lynch emphasizes the need for stringent control over these automated systems that exploit regulatory loopholes, misleading investors, and manipulating stock prices. These bots contribute to the rapid and unexplained fluctuations in the market, necessitating a crackdown to ensure fairness and transparency in trading activities.
Regulatory Reform and Market Recovery
The battle against such financial practises is global, and has Lynch advocating for substantial regulatory reform to protect the mining sector, especially the junior miners. He highlighted broader economic implications: "We're going to enable our investors to make money. We're going to enable companies to access capital at fair rates so they can grow and hire people." This vision aligns with international movements for regulatory adjustments, such as South Korea’s ban on short selling, reflecting a widespread call for protective measures that secure the market’s stability and the industry's growth potential.
The Canadian Investment Regulatory Organization (CIRO) has proposed amendments to require traders to demonstrate the availability of stocks for short selling, particularly for "hard to borrow" stocks. The proposed rules, open for public comment until April 12, aim to enhance market transparency and mitigate manipulative trading practices.
To find out more on Terry Lynch’s hope to ban short sellers in junior markets, and for insight into the nickel market, watch the full Kitco News interview above.
Coverage of PDAC 2024 is brought to you by GoldMining Inc., Uranium Energy Corp, Gold Royalty, and the Uranium Royalty Corp.